{"id":99790,"date":"2023-03-21T14:16:49","date_gmt":"2023-03-21T14:16:49","guid":{"rendered":"https:\/\/chinadialogue.net\/?p=99790"},"modified":"2023-03-21T14:18:04","modified_gmt":"2023-03-21T14:18:04","slug":"the-eu-struggles-to-respond-to-us-green-subsidy-race","status":"publish","type":"post","link":"https:\/\/dialogue.earth\/en\/business\/the-eu-struggles-to-respond-to-us-green-subsidy-race\/","title":{"rendered":"The EU struggles to respond to US green subsidy race"},"content":{"rendered":"\n<p class=\"has-drop-cap\">After the economic crisis caused by Covid-19 and the energy crisis caused by Russia\u2019s invasion of Ukraine, European unity is being tested once again, this time by the US Inflation Reduction Act (IRA).<\/p>\n\n\n\n<p>When President Joe Biden signed the IRA into law in August 2022, European leaders welcomed the move: at last, Washington was ramping its climate ambition and putting significant resources \u2013 no less than US$369 billion \u2013 behind it.<\/p>\n\n\n\n<p>However, there was a degree of caution in their praise. European policymakers are concerned that the strong \u201cbuy American\u201d component of the IRA will deter investment in clean technologies in the EU, and that companies will set up shop or shift investments to the US to take advantage of the IRA\u2019s generous tax credits.<\/p>\n\n\n\n<p>There have been several rounds of diplomatic talks between Brussels and Washington to mitigate the risks that the IRA poses to European businesses.<\/p>\n\n\n\n<p>Concerns grew last November as an increasing number of cleantech players signalled their interest in relocating from Europe to the US. EU leaders adopted a much more assertive rhetoric on the need to respond to the IRA. This included the European Commission\u2019s industrial policy and internal market chief, Thierry Breton, who advocated for the creation of a \u201cEuropean IRA\u201d and a revamp of the bloc\u2019s industrial policy using \u201ccommon [European] debt.\u201d The European sectors at higher risk from the IRA include manufacturing of wind and solar energy components, batteries, electromobility, carbon capture and storage, hydrogen, and sustainable aviation fuels.<\/p>\n\n\n\n<p>In perspective, the amount of public funding made available by the European Green Deal, the EU\u2019s flagship climate policy, is still much larger than the IRA, totalling 1 trillion euros of public and private finance in its Green Deal Investment Plan. But \u201cwhat sets the Inflation Reduction Act apart from any EU investment scheme is that it is predictable, and quick,\u201d Leon de Graaf, a senior consultant at Brussels-based lobby firm #SustainablePublicAffairs, told China Dialogue.<\/p>\n\n\n\n<p>\u201cWith the IRA, you know exactly the moment you apply that you will get the financing as long as you tick all the boxes. It is simple and quick, and so we need simple and quick solutions,\u201d he added.<\/p>\n\n\n\n<p>That is the key question that European lawmakers and EU capitals are trying hard to answer: how to stay competitive in the era of green industrial policy, while ensuring fair competition <em>within<\/em> the EU?<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-why-eu-state-aid-rules-matter\">Why EU state aid rules matter<\/h2>\n\n\n\n<p>Understanding the importance of the 27-nation bloc\u2019s state aid rules requires a trip back 30 years when the EU\u2019s single market was created. The internal market allows for all goods created in any of the 27 EU member states to be exchanged freely across the bloc, and to compete under the same conditions.<\/p>\n\n\n\n<p>EU state aid rules are meant to ensure there is no unfair competition among the bloc\u2019s member states. If a national government were to grant subsidies to a certain sector it would confer an advantage to producers in that country over those in other EU member states.<\/p>\n\n\n\n<p>\u201cWe really need the EU single market, and the effects of a well-functioning single market are as good as state aid,\u201d said the Commission\u2019s competition chief Margrethe Vestager at a webinar on 13 February. \u201cIt is really short-sighted to say, well, let\u2019s just put taxpayers\u2019 money in here. Because if we don\u2019t get the balance right, we would sacrifice the single market.\u201d<\/p>\n\n\n\n<p>Now, Brussels and EU countries are at odds as to whether state aid rules should be loosened to grant quicker financial support to the European manufacturers affected by the Inflation Reduction Act.<\/p>\n\n\n\n<p>France and Germany, as well as other nations, including Italy and Spain, have advocated for more flexible and quicker procedures to grant state aid. Many of these EU nations also happen to be those that have granted the most subsidies. Since March 2022, as a result of the energy price crisis, some \u20ac672 billion of state aid has been granted, with Germany accounting for as much as 53% of it, followed by France at 24%.<\/p>\n\n\n\n<div class=\"wp-block-cd-article-image aligncenter block--article-image block--article-image--article\" itemscope itemtype=\"http:\/\/schema.org\/ImageObject\"><div class=\"block--article-image__column\"><div class=\"block--article-image__image\"><img class=\"lazy\" data-src=\"https:\/\/dialogue.earth\/content\/uploads\/2023\/03\/testing-battery-modules_Alamy_2CGC1C0-scaled.jpg\" data-srcset=\"https:\/\/dialogue.earth\/content\/uploads\/2023\/03\/testing-battery-modules_Alamy_2CGC1C0-768x508.jpg 768w, https:\/\/dialogue.earth\/content\/uploads\/2023\/03\/testing-battery-modules_Alamy_2CGC1C0-1024x677.jpg 1024w, https:\/\/dialogue.earth\/content\/uploads\/2023\/03\/testing-battery-modules_Alamy_2CGC1C0-scaled.jpg 2560w\" data-sizes=\"(max-width: 600px) 768px, (max-width: 1024px) 1024px, 2560px\" alt=\"men working on large batteries \"\/><\/div><div class=\"block--article-image__content\"><div itemprop=\"caption\" class=\"block--article-image__caption\">Technicians at TESVOLT GmbH, Europe\u2019s first battery \u201cgigafactory\u201d based in Saxony-Anhalt, Germany. The company specialises in storage solutions for solar- and wind-powered electricity. (Image: Waltraud Grubitzsch \/ Alamy)<\/div><\/div><\/div><meta itemprop=\"contentUrl\" content=\"https:\/\/dialogue.earth\/content\/uploads\/2023\/03\/testing-battery-modules_Alamy_2CGC1C0-scaled.jpg\"\/><meta itemprop=\"contentSize\" content=\"672 KB\"\/><meta itemprop=\"height\" content=\"1693\"\/><meta itemprop=\"width\" content=\"2560\"\/><meta itemprop=\"author\"\/><meta itemprop=\"representativeOfPage\" content=\"true\"\/><\/div>\n\n\n\n<p>In contrast, the \u201cfrugal\u201d EU nations, Nordic countries, the Netherlands, and several central and eastern EU member states, are wary that relaxing state aid rules would only benefit a few EU member states with deeper pockets, and damage competition within the 27-nation bloc. They argue that state aid rules were already relaxed in response to the economic fall-out resulting from Covid-19 and the energy crises.<\/p>\n\n\n\n<p>At the latest EU summit on 9\u201310 February, EU leaders agreed it was necessary to \u201callow for targeted, temporary and proportionate support to be deployed speedily\u2026 in those sectors that are strategic for the green transition and are adversely impacted by foreign subsidies or high energy prices.\u201d More specific actions on how to respond to the IRA will be discussed at a summit on 23\u201324 March, following a proposal by the European Commission to present a \u201cNet Zero Industry Act\u201d the week before.<\/p>\n\n\n\n<p>The EU Commission also expects to present a legislative proposal this summer to create a European Sovereignty Fund to support the bloc\u2019s net zero industry transition. The details on the expected fund size and how it\u2019s going to be financed have not been revealed.<\/p>\n\n\n\n<p>Still, there are already some fault lines among EU capitals. Most notable is the possibility that the fund could be financed with common European debt, something that nations including Germany and the Netherlands have strongly opposed.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-open-trade\">Open trade<\/h2>\n\n\n\n<p>In other words, the EU is now at odds between safeguarding its internal market and maintaining global competitiveness in cleantech manufacturing.<\/p>\n\n\n\n<p>Cleantech for Europe, a trade association of climate investors and clean tech venture capitalists (VCs) on the continent, said that a global \u201crace to the top\u201d was expected to occur regardless of the Inflation Reduction Act.<\/p>\n\n\n\n<p>\u201cThe global cleantech race is really core to the successful implementation of the Paris Agreement, and it was always going to be how we were going to reach its ambitious goals,\u201d says Suzana Carp, deputy executive director at Cleantech for Europe.<\/p>\n\n\n\n<p>However, China has consistently outweighed the US and the EU when it comes to cleantech investments. The latest Energy Technology Perspectives <a href=\"https:\/\/www.iea.org\/reports\/energy-technology-perspectives-2023\">report<\/a> by the International Energy Agency (IEA) is clear: China accounts for some 85\u201390% of manufacturing capacity expansion plans for solar PV components and offshore wind components by 2030, and over 90% of EV battery components.<\/p>\n\n\n\n<p>Cleantech for Europe said in a <a href=\"https:\/\/www.cleantechforeurope.com\/policy\/bolder-faster-clearer-turning-the-gdip-into-a-cleantech-competitiveness-engine\">report<\/a> that now, China and the US \u2013 as a result of the IRA \u2013 have engaged in an \u201caggressive industrial policy combining subsidies, production incentives and access to finance.\u201d<\/p>\n\n\n\n<p>The global cleantech race puts the EU in another challenge: how to stay competitive globally while continuing to wave the flag of free and open trade.<\/p>\n\n\n\n<p>\u201cThe EU\u2019s response is not just a \u2018European IRA\u2019, from the point of view that it doesn\u2019t just intend to favour European products, but has open trade as one of its key pillars,\u201d an EU official told China Dialogue. \u201cNobody wins from protectionism\u201d.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The European Union is scrambling to respond to the United States\u2019 $369 billion Inflation Reduction Act without sacrificing its \u2018crown jewel\u2019 internal market<\/p>\n","protected":false},"author":3907,"featured_media":99793,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[758],"tags":[585,40027767,597],"hashtags":[],"country":[50040700],"class_list":["post-99790","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","tag-renewables","tag-subsidies","tag-technology","country-united-states-of-america"],"acf":[],"yoast_head":"<!-- This site is optimized with 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