The EU’s new green technology financing plan has raised concerns about an escalating global subsidy race.
The initiative was launched in response to the US Inflation Reduction Act. The law provides $369 billion in subsidies for green technologies, largely through tax credits for “made in America” products.
The stimulus has led to fears that EU companies will be tempted to shift investment and production to the US. Critics argue that the measures amount to protectionism that goes against existing trade agreements.
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In response to the law, the EU this week adopted the Green Deal Industry Plan — a roadmap to make the bloc’s cleantech sector competitive.
The proposals are divided into four pillars: efficient regulation, easier access to finance, improved skills and open trade for resilient supply chains. The European Commission said the plan will protect the internal market from unfair trade in clean technology, while ensuring that subsidies outside the bloc don’t distort competition.
“We have a unique opportunity to lead the way with speed, ambition and determination to secure the EU’s industrial lead in the fast-growing net-zero technology sector,” said Commission President Ursula von der Leyen. “Europe is determined to lead the cleantech revolution.”
The measures have been largely welcomed by German and French politicians, but not everyone is a fan.
“European countries are not equal in state aid.
A particularly divisive proposal is the labolish state aid rules until the end of 2025. Smaller EU member states fear that the move will disproportionately benefit states with deeper pockets.
Their claim has compelling evidence. In 2022, Germany and France accounted for them almost 80% of the State aid granted by the Commission under the emergency grant rules.
“European countries are not equal when it comes to state aid,” acknowledged EU competition chief Margrethe Vestager on Wednesday.
Critics also fear that the EU is accelerating a subsidy race with the US. Milan Elkerbout, a research fellow at the Brussels-based think tank CEPS, warned in November that the union should prioritize transatlantic cooperation.
“There’s also the risk of subsidies being thrown at industries that will inevitably shift production in a low-carbon world anyway.” he said.
Politicians in EU member states have their own reservations. The finance ministers of Estonia, Finland, Austria, Ireland, the Czech Republic, Denmark and Slovakia have warned of embarkation a grant race, Reuters reported that this week. The governments of Finland, Ireland, the Netherlands, Poland, Denmark and Sweden are concerned State aid will fragment the internal market and weaken regional development.
Another source of debate is that the new grants largely come from repurposing existing funding programs, rather than from new investments.
There are also compelling arguments for the EU’s approach. Proponents of the plan say there is a large enough market on both sides of the Atlantic. Both the US and the EU, they note, can benefit from incentives for green technology. Nevertheless, the discord seems to be simmering.
French President Emmanuel Macron warned in December that “super-aggressive” US legislation “could divide the west”. However, the EU’s response threatens to divide the bloc.