Stockholm (NordSIP) – Since the end of 2022, the European Union has been scrambling to respond to the US Inflation Reduction Act (IRA). The American law is a stimulus package aimed at reducing inflation, but it has become most famous as the channel through which the Biden Administration was able to introduce a significant amount of business-friendly anti-climate change subsidies and tax cuts.
In the latest effort to address concerns that the IRA gives unfair competitive advantage to American companies, EU Commission President Ursula von der Leyen introduced a new plan to stimulate green investments during her special address at the 2023 World Economic Forum’s annual meeting in Davos: the EU’s Green Deal Industrial Plan. To support this plan, the president of the European Commission foresees the adoption of a new Net-Zero Industry Act and a European Sovereignty Fund.
The Green Deal Industrial Plan
Although she recognised the fact that the introduction of the USA’s plan added their US$369 billion in cleantech investments, she also admitted that “it is no secret that certain elements of the design of the Inflation Reduction Act raised a number of concerns in terms of some of the targeted incentives for companies,” von der Leyen said.
“Our aim should be to avoid disruptions in transatlantic trade and investment. We should work towards ensuring that our respective incentive programmes are fair and mutually reinforcing,” she explained.
The European Commission President described the Green Deal Industrial Plan as aiming to “make Europe the home of cleantech and industrial innovation on the road to net zero.” The plan reportedly covers four key pillars: the regulatory environment, financing, skills and trade. Of these four pillar the first and the second seem to be the most important, from a policy point of view. The third is more soft and focused on the creation of a European Year of Skills, while the fourth sets out a green trade policy agenda.
Pillar 1 – The Net-Zero Industry Act
To help make create a regulatory environment that allows the EU to scale up rapidly and to create the conditions to reach net zero, the Europeam Commission will put forward a new Net-Zero Industry Act, modelled after the EU’s Chips Act.
“The new Net-Zero Industry Act will identify clear goals for European clean tech by 2030. The aim will be to focus investment on strategic projects along the entire supply chain. We will especially look at how to simplify and fast-track permitting for new clean-tech production sites,” von der Leyen argues.
“In parallel to this Net-Zero Industry Act, we will reflect on how to make Important Projects of Common European Interest on clean tech faster to process, easier to fund and simpler to access for small businesses and for all Member States. The Net-Zero Industry Act will go hand in hand with the Critical Raw Materials Act,” von der Leyen added while pointing to the EU’s depence on China for 98% of its supply of rare earths, used manufacturing key technologies – like wind power generation, hydrogen storage or batteries,” she says.
The EU leader also sought to leverage the prevailing geopolitical winds to support her multilateral approach. “We will work with our trade partners to cooperate on sourcing, production and processing to overcome the existing monopoly. To do this, we can build a critical raw materials club working with like-minded partners – from the US to Ukraine – to collectively strengthen supply chains and to diversify away from single suppliers. This is pillar one – speed and access through the Net-Zero Industry Act,” von der Leyen adds.
Pillar 2 – Member State Financing & the European Sovereignty Fund
In a thinly veiled reference to both the USA and China, von der Leyen points to financing of EU industry as the second pillar. “The second pillar of the Green Deal Industrial Plan will boost investment and financing of clean-tech production. To keep European industry attractive, there is a need to be competitive with the offers and incentives that are currently available outside the EU,” she says.
To this end, the European Commission will propose to temporarily adapt its state aid rules to speed up and simplify. “Easier calculations, simpler procedures, accelerated approvals. For example, with simple tax-break models. And with targeted aid for production facilities in strategic clean-tech value chains, to counter relocation risks from foreign subsidies,” von der Leyen explains.
However, member-state funding is not enough. “To avoid a fragmenting effect on the Single Market and to support the clean-tech transition across the whole Union, we must also step up EU funding. For the medium term, we will prepare a European Sovereignty Fund as part of the mid-term review of our budget later this year,” she announced. The new fund will boost the resources available for the upstream research, innovation and strategic industrial projects necessary to achieving the net zero goals.
Pillar 4 – Trade Partners and Competitors
Refraining from criticising the USA, the EU leader channelled regional competitive fears towards China. “We see aggressive attempts to attract our industrial capacities away to China or elsewhere. We have a compelling need to make this net-zero transition without creating new dependencies. (…) Where trade is not fair, we must respond more robustly. China has made boosting clean-tech innovation and manufacturing a key priority in its five-year plan. (…) China has been openly encouraging energy-intensive companies in Europe and elsewhere to relocate all or part of their production. They do so with the promise of cheap energy, low labour costs and a more lenient regulatory environment. At the same time, China heavily subsidises its industry and restricts access to its market for EU companies,” von der Leyen argued.
We are working to conclude agreements with Mexico, Chile, New Zealand and Australia; and to make progress with India and Indonesia. And we need to restart a conversation regarding the Mercosur agreement. Because international trade is key to helping our industry cut costs, create jobs and develop new products.”