EU eyes easing curbs on state aid for clean tech in reply to US
The European Union is considering easing restrictions on state aid for clean tech products, as the bloc seeks to support companies and counter a US climate law.
A plan pushed by Internal Market Commissioner Thierry Breton would open the door to aid for products like solar panels and batteries, similar to how the EU allowed subsidies for the production of semiconductors last year, according to people familiar with the matter. This idea, called a “Clean Tech Act,” could also include changes to permitting rules.
In the more immediate term, Breton wants to adjust state aid rules to help various industries grapple with energy costs and counter US subsidies. The proposals also aim to support companies manage high energy prices.
Breton has been on a campaign to various European capitals to bring prime ministers on board with his vision of a plan that would rival the US Inflation Reduction Act. European officials argue the US legislation discriminates against European companies and could lure investment to the US.
EU officials have become increasingly skeptical about the US offering any major concessions to the IRA to benefit European companies. Some still hope for changes in March that could allow raw materials for batteries to qualify under the US law, but officials have acknowledged that the amount of subsidies will be difficult to counter whatever changes are made to the IRA.
The European Commission, the EU’s executive arm, is under pressure to present an analysis of which industries in Europe could warrant more subsidies at a meeting of the bloc’s leaders in Brussels on Feb. 9-10, with a more concrete plan to come in March.
Breton’s vision – which would require changes to state aid rules and raising EU funds – is expected to be controversial among capitals and with colleagues in the commission. Many fear new subsidies will merely benefit France and Germany and lead to a subsidy race to the bottom with the US.
One of the most controversial debates will be how to raise money to ensure the entire bloc benefits from clean tech investments.
Commission President Ursula von der Leyen’s team has indicated support for making state aid rules more flexible and looking into ways of providing more EU funds, according to people familiar with the matter. However, von der Leyen has been less willing to implement trade defense instruments to protect green field investments and new industries – an idea backed by various EU countries.
State Aid Backing
Countries like France and possibly Germany are willing to raise EU funds. Some countries have backed the idea that state aid, permitting and procurement procedures need to be simpler, faster and more flexible to support the production of batteries, solar cells, hydrogen, wind turbines, EU officials said.
Sweden, which holds the rotating presidency of the EU, is poised to be critical of any plan that would include new money. A Swedish government official wanted a pragmatic approach that could include permanent changes to state aid but not as far as Breton might want.
The official backed more subsidies for specific industries like batteries and critical materials. Funds to support member states come from existing EU money, including the recovery fund, margins of the EU’s budget or cohesion funds, or through European Investment Bank.
Breton first wants to cover companies’ operating expenses to help deal with a massive spike in energy costs that followed Russia’s invasion of Ukraine.
This money — which would help a variety of industries from chemical companies to semiconductors — would require a change to the existing temporary framework to support companies faced with record-high energy prices, and could be further supported by a program similar to the EU’s SURE program, that provides money to mitigate unemployment risks, and EIB loans.
France wants a SURE-like instrument also to support companies as part of a short-term response to IRA, according to a paper seen by Bloomberg. This would imply joint borrowing to raise the funds in the markets.
After Russia’s invasion of Ukraine, the EU created a temporary framework to support companies faced with record-high energy prices. The commission approved €525 billion worth of state aid by the end of November.
EU officials have raised concerns that most of these subsidies benefited the union’s two largest economies. Since then, energy prices have leveled out to pre-war levels.
The sovereignty fund, envisioned as money on-hand to help industries crucial to Europe’s sovereignty, would come later in the year as part of a larger review of the EU’s seven year budget.
©2023 Bloomberg L.P.