How much is needed to support the European Clean Tech industry despite US subsidies, and where can the money be found? While the European Commission wants to review state aid rules, it is also paving the way for common funding.
The subject has been changing since the beginning of the year, like mayonnaise we try to make. After the epic energy price battle, Europe is focusing on how love green industries while the United States is straining the system by rolling out its plan to support the economy, the Inflation Reduction Act. “We are looking for a way to help new industries, not dinosaurs, bridge the gap,” summarizes a European source.
Also this weekend, the President of the European Council, Charles Michel, sided with the European Commission to defend the creation of a European Sovereignty Fund. While Alexander De Croo in our columns demanded a “European financing method” to support the industry. The Prime Minister had just made an uncompromising outing in the Anglo-Saxon media about the United States’ “aggressive” policies and the need for Europeans to unite.
A few days ago, the European Commissioner for the Internal Market, Thierry Bretonhad opened the beginning of the 2023 school year with a tour of European capitals to convey a similar message, defend a European “Clean Tech Act” to inject public money into the industries of the future that need it.
The European Commission essentially has two sliders in its hands: facilitating state aid and mobilizing funding.
Faced with the US Inflation Reduction Act (IRA), and its $369 billion in support for green industries (“Clean Tech”), in the form of subsidies and tax exemptions, the Europeans are trying to forge a common response. Since the Commission has no competence in the field of taxation, it essentially has two cursors: facilitating state aid and mobilizing funding.
The limits of state aid
In a letter to the capitals on Friday 13 January, Commission Vice-President Margrethe Vestager stressed the limits of the revision of state aid rules. A temporary state aid framework has already been in place since March 2022, along with other easing measures: in total For example, the Member States have injected EUR 672 billion of national resources into the European economy. The problem is that more than half of this amount was mobilized in one Member State: Germany.
The revision of the rules is being prepared – into a temporary “crisis and transition framework” – but when not all Member States have the same budgetary room for maneuver to allocate state aid, this relaxation threatens to undermine the integrity of the European internal market.
How to find the right balance between facilitating investments in strategic sectors for the transition and preventing undesired effects of government support
How find the right balance between allowing investments in strategic sectors for the green transition more easily versus the IRA; and prevent the undesirable effects of state aid, such as fragmentation of the internal market? The Commission puts the question to the Twenty-Seven, who have until January 25 to answer it.
Which new fund
Broadly speaking, the answer seems simple: by supporting industry at European level. “If we want to go further, that’s the only way to do it without confusing the internal market communitarise, with a European budgetary injection“, notes a European source.
How much should be put into a new fund? The Commission is working on a needs analysis, with the will to do so proposing a dose that prevents a race for subsidies with the Americans. But it is still necessary to define exactly what the “Clean Tech” sector to support covers – and to what extent it already enjoys exceptional support through the European Recovery Plan (NGEU). Or moreover, if this sector is the only one that supports: it is the one on which the American IRA bets, but in his carte blanche Charles Michel defends himself more broadly a new fund to invest in “new and strategically important projects in green energy, digital technologies and defense“, considering the European Investment Bank (EIB) as the backbone of the project – the projects would therefore be selected in the dossier on the basis of their quality.
With what money? The euros will probably come partly from the European budget, but also outside the European budget, we hear. After an unclear round table in December, the Twenty-Seven will meet on February 9 to try and clarify direction. Meanwhile, Paris and Berlin will organize a bilateral council of ministers that, if they agree on a common line, could set the tone.
Biden’s Inflation Reduction Act, a protectionist climate plan
IRA. These three letters are one of the main causes of Europe’s current anguish for its competitiveness and its industrial future. IRA, for “Inflation Reduction Act”, named after the extensive program set up by the Joe Biden administration in the United States. But what are we talking about?
Contrary to what the name might suggest, the IRA isn’t just about fighting inflation. It is mainly one package of climate measures, with strong protectionist overtones. The goal is to enable the United States to reduce greenhouse gas emissions by 50% by 2030 (compared to 2005). This program, which was initially called “Build back better” and is much more ambitious, is the core of Joe Biden’s economic policy. had to be reworked and toned down to pass under Congressional caudine forks. Incidentally, it was stamped “IRA” to better adhere to the news of high inflation, the number one concern of American households. However, economists are mixed about the real impact on rising prices. Anyway, in mid-August the US parliament gave the green light.
In concrete terms, this energy transition plan is accompanied by 430 billion dollars in investments, of which 370 billion is earmarked for the development of green technologies. It provides, among other things, for reforms and subsidies in favor of US-based companies, particularly in the electric vehicle or renewable energy sectors. For example, it provides a subsidy of up to $ 7,500 for the purchase of a new electric car that is produced in the United States, Canada or Mexico. For households, support is also provided for the installation of solar panels or for the energy renovation of a building. Companies will be able to benefit from tax reductions for their investments in electric vehiclesbut also in wind energy, hydrogen (green), carbon storage, solar energy, batteries, etc. The goal is clearly to stimulate (North) American production, to establish supply chains there.
Another, smaller chapter of the plan aims to reduce health care costs, particularly for the elderly. Medicare (public insurance for the elderly) will thus be able to negotiate directly with pharmaceutical companies, which should limit the price of certain treatments.
The Inflation Reduction Act provides for financing this package a corporate income tax of at least 15%, at least for large companies whose profits exceed a billion dollars. A.Nx
The summary
- Calls to create a new European fund to support industry are mounting as the next European summit approaches in early February.
- The relaxation of state aid has shown its limits: governments that have the means water their economies, at the expense of fairness within the internal market.
- But if the idea of creating a new fund gains ground, its outlines remain unclear. Should it be reserved for “Clean Tech”? Managed by the EIB? How much should be mobilized? Europe is full of doubts.
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