EU releases a package of green subsidies

In spat over green subsidies: EU releases significant package to level the game with US

In an effort to compete on an equal footing with the US, the European Commission this week revealed its “Green Deal Industrial Plan.” Green Deal Industrial Plan aims to speed up the development of renewable energy and green technologies by relaxing state aid restrictions to enable bigger green subsidies.

The Commission plans to upgrade the EU’s regulatory framework for quick deployment as part of a “Net-Zero Industry Act,” guaranteeing fast-track and simplified green project permitting, encouraging European strategic projects, and creating standards to support the scale-up of technologies across the EU.

Green subsidies to prevent green tech exodus

A Critical Raw Materials Act will be added to this to ensure the availability of raw materials including rare earths, which are essential for various renewable technologies like wind turbines and electric vehicles.

In order to prevent an exodus of green industries to other parts of the world, such as the US, which is assisting manufacturing with generous tax breaks through its Inflation Reduction Act, the Commission wants to accelerate investment and financing for clean tech production in Europe as a crucial second pillar of the plan (IRA).

Ursula von der Leyen, president of the European Commission, emphasized that although the EU supports the IRA in theory because it is essential to the fight against climate change, EU must also ensure that there are level playing fields in both the global marketplace and the single market.

EU will support the green transition

The Commission intends to make it simpler for member states to grant aid and will consult them on what it calls a “Temporary State aid Crisis and Transition Framework” in addition to updating state aid exemption regulations in order to unlock the enormous amounts of private financing required for the green transition.

Von der Leyen suggested that the new guidelines will be in effect until the end of 2025 and emphasized that they should be specific and time-bound.

The Commission will ask EU member states to change state aid regulations so that investments in less developed technologies, like renewable hydrogen, can receive assistance without going through a competitive bidding process as long as certain safeguards are in place. Additionally, as encouragement for investments that significantly reduce emissions, there will be higher aid ceilings and more straightforward aid calculations.

Supporting strategic equipment lead to net-zero emissions

Supporting investments in the creation of strategic equipment required for the net-zero transition would be another aspect. The Commission is recommending that member states can provide financial assistance for the manufacturing of batteries, solar panels, wind turbines, heat pumps, electrolyzers, and carbon capture and storage systems (CCS).

In order to provide incentives to create in Europe or maintain previously existing companies there, Von der Leyen still hopes to establish a new “European sovereignty fund” by the summer. The fund attempts to prevent financially robust nations like Germany from leveraging their big coffers to support significant investments in vital industries that less stable nations, primarily in southern Europe, cannot match.

There is also uncertainty about stocking of the fund because Germany and other northern European nations detest the idea of incurring further shared EU debt to do so.