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The European Commission on Thursday (March 9) relaxed state aid rules for green technologies that help reduce carbon emissions in an effort to protect European industry from subsidies from the US and China.
The Commission, the EU’s executive body, said the new law would apply until the end of 2025 and would allow members “in exceptional cases” to match subsidies from other countries “where there is a high risk of diverting investment from Europe.”
The EU’s new temporary crisis framework for state aid allows national governments to subsidize the “production of strategic equipment” such as solar panels, batteries, heat pumps and electrolyzers, as well as the production of key components and related critical raw materials.
“The framework we adopted today gives Member States the option to grant state aid in a fast, transparent and predictable way,” said Margrethe Vestager, Vice-President of the European Commission’s Competition Policy.
While it does not want to trigger subsidy competition, EU businesses fear being tempted by state aid and reducing and relocating energy costs to Asia and North America.
Last year, Washington passed the Inflationary Reduction Act (IRA), which gives US buyers of electric vehicles a big benefit if they “buy American.”
The announcement comes a day before Commission chief Ursula von der Leyen meets with US President Joe Biden in Washington on Friday to discuss a range of topics, including the transatlantic trade conflict.
Brussels is eyeing a trade deal with the US that would allow the EU to reap some of the benefits of US President Joe Biden’s climate plan.
German carmaker Volkswagen said on Wednesday it would “wait” to see how the European Union responds to the IRA before going ahead with a planned battery plant in Eastern Europe.
The EU hopes that the new measures will support investment in technologies such as batteries, solar panels, wind turbines, heat pumps, carbon capture and storage, as well as the production and recycling of related critical raw materials.
But loosening subsidy rules won’t find unanimous support in EU capitals.
The Commission has worked on how best to protect European trade in response to tensions between member states and fears of a trade war.
Some member states, including France, support the expansion of state aid, but others say it only helps countries with deep pockets and risks disintegrating the single market.
The EU’s competition chief, Margrethe Vesteger, insisted in a statement that the new rules were “proportionate, targeted and temporary”.
Germany and France represent 53 and 24 percent of state aid announced to Brussels from March 2022, when rules were relaxed following the war in Ukraine.
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