Leaked EU Plan Reveals Counter to US Green Subsidies

The European Union Commission will loosen state aid rules and propose a new “European sovereignty fund” later this year. It comes in response to the controversial U.S. Inflation Reduction Act, as well as China’s “unfair” green subsidies.

The leaked European Commission plan underscores the global green subsidy race is underway, although European Union member states remain divided on how best to respond.

A draft communication laid out measures the European Commission is set to propose on February 1 in reaction to the Inflation Reduction Act (IRA). It would come ahead of a meeting set for next week in Brussels for EU leaders to discuss the bloc’s response to the IRA. 

The leaked document provides new details on the commission’s plans to loosen the EU’s state aid regime, strict rules that limit government subsidies for the industry. 

Since Russia invaded Ukraine a year ago, the commission has twice relaxed state aid rules to help governments struggling to protect companies from soaring energy costs and a weakening economy. The commission wants to extend these flexibilities to help the EU manage the green transition.

What is significant in the new draft is that EU nations will be able to offer companies in Europe financial help that is equivalent to that being offered by another foreign nation. 

This is a direct response to fears that the U.S. is actively luring European companies to leave Europe and make their clean tech products across the Atlantic in the U.S.

The $369 billion Inflation Reduction Act by President Joe Biden aims to subsidize a vast expansion of green technology, from renewable power to electric cars. 

But leaders in the European Union say that the IRA discriminates against companies exporting to the U.S., rather than are set up there. They fear it will lure companies away from Europe to the U.S., bringing with them jobs, factories, incomes, and economic boosts. 

The EU says that companies going to the U.S. from Europe will cost the continent jobs, shuttering factories in the crucial green tech sector. 

European anger has been most visible against the U.S. However, the plan also responds to China, which the EU accuses of using “unfair” and “market distort[ing]” subsidies to advance in the race to produce clean technologies.

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