EU Loosens Aid Shackles to Counter US Clean-Tech Subsidies

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(Bloomberg) -- The European Union unveiled measures to relax its state-aid regime and boost the bloc’s clean-tech industry in response to a US climate law that provides generous subsidies.

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Changes to temporary state-aid rules will allow governments to match funds offered by foreign nations under certain restrictions while continuing to allow EU countries to “cushion the impact of the current crisis in Europe,” the European Commission said Thursday.

The new measures allow governments “to give state aid in a fast, clear and predictable way,” EU Antitrust Commissioner Margrethe Vestager said in the statement. They “enable member states to accelerate net zero investments at this critical moment, while protecting the level playing field in the single market and cohesion objectives. The new rules are proportionate, targeted and temporary.”

EU leaders are under pressure to keep European industries competitive as the bloc tries to catch up with the US and China, which offer significant subsidies to domestic green technologies. But the state aid regime, which is one of the bloc’s more flexible tools, historically benefits bigger, less-indebted economies.

The aim is to provide simplified mechanisms to channel support into key sectors, particularly when new investments by companies are at risk of moving outside the bloc.

New measures included in the plan, that will be valid until the end of 2025, will help boost the manufacturing of strategic equipment, such as batteries, solar panels, wind turbines, heat-pumps and storage for the production of key components and for production and recycling of related critical raw materials, the EU said.

EU nations will “in exceptional cases” be allowed to “provide higher support to individual companies, where there is a real risk of investments being diverted away from Europe,” the commission said.

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This would either be matching aid to give support equivalent to what a company could get for an equivalent investment in an alternative location, or it would be the amount needed to encourage the company to locate the investment in Europe, the commission said, adding there would be safeguards.

These include preventing subsidies being used to lure companies from one EU state to another and also to ensure that poorer parts of the EU can get easier access to funds.

The broader use of matching funds is a direct response to the US Inflation Reduction Act, which includes roughly $500 billion in new spending and tax breaks over a decade to benefit US companies.

But some officials, including Vestager, have cautioned that too much national support for companies could disadvantage smaller and poorer countries with less fiscal capacity. Since the rules were relaxed following Russia’s invasion of Ukraine, Germany and France have accounted for more than 70% of state-aid measures that were flagged to the EU’s executive arm.

The plan is a key element in broader Green Deal Industrial Plan put forward by European Commission President Ursula von der Leyen that includes simplifying regulations and speeding up permits for new projects.

(Updates with details of proposals throughout)

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