Von der Leyen Says EU Must Boost Clean Tech Funds to Counter US

(Bloomberg) -- The head of the European Union’s executive arm said the bloc should pass a new law to fast-track investments in clean tech and boost funding for the energy transition in response to a US climate law it fears unfairly subsidizes American companies.

Most Read from Bloomberg

“To keep European industry attractive, there is a need to be competitive with offers and incentives that are currently available outside the European Union,” Ursula von der Leyen, of the European Commission, said in a speech at the World Economic Forum in Davos on Tuesday. “To avoid fragmenting of the single market and to support the clean tech transition across the whole union, we must also step up EU funding.”

She said that as part of a new Green Deal Industrial Plan, the bloc should temporarily adapt its state aid rules to make them faster and simpler from calculations to approvals, adding that tax-break models are an option.

Her plan opens the door to funding the production of specific clean tech projects with a “Net-Zero Industry Act,” similar to the EU’s Chips Act last year, as well as simplifying and fast-tracking permits. She also touted her plan for a sovereignty fund, which is not expected until later this year.

EU leaders are concerned the US Inflation Reduction Act, which includes incentives for renewable energy companies, discriminates against European firms and could lure investment to the US. They will meet in Brussels next month to discuss a response, with some pushing for a “Made in Europe” approach to help bolster domestic companies.

But Belgian Prime Minister Alexander De Croo warned Tuesday against loosening the EU’s state aid rules in response to the US climate law.

“The answer can never be that we are going to loosen the state aid rules because then it becomes a race of who has the deepest pockets, and by definition Germany has deeper pockets than Belgium,” he said during a panel discussion in Davos.

De Croo, who last week accused the US of trying to lure green industries across the Atlantic, shifted his tone and praised Washington for putting significant funding behind the clean energy transition. “Welcome to the club,” he said.

Von der Leyen also called for a more robust response to Chinese efforts on boosting clean tech innovation and manufacturing, and measures including heavy domestic subsidies and restricting market access for EU firms.

“We still need to work and trade with China, especially when it comes to this transition,” von der Leyen noted, saying that “we need to refocus our approach on de-risking rather than decoupling.” She added: “We will not hesitate to open investigations if we consider that our procurement, or other markets, are being distorted by such subsidies.”

EU officials have become increasingly skeptical about the US offering any major concessions over its climate law to benefit European companies. Some still hope for changes in March that could allow raw materials for batteries to qualify under the US law, but officials have acknowledged that the amount of subsidies will be difficult to counter whatever changes are made.

European capitals and commissioners are debating the EU’s domestic response. Internal Market Commissioner Thierry Breton has been campaigning in European capitals to increase the amount of state aid allowed to help companies with their operating costs and to invest in the production of clean tech industries. He is also pushing a European sovereignty fund that would allow the bloc to put money into crucial sectors when needed.

The EU’s competition chief Margrethe Vestager has cautioned that too much state aid could disadvantage smaller and poorer countries. Germany and France, the EU’s two largest economies, have benefited the most after the commission eased existing rules to help companies grapple with high energy costs.

Vestager is looking at loosening state aid rules to provide money specifically to prevent companies from relocating outside the EU and allow countries to issue more funds without the commission’s approval, according to a letter sent to finance ministers Friday seen by Bloomberg.

Six countries — Denmark, Finland, Ireland, the Netherlands, Poland and Sweden — have already urged the commission to exercise great caution when changing the EU’s temporary crisis framework. They have warned about the risk of fragmentation of the internal market, harmful subsidy races and weaker regional development.

Even though President Joe Biden said last month that he saw room for tweaks to the US law “to make it easier for European countries to participate,” the US has so far only offered tax credits for commercial electric vehicles, which EU officials view as insufficient. Talks with the US on finding amicable solutions are ongoing through a dedicated task force and officials are keen to avoid a tit-for-tat trade conflict and subsidy race.

--With assistance from Lyubov Pronina.

(Updates with Belgian prime minister starting in sixth paragraph)

Most Read from Bloomberg Businessweek

©2023 Bloomberg L.P.