Von der Leyen calls for subsidy boost to make EU ‘home of clean tech’

Ursula von der Leyen on Tuesday presented a new Green Deal Industrial Plan as a way to fight the US Inflation Reduction Act.

The European Commission President made her pitch at the World Economic Forum in Davos.

The proposal comes as negotiations with the US seem stalled despite European efforts to get an exemption like the one granted to Canada and Mexico. Talks between the two sides were scheduled to continue this evening with a meeting between Executive Vice-President Dombrovskis and US Trade Representative Katherine Tai. 

Von der Leyen’s aim is to “avoid disruptions in transatlantic trade and investment”, she said. This is why she demanded specific solutions for the US, “so that EU companies and EU-made electric cars can also benefit from the IRA”. 

The US plan is valued at $369 billion and is to be dolled out over the next decade. 

“At the heart of the joint vision is our conviction that competition and trade is the key to speeding up clean tech and climate neutrality. And that means that we Europeans also need to get better at nurturing our own clean-tech industry,” von der Leyen said.

A four-pillar plan

Von der Leyen’s plans aim to ensure the EU can compete with the United States at an industrial level and are based on four pillars. 

“We have a plan, a Green Deal Industrial Plan. Our plan to make Europe the home of clean tech and industrial innovation on the road to net zero,” the Commission chief told people gathered in the Swiss resort.

The pandemic, the long supply chain issues, and the inflation have had a hard effect on European industry. To avoid greater damage, the EU Commission will propose a Net-Zero Industry Act. 

Its goal will be to simplify permitting for new clean-tech production sites.

The US plan has raised fears of European companies moving to the other side of the Atlantic or even relocating all the way to China due to what von der Leyen considers “aggressive attempts to attract our industrial capacities away”.

To compete with it, the new proposal will make the interest in clean tech “faster to process, easier to fund and simpler to access for small businesses and for all Member States.”

As the EU is fighting to leave behind its dependency on Russian gas, von der Leyen believes that the EU has a “compelling need to make this net-zero transition without creating new dependencies” or to deepen the existing ones. 

This is why the Commission wants to create a “critical raw materials club” and break the dependency on China.

“For rare earths, which are vital for manufacturing key technologies – like wind power generation, hydrogen storage or batteries –, Europe is today 98% dependent on one country – China.”

The proposal also comes with a temporary change in state aid rules. “Easier calculations, simpler procedures, accelerated approvals. For example, with simple tax-break models. And with targeted aid for production facilities in strategic clean-tech value chains, to counter relocation risks from foreign subsidies,” she said. 

But von der Leyen is aware of the risks of debilitating the Single Market as some EU countries have bigger fiscal space. To avoid a “fragmenting effect” the European executive is preparing a “European Sovereignty Fund as part of the mid-term review of our budget later this year”.

The EU proposal will also focus on the skills required by workers in line with 2023 being the European Year of Skills and promote trade agreements worldwide.

“We are working to conclude (trade) agreements with Mexico, Chile, New Zealand and Australia; and to make progress with India and Indonesia,” the Commission president added. 

A risk for the Single Market?

Von der Leyen’s proposal to create a new common fund potentially financed through common debt comes as the European Commission confirmed what was already an open secret: Germany and France are responsible for 77% of the state aid approved by the EU’s executive since the beginning of the Russian war on Ukraine.

With less money, and thus less capacity to help their own industries, the other EU countries hope that the European Commission is working to solve the situation.

An obvious solution would be the creation of a new recovery fund. Six countries — Denmark, Finland, Ireland, the Netherlands, Poland and Sweden — are urging the Commission to exercise great caution with the relaxation of state aid rules over fears it could lead to a so-called “subsidy race” and the fragmentation of internal market.

“Just state aid can’t help all the countries, but only some of them, like for example Germany or France that have more space, more possibilities. So what we think it’s necessary now (and it’s necessary now, not too late), is a new Recovery Fund,” Five Stars Movement MEP Tiziana Beghin told Euronews.