EU Bucks U.S. Clean-Tech Tax Plan

"The European Union plans to push back against the clean-tech tax breaks in the U.S. Inflation Reduction Act by easing its subsidy rules and creating a new pot of money to help member states with limited fiscal firepower compete.

Officials in Europe worry that "Buy American" provisions attached to the U.S. subsidies will lure European companies away from the EU and harm the continent's clean-tech and manufacturing industries.

Although the U.S. said last month it would adjust its rules to allow some vehicles assembled overseas to qualify for the new incentives, those changes haven't been enough to allay European fears.

"It is no secret that certain elements of the design of the Inflation Reduction Act raised a number of concerns in terms of some of the targeted incentives for companies," European Commission President Ursula von der Leyen said at the World Economic Forum on Tuesday.

Ms. von der Leyen, who leads the EU's executive arm, said the bloc intended to develop an industrial plan focused on improving Europe's regulatory environment and providing more money for the production of clean technology. The plan also would aim to boost workers' skills and bolster trade with other countries, she said.

"We have a small window to invest in clean energy and innovation and clean tech before the fossil-fuel economy becomes obsolete," she said.

She said the plan also would seek to counter subsidies from China, which dominates the global market for solar panels and the rare-earth elements needed to manufacture many clean-energy technologies.

Ms. von der Leyen's comments came as executives of major energy companies and energy-intensive industries such as fertilizer said they are pushing leaders of the bloc and individual European countries to focus more on offering the kinds of long-term incentives that are baked into the U.S. legislation. They said the Inflation Reduction Act will siphon renewable-energy spending from Europe, and with that, manufacturing investments, unless Europe responds with its own support.

"Instead of fighting the IRA, I encourage the EU to take inspiration from it," said Mads Nipper, chief executive officer of Danish multinational energy company Orsted A/S, the world's biggest developer of offshore wind farms, in an interview on the sidelines of the Davos forum.

In a letter to finance ministers from the bloc's 27 member countries last week, EU competition chief Margrethe Vestager said she wanted to make it easier and faster for European governments to win approval from the EU to provide subsidies for renewable-energy projects and other clean technologies.

Ms. Vestager said the commission was also looking at setting aside money to ensure all countries -- including smaller and less-rich ones -- have the means to provide clean-tech subsidies. She said the changes should be temporary.

The EU's subsidy rules are intended to ensure fairness across the bloc, so that wealthier countries including Germany aren't significantly outspending their heavily indebted neighbors. The EU has loosened some subsidy rules in recent years in response to the Covid-19 pandemic and Russia's military operation in Ukraine.

European leaders are expected to discuss the EU's response to the U.S. subsidies during a gathering early next month in Brussels.

Some countries have pushed back against the idea of further easing state subsidy rules. A document prepared last month by Denmark, Finland, Ireland, the Netherlands, Poland and Sweden urged the commission to consider whether other tools could help promote the EU's competitiveness with fewer risks.

State aid for "mass production and commercial activities can lead to significant negative effects," they wrote, such as subsidy races or fragmentation of the bloc's internal market.” [1]

 

It seems that the words of the American finance minister Mrs. Yellen about friend-shoring did not put EU officials to sleep. Strange. We need more speeches like this.

 

1.  World News: EU Bucks U.S. Clean-Tech Tax Plan
Kim Mackrael; Strasburg, Jenny.  Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 18 Jan 2023: A.7.