'We are competitive': EU unveils clean-tech incentive plan to match US

The European Commission presented its green industry support plan to improve the business environment for manufacturing and deploying net-zero technology and to better position the EU for competing on the global stage.

The Green Deal Industrial Plan aims to speed investment and financing in clean-tech industries, notably via relaxing state-aid rules, the commission said Feb. 1.

EU member states will be consulted on amendments to the bloc's temporary state aid framework and on revisions to increase the notification thresholds for state aid to relevant businesses.

The commission wants to leverage funds from the €300 billion REPowerEU response to Russia's invasion of Ukraine, InvestEU from the European Investment Bank and the EU's Innovation Fund for emerging technologies.

Such funds are available immediately. Commission President Ursula von der Leyen said Feb. 1 that it is of "utmost importance that countries use that money."

In the longer term, the EU wants to set up a new European Sovereignty Fund to provide a structural solution for investment needs.

'Seize this moment'

The proposals come in light of growing international competition for clean-tech manufacturing.

European lawmakers had raised concerns about the potentially market-distorting effect of the Inflation Reduction Act, or IRA. The U.S. government's $369 billion climate and energy law contains billions of dollars in tax credits for clean energy and low-carbon technologies over the next decade, along with incentives for U.S.-based manufacturing.

Von der Leyen also listed incentive plans in India, Japan, the U.K. and Canada as signals of a global race for clean energy leadership.

European energy developers and supply chain companies had already indicated a shift in relative appeal toward the U.S. market in recent months, lamenting a slow flow of support funding in Europe.

"We want to seize this moment. We know that in the next years, the shape of the net-zero economy ... will be decided," von der Leyen said in a news conference.

Simpler, faster permitting

The new industrial plan will also speed up permitting for clean-tech production sites in Europe via legislation known as the Net-Zero Industry Act. Analysts have said the legislations could see Europe regain leadership from lower-cost manufacturing centers in Asia and elsewhere.

"To grow, our net-zero industries need the right framework. It has to be simpler, it has to be faster, and it has to be more predictable," von der Leyen said.

Many companies had advocated for a response to the IRA in Europe, and in the run-up to its unveiling, von der Leyen had pitched the EU law as a match for the U.S. package, rather than a one-up. The commission president described the bill as "good news."

"We are competitive, we need competition," von der Leyen said, adding that the new law aims to achieve a level playing field globally and within the EU single market.

Yet analysts at think tank E3G said the EU's plan falls short of being a comprehensive industrial strategy. Key sectors such as energy efficiency and insulation do not receive targeted support, and the plan lacks concrete next steps to leverage private finance and fiscal policy, analysts said Feb. 1.

The plan also broadly omits the decarbonization of heavy industry, E3G said.

"Ramping up production of EU homegrown clean tech is great news. But producing more batteries or solar panels is just one side of the equation. Europe must keep its eye on the ball and insist on decarbonizing heavy industries like steel and chemicals," said Michele Rimini, program leader for industry transition and trade at E3G. "The Net-Zero Industry Act is a step in the right direction but falls short of a clean industrial strategy."

State aid rules tweaked to match IRA

The EU wants to tweak state-aid rules to help boost investment in clean technology without the need for commission approval.

Industries like hydrogen, carbon capture and storage, electric vehicles and energy efficiency in buildings are set to benefit from the new rules if member states reach an agreement.

In its proposed amendment to the state-aid framework, the commission also proposed direct support for the production of batteries, solar panels, wind turbines, heat pumps, electrolyzers and carbon capture equipment. For projects in disadvantaged regions of the EU or that involve several states, further aid would become available.

Countries should also be able to match subsidy offers from third countries, according to Margrethe Vestager, executive vice president at the commission in charge of competition policy.

Europe's response to the IRA via the temporary framework is set to last until 2025 and should only address specific problems triggered by the IRA, Vestager said in a separate Feb. 1 news conference. "We should nurture, rather than damage, our relationship with the U.S.," Vestager said.

The caveat on scope is also designed to prevent a subsidy race within the EU single market, with some countries having deeper pockets than others.

"If we compete individually as member states, we will lose as a whole," Vestager said.

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