Von der Leyen Urges EU to Increase Clean Technology Investment to Compete with US

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. This would be in response to a US climate law that the EU fears unfairly subsidizes American companies.

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

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. This would help to encourage companies to invest in green technologies and create jobs in the green economy.

Her plan would fund the production of clean tech projects with a "Net-Zero Industry Act," similar to the EU's Chips Act last year. This would simplify and fast-track permits, making it easier for companies to get started on these projects. She also touted her plan for a sovereignty fund, which is expected to be announced later this year.

EU leaders are concerned that 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. De Croo said that such a move would put the EU at a competitive disadvantage and could lead to a race to the bottom.

"We can't simply loosen state aid rules, because that would create a situation where the country with the deepest pockets would always win," he said during a panel discussion in Davos.

De Croo last week accused the US of trying to lure green industries across the Atlantic, but shifted his tone this week, praising 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. She proposed measures including heavy domestic subsidies and restricting market access for EU firms.

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

EU officials are growing more and more doubtful that the US will make any significant concessions to its climate law that would benefit European businesses. Some are still holding out hope for changes in March that could make raw materials for batteries eligible for subsidies under the US law, but officials have acknowledged that it will be difficult to offset any changes that 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 considering 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 have already urged the European Commission to exercise caution when changing the EU's temporary crisis framework. These countries - Denmark, Finland, Ireland, the Netherlands, Poland and Sweden - 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.