EU sets out green industry plan to counter U.S., China subsidies

[February 01, 2023]  By Philip Blenkinsop

BRUSSELS (Reuters) - The European Commission proposed a plan on Wednesday to try to ensure Europe can compete with the United States as a manufacturing hub for electric vehicles and other green products and reduce its dependence on China.

Commission President Ursula von der Leyen announced a loosening of EU state aid rules, a repurposing of existing EU funds, faster approval of green projects and drives to boost skills and to seal trade agreements to secure supplies of critical raw materials.

The plan is partly a response to multi-billion-dollar support programmes of China and the United States, including the latter's Inflation Reduction Act.

"Major economies are rightly stepping up investment in net zero industries," von der Leyen told a news conference. "What we are looking at is that we have a global playing field."

Many EU leaders are concerned that the local content requirements of the $369 billion of green subsidies in the U.S. legislation will encourage companies to relocate, making the United States a leader in green tech at Europe's expense.

The International Energy Agency estimates the global market for mass-produced clean energy will triple to around $650 billion a year by 2030, with related manufacturing jobs more than doubling. The European Union wants a part of the action.

The Commission proposed loosening state aid rules for investments in renewable energy or decarbonising industry, on a temporary basis, until end 2025, while recognising that not all EU countries will be able to offer subsidies to the same extent as France or Germany.

In the short term, von der Leyen said EU members could, for example, draw on about 250 billion euros ($272.3 billion), much of it remaining from the EU's post-pandemic recovery fund.

"We know that in the next years, the shape of the economy, the net-zero economy, and where it is located will be decided. And we want to be an important part of this net-zero industry that we need globally," von der Leyen said.

RESISTANCE

The European Commission is hoping member states will back its plan at a Feb.9-10 summit but it faces a hot debate.

European Commission President Ursula presents a "communication" detailing the EU's "Green Deal Industrial Plan" to ensure the bloc plays a leading role in clean tech production, partly in EU's response to the U.S. Inflation Reduction Act, which will provide $369 billion of subsidies for electric vehicles and other green products, in Brussels, Belgium February 1, 2023. REUTERS/Yves Herman

Some EU members have already expressed opposition to parts of the plan, notably the loosening of state aid rules and the prospect that bigger countries such as France and Germany would be able to outspend others.

There is also clear resistance from certain EU members to previous suggestions that the plan could entail further joint borrowing.

Longer term, the Commission will propose creating a European Sovereignty Fund to invest in emerging technologies.

In the coming months, the Commission will propose a Net-Zero Industry Act that could streamline permitting processes and harmonise standards and a Critical Raw Materials Act to promote local extracting, processing and recycling.

The bloc is heavily reliant on China for rare earths and lithium, which are vital materials for the green transition.

The EU executive also wants to seal more free trade agreements and partnerships to make supply chains more resilient and to open markets for green goods.

Meanwhile, German chip supplier ZF Friedrichshafen and U.S. chipmaker Wolfspeed will announce plans on Wednesday to build an electric vehicle chip plant in the Saarland region, according to three sources close to the matter.

"Amid the concerns that the U.S. wants to divert investments from Europe with its Inflation Reduction Act, we're showing that a U.S. firm wants to invest in Germany," a German government source said.

($1 = 0.9180 euros)

(Additional reporting by Marine Strauss, Kate Abnett, Sudip Kar-Gupta, Charlotte van Campenhout, Bart Meijer; Writing by Philip Blenkinsop and Ingrid Melander. Editing by Jane Merriman)

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