European Union (EU) leaders have agreed to allow “targeted, temporary, and proportionate” support to ensure Europe’s future as a manufacturing hub for green tech products and to counter competition from the US and China, as reported by Reuters on February 10. Specifically, the European Commission has proposed loosening rules on state aid for investments in renewable energy, decarbonizing industry, hydrogen, or zero-emission vehicles, due to concerns that the US Inflation Reduction Act (IRA) would lure green investments away from Europe. The formal proposals will be presented to the European Council in late March.
US President Joe Biden signed the IRA in August 2022, which authorized a USD369bn investment in energy security and initiatives mitigating climate change over the next decade. In response, the EU asked its member states for opinions on proposals to ease state aid rules on January 13. On February 1, the European Commission also released the Green Deal Industrial Plan. The plan proposed A Net-Zero Industry Act (NZIA) aimed to simplify the regulatory framework to boost production, A Critical Raw Materials Act (CRMA) to ensure sufficient access to key materials like rare earth, and A temporary Crisis and Transition Framework (TCTF) State Aid framework to facilitate funding for renewable technologies. However, some member states, such as Netherlands, Ireland, and the Czechs expressed concerns that looser state aid rules might cause a subsidy race, which they will lose to the richest economies like Germany and France.