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4th Feb 2023

EU calls for new joint debt tool to compete with US clean-tech

  • Ursula von der Leyen: 'A global green tech race has started", she told MEPs in Strasbourg (Photo: EC - Audiovisual Service)
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EU Commission president Ursula von der Leyen said Europe must "beef up" investments in green energy and technology if it wants to compete with China and the US in the race to net zero.

"A global green tech race has started," she told MEPs in Strasbourg on Wednesday (14 December.) "This is what we want. Only when advanced economies compete for net zero will we reach our common goal. But this new competition also calls for a rethink on how we support our industries."

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In a letter sent to the member states, ahead of the final EU summit of the year on Thursday, she outlined a strategy she has been developing at least since her State of the Union address in September.

The plan would see the EU's state aid rules relaxed and is centred around a new public investment fund, supported by European borrowing, which she suggested should be presented next summer.

Permitting laxer state aid rules will allow EU member states to increase direct public investment in green technology in the face of more aggressive US and Chinese spending.

This can already be done at the start of 2023, von der Leyen said.

In the short term RepowerEU — the EU's €300bn clean energy push, which was adopted by parliament and member states on Tuesday—can be used to help poorer member states increase their investments.

But to ensure fair competition within Europe longer term, and prevent wealthier countries from out-competing economically weaker member states, a new 'sovereign investment fund' is needed to help all member states ramp up investments.

"It is clear that not every member state has the fiscal space for state aid, and we need complementary European financing . . . to all move together in the same direction," she wrote in her letter.

Some EU leaders have already voiced support for new joint borrowing, but especially Germany and the Netherlands have so far been strongly opposed.

Although details of the fund are not yet clear, in September von der Leyen invoked the €800bn pandemic recovery fund as a model which could be repeated to deal with the energy crisis — a logic which is now extended to foreign competition.

Dispute with Washington

It is the latest development in an ongoing dispute with Washington over the Inflation Reduction Act (IRA), a massive package of protective subsidies and tax breaks for US clean technology, which EU leaders have come to see as a direct assault on European green industry.

Negotiations with Washington to exempt EU businesses from certain discriminating tax rules are still ongoing.

"We already have a war. The last thing we need is a trade war on top," said executive vice-president and commissioner for competition Margrethe Verstager, who recently met with her US counterpart, secretary of state Anthony Blinken.

In an effort to seek common ground, von der Leyen said the EU "shares" US worries about Chinese control of critical materials needed for clean tech.

In the face of this, she suggested the US and the EU could create a 'raw materials club' to prevent unwanted competition between the Atlantic allies.

EU leaders are set to debate the European response to US competition on Thursday.

Hawkish ECB rate-rise 'puts energy transition at risk'

The European Central Bank raised interest rates by another 0.5 percent to a 14-year high, and expects to hike rates by another half percent in March. But what does that mean for the green transition?

Opinion

More money, more problems in EU answer to US green subsidies

Industrial energy-intense sectors, outside Germany and France, will not move to the US. They will go bust, as they cannot compete in a fragmented single market. So to save industry in two member states, we will kill the rest?

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