28th Mar 2023

EU aims to simplify tax credits to counteract US green subsidies

  • EU competition commissioner Margrethe Vestager warned the loosening of state aid rules could result in unfair advantage for some member states (Photo: European Parliament)
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The European Union is set to propose a plan to counteract the US $369bn [€339bn] Inflation Reduction Act on Wednesday (1 February), with looser state-aid rules for tax credits in green investments.

The EU Commission has drafted plans to simplify and speed up companies' access to tax credits in an effort to prevent companies from leaving the EU.

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Large wind and solar developers have criticised the EU funding regime for being too complicated and have pointed out that tax incentives in the US trigger automatically, making them more attractive.

To address this, the commission has built a plan to simplify rules allowing speedier approvals for projects of common European interest. It also suggests setting hard targets for green industrial capacity by 2030, creating a clearer sense of direction.

According to the commission, the industrial sector needs to invest €170bn by 2030 in manufacturing plants to produce solar, wind, batteries, heat pumps, and green hydrogen.

To help businesses get to this figure, the commission wants to propose a temporary crisis and transition framework that would allow for greater aid for more crucial clean technologies and renewable energy, going beyond what the EU's current state-aid rules allow.

Part of the plan is to increase the threshold of the so-called "block exemption", making it easier for governments to subsidise hydrogen production, carbon capture technology, energy efficiency and electrification of transport.

Looming debt debate

The move, however, could raise controversy within the EU as wealthier countries such as Germany could end up outspending fiscally-stretched countries in the south.

Germany and France accounted for just under 80 percent of state aid given since the pandemic when the rules were previously loosened, whereas Italy, Europe's second-biggest industrial producer after Germany, has only allocated four percent.

Competition commissioner Margrethe Vestager in an op-ed co-authored with trade commissioner Valdis Dombrovskis and green deal commissioner Frans Timmermans last week, warned that a "massive surge in subsidies when countries have different financial means will only risk fragmentation."

Spain Italy and France have all called for EU borrowing to help countries with less fiscal space make the same investments in renewables and critical technologies.

Economy commissioner Paolo Gentiloni, who is in Berlin to discuss European competitiveness, has also signalled strong support for new joint debt. Commission president Ursula von der Leyen has said she would propose a European Sovereignty Fund by the middle of this year.

But Dutch negotiators and finance ministers of Finland, the Czech Republic, Denmark, Estonia, Ireland, Austria and Slovakia warned against "permanent or excessive non-targeted subsidies," with the Netherlands especially opposed to new joint debt.

French president Emmanuel Macron, in a last-ditch effort ahead of next week's EU council meeting, is trying to gain support for a robust 'buy European' approach from Dutch prime minister Mark Rutte and is expected to hold a joint press conference on Monday evening.


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