It is now abundantly clear: the global green subsidy race is in full swing. After the United States, the European Union is also explicitly involved in the battle to get companies in ‘clean technology’ to its territory. It means that the green money tap will also be opened in European countries – to the inconvenience of the Netherlands, and with uncertain consequences for the internal market.
With her ‘Green Deal Industrial Plan’, presented on Wednesday, President of the European Commission Ursula von der Leyen wants to relax European state aid rules, redistribute existing EU funds and simplify permit applications for green technology. In addition, she announced – not for the first time – a new ‘sovereignty fund’, the financing of which remains unclear.
Von der Leyen spoke on Wednesday of the “decisive years” that determine “what the net-zero economy will look like and where it will be located”. And, she added: “We want to be an important part of this net-zero industry.”
Also listen: Why tensions are rising between the EU and the US
Her plan is therefore a clear response to the green stimulus package that was adopted in the United States last summer. With this so-called ‘Inflation Reduction Act’, President Joe Biden will allocate 369 billion euros in the coming years to stimulate green industry through tax breaks and subsidies. For example, in the production of electric cars, batteries or hydrogen – provided that this takes place on American soil.
The American plan has led to great unrest among European companies, who fear being outcompeted. And with European politicians, who see an exodus towards the US coming. According to some, that risk is already real: the Belgian Prime Minister Alexander de Croo fulminated openly recently about how American officials are trying “in a very aggressive way” to lure away Belgian companies. And also Dutch companies said in It Financial Daily recently that a move to the US is increasingly appealing.
In the background, the advance of China, which strongly supports its own companies, also plays an important role.
It explains why Brussels is acting now, although much of the plan presented on Wednesday still needs to be worked out in the coming months. It is already clear: it will become much easier for EU countries to invest money in green technology, such as batteries, wind turbines, heat pumps and solar panels. To this end, state aid rules, which normally strictly limit the extent to which European governments can support businesses, are being relaxed.
Certainly not risk free
This approach is certainly not without risk. State aid rules are an important precondition for the smooth functioning of the European internal market. They prevent rich countries with ‘deep pockets’ from cutting off less prosperous countries. It explains why the Netherlands, among others, is suspicious of the new measures, just like Italy.
Recent experiences are by no means reassuring. In response to the corona pandemic, state aid rules were also relaxed in 2020. Policy that was extended last year because of the consequences of the war in Ukraine. Of the 672 billion euros that member states spent on companies as a result, no less than 78 percent was distributed by only two countries: Germany and France. Now that they will be given even more room to pull out their wallets, this skewed balance within Europe can continue to grow.
European Commissioner Margrethe Vestager (Competition) therefore emphasized countless times on Wednesday how ‘temporary’ the now announced relaxation will be – until the end of 2025. But the word ‘temporary’ is often used in Brussels to package new policy, after which the new reality will be created automatically . Vestager himself uttered striking words of warning and spoke of a ‘drastic’ proposal that is ‘not harmless’ and entails ‘considerable risks’.
“Ultimately, state aid is a transfer of money from taxpayers to shareholders. And that only makes sense if society as a whole benefits from the support provided,” said the Danish.
It signals very carefully that not everyone in Brussels is equally enthusiastic about the direction the EU is now taking. Because there are always risks in handing out large sums of public money to the private sector. But mainly because a joint European fund that should restore balance to the internal market is still a long way off.
Von der Leyen himself called the national state aid a “bridge” towards a more sustainable solution with which the EU wants to enter the new green subsidy era. That so-called ‘sovereignty fund’ will come later this year. But she did not say anything about the size of this, nor about the question of how that money is raised. She did suggest that, in addition to redistribution of existing funds, “other financing techniques” could also play a role in this.
It will have been listened to with great suspicion in The Hague. The Netherlands is not at all in favor of starting a new fund, let alone once again taking out joint European loans – an option that is already being carefully discussed in the EU. But if the European internal market becomes increasingly lopsided due to the abundance of state aid, the call will only increase.