Brussels proposes multi-million euro plan to stop businesses from shifting investments to US

The EU Commission has sent a letter to the 27 member states asking for their view on a series of measures and tax breaks to counteract Biden’s Inflation Reduction Act

From left: European Commission Vice Presidents Valdis Dombrovskis and Margrethe Vestager, President Ursula von der Leyen, Swedish Prime Minister Ulf Kristersson and King Carl Gustaf XVI of Sweden.
From left: European Commission Vice Presidents Valdis Dombrovskis and Margrethe Vestager, President Ursula von der Leyen, Swedish Prime Minister Ulf Kristersson and King Carl Gustaf XVI of Sweden.TT NEWS AGENCY (via REUTERS)

The European Union has stepped on the gas in response to the subsidies that the United States approved this summer to boost the energy transition. The EU Commission’s proposal is not yet finalized, but the European executive has already ironed out some of the details. One of them envisions support for “green investments in strategic sectors,” including “tax credits,” as reflected in a document prepared by the Commission’s vice president and commissioner for Competition, Margrethe Vestager, and sent to the economy ministers of the 27 member states. The document, which EL PAÍS has seen, includes a letter dated Friday, January 13, and an annex. The text mentions the possibility of creating a new common European fund to support countries in a fair and balanced way.

Vestager has given member states a January 25 deadline to respond to this letter with her vision on the state aid reform that the Commission is working on. The initiative has been launched at the request of the governments themselves, particularly Germany and France. The move reflects how alarm has been growing on this side of the Atlantic since August, when the US Congress gave approval to Joe Biden’s flagship Inflation Reduction Act, which contemplates more than $369 billion in aid and includes measures to stimulate electric vehicle production.

At the last European Council meeting held on December 15, EU leaders asked the Commission to make proposals by the end of January 2023 “to mobilize all relevant national and EU tools and improve framework conditions for investment.” There is a certain amount of fear that products made in the USA will obtain market advantages thanks to subsidies, but above all, there is panic that businesses may decide to divert their investments in key sectors for the energy and environmental transition (renewables, electric cars, batteries) to the United States, where products must be assembled to be eligible for the subsidy scheme. More than one German MEP has echoed the possibility that Tesla may decide not to build its planned electric vehicle battery factory in Berlin after all and instead do so in the US.

In Kiruna, in the Swedish province of Lapland, where a two-day visit by EU officials recently took place, EU Commission President Ursula von der Leyen criticized Washington’s new legislation, which she considers discriminatory for European companies and which in her opinion constitutes unfair competition. Together with Swedish Prime Minister Ulf Kristersson, Von der Leyen promised a strong response to the US law. “We want to reassure the businesses in Europe about our determination to preserve and enhance the economic attractiveness of Europe,” she said. “We need to facilitate public investment into the transition as a bridge.”

Sweden, which holds the rotating EU presidency this semester, is one of the countries that has warned against a race to give out state aid. Prime Minister Kristersson said there is a need to start a discussion on how to improve productivity, competitiveness and attract more companies “with formulas based on our own capabilities” and which could pave the way for more long-term state support down the line.

Boost from Germany and France

This debate gathered a lot of strength in December, when German vice-chancellor Robert Habeck and French economy minister Bruno Le Maire sent a document to Brussels demanding changes similar to the ones now proposed by Vestager. The main idea is that current regulation creates too many obstacles and absorbs a lot of time for procedural matters at a time when there is global competition to not miss the bandwagon of energy and ecological change. The Commission has now endorsed this view: “We need to speed up the green transition. We have to work hard to remove existing barriers in the single market,” writes Vestager in her January 13 letter.

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