EU leaders back green subsidy drive but leave details to Brussels

“We want to address the global competitiveness of the European Union in the short term and also in the medium term,” said European Council President Charles Michel.

“Today we give additional impetus based on the pillars [of the green industrial plan],” he added, calling on the Commission to further its work on unlocking national subsidies and existing EU funds.

The conclusions from the meeting mention the initiatives laid out by the European Commission in its new industrial policy and hand the baton back to Brussels to hash out the details.

This includes calling on the EU executive to work, under the Green Deal Industrial Plan, on simplifying state aid, unlocking existing EU funding and simplifying the regulatory environment for industries crucial to the EU’s decarbonisation goals.

“In the face of the new geopolitical reality, the European Union will act decisively to ensure its long-term competitiveness, prosperity and role on the global stage,” read the summit conclusions.

“The European Union will strengthen its strategic sovereignty and make its economic, industrial and technological base fit for the green and digital transitions. It will deepen the Single Market and ensure a level playing field both internally and globally,” the papers continue.

EU leaders will reconsider the issue at their next summit on 23-24 March. Before that, the Commission is expected to lay out more detailed proposals in response to EU leaders’ call for “a strategy at EU level to boost competitiveness and productivity”.

Storm brewing in Brussels

The agreement reached masks underlying tensions around future financing for the green transition, both regarding looser restrictions on national subsidies and new funding mechanisms at the EU level.

For instance, there are still questions on the European Sovereignty Fund announced by Commission Presidency Ursula von der Leyen in December, including whether the money should come from new joint borrowing at EU level, a red flag for some EU countries.

The conclusions are lukewarm on this, with EU countries simply saying the group “takes note” of the Commission’s intention to propose a new fund and boost investment in strategic sectors by summer 2023.

“Positions are far from fixed among member states” on the issue of joint borrowing, a source from the French European ministry told EURACTIV.

“Any discussion [on the financing of the sovereignty fund] must start alongside the revision of the Multiannual Financial Framework (MFF), we will first be looking at the money we already have,” the French source added, saying that months of negotiations still lie ahead.

Unlike the French, who hope the European Commission will go for another round of joint borrowing, Germany is highly reluctant to go down such a road.

In a speech made in the German Bundestag ahead of the EU summit, Chancellor Olaf Scholz reminded that “only a small part” of money available under the EU’s €800bn pandemic recovery fund has been spent so far.

Even with the existing means, “Europe has no reason to hide” behind the US, he said, referring to the ‘Inflation Reduction Act’ (IRA) which made waves in EU capitals who fear losing green industries to the US.

Germany wants easier national subsidies

Nevertheless, more flexible EU rules are needed to loosen constraints on national subsidies to green industries, said Scholz.

Other EU countries disagree, fearing a fragmentation of the single market. The Dutch are pushing back particularly hard against this.

“The idea of jumping to a sort of race to the bottom on state aid is not to our liking, because one of the most successful things in the European Union since 1957 is the internal market,” Dutch Prime Minister Mark Rutte told the Financial Times.

“If we make the wrong decisions it really could have long-term impact — far beyond this IRA thing,” he added.

In the conclusions of Thursday’s meeting, EU leaders said, “Procedures need to be made simpler, faster and more predictable, and allow for targeted, temporary and proportionate support to be deployed speedily, including via tax credits, in those sectors that are strategic for the green transition and are adversely impacted by foreign subsidies or high energy prices.”

However, they add that “the integrity of and the level playing field in the Single Market must be maintained”.

It will be left to Commission Vice President Margrethe Vestager to interpret these and find the middle ground between countries when assessing the results of an ongoing consultation on temporarily relaxing state aid rules for green industries.

Jonathan Packroff & Kira Taylor, EurActiv.com

This article first appeared on EurActiv.com, an edie content partner