Thursday, February 9, 2023

EU must adapt state aid rules in face of US green subsidies, Ursula von der Leyen warns

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The EU must “simplify and adapt” its rules on state aid in response to the US’s new $369bn climate package, which has soured transatlantic ties and sparked fears of a trade war between Brussels and Washington, European Commission president Ursula von der Leyen said on Sunday.

Europe should “adjust our own rules to make it easier for public investments”, von der Leyen said, in her first set of proposals to respond to a chorus of demands from EU states to counter the US subsidy scheme.

“The new assertive industrial policy of our competitors requires a structural answer,” she said in a speech on Sunday.

US president Joe Biden has hailed the Inflation Reduction Act (IRA) as the most “aggressive action” the US has taken to confront the climate crisis.

But European allies have complained about measures such as tax credits and subsidies for products such as electric vehicles, wind turbines and green hydrogen that they say would give US-based enterprises an unfair advantage and lure EU industries to relocate.

In response, von der Leyen said the EU must overhaul its public investment regulations, reassess whether “new and additional funding at the EU level” was required and continue to push the US to adjust the IRA to resolve contentious issues.

“There is a risk that the IRA could lead to unfair competition, could close markets and fragment . . . critical supply chains,” von der Leyen said. In response, the EU should “take action to rebalance the playing field . . . [and] improve our state aid frameworks”.

“We are very careful to avoid distortions in our single market. It is very important. But we must also be responsive to the increasing global competition on clean tech,” von der Leyen added. “If we see that investments in strategic sectors are leaking away from the European Union, this would only undermine the single market. And that is why we are now reflecting on how to simplify and adapt our state aid rules.”

Von der Leyen’s remarks come three days after Biden, while hosting French president Emmanuel Macron in Washington, said he was open to addressing EU concerns and that the US did not intend to hurt its allies.

“There are tweaks that we can make that can fundamentally make it easier for European countries to participate or be on their own, but that still needs to be worked out,” Biden said.

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