In Strasbourg on Wednesday 14 December, the President of the European Commission, Ursula von der Leyen, outlined her plans to counter the discriminatory effects of the US Inflation Reduction Act (IRA) (see EUROPE 13077/10) to the European Parliament. Above all, she relaunched the idea of a European sovereignty fund to support the ecological transition of the EU’s industry and announced a review of the European framework on state aid.
Her proposals are summarised in a letter sent to the leaders of the 27 Member States on the eve of the European Council meeting on 15 December. They in turn are to discuss EU-US relations and the European response to the IRA. The draft European Council conclusions do not, however, go into detail about the measures or paths to be taken in response to the IRA, contrary to Ms von der Leyen's announcements.
See the European Commission’s letter: https://aeur.eu/f/4nq
Sovereign wealth fund
“We want European industry to continue to lead the green transition, and that is why I introduced the idea of a sovereignty fund,” said Ms von der Leyen, insisting on an EU response to clear cases of unfair competition, notably from the USA. The President also specified the timetable: “I think that the mid-term review of the Multiannual Financial Framework, which will take place this summer, will be a good opportunity to present our proposal in more detail.
While the timetable is becoming clearer, Ms von der Leyen was again silent on how the fund would be financed (as she was earlier this week - see EUROPE 13082/21), although the mention of the mid-term review of the MFF suggests a reorientation of funding within the multi-annual overall budget envelope. This approach would differ greatly from financing based on a European loan, as proposed by the European Commissioners for the Internal Market and Economy (see EUROPE 13022/11).
In front of MEPs, the President of the Commission also specified the scope of action of this European sovereign wealth fund, which will have to be fully linked to the European industrial strategy. In this respect, she indicated that future European funding will go directly to Important Projects of Common European Interest (IPCEI).
‘RePowerEU’ for the short term
More immediately, Ms von der Leyen proposes to increase funding for the ‘REPowerEU’ strategy. These will finance “pan-European interconnections, energy efficiency and renewables”, she told the EU27 leaders in her letter to them.
Ms von der Leyen returned to the raw materials initiative (see EUROPE 13032/2), citing the Chinese monopoly situation. She suggested creating a “club” with the USA and other international partners to counter China and rebuild European sovereignty over raw material supplies.
New state aid framework
The President of the Commission also announced to MEPs that in January 2023, the European Commission will propose a new framework on state aid to accelerate the energy transition.
This framework “will make our state aid rules simpler and faster for years to come”, she said. It will also close the gap to target the entire value chain of strategic green sectors, including large-scale deployment and access to raw materials.
This new framework will, for example, allow Member States to take account of global - and not just European - conditions when granting aid for certain clean technology products. This means that for some brand new investments, Member States will be able to match third country subsidies, the President assured. This will encourage companies to continue to invest in the EU and not in the USA.
Following this, the Executive Vice-President of the Commission, Margrethe Vestager, told the plenary session that the future framework should be “even simpler, even faster, even more focussed, without losing sight of the need to preserve a level playing field to keep the single market cohesive”.
In this context, on 13 December, the European Commission launched a consultation of Member States, to seek their views on three issues: - How can we further simplify the granting of aid for the deployment of renewable energy? - How can we further simplify the granting of aid for the decarbonisation of industry’s production processes? - Should certain types of productive investments in strategic sectors for the green transition be supported?
“Targeted adaptations of our temporary framework could serve as a bridge to real European solutions in the medium term”, Ms Vestager argued. The whole of the EU, not just the richest regions and Member States, must be able to maintain a strong industrial base. This is why we need a European fund to complement existing instruments and help ensure a fair green transition across Europe, she concluded.
Continued dialogue with Washington
However, the discriminatory nature of the IRA remains. This law “is contrary to the spirit of the transatlantic partnership”, Ms Vestager insisted to MEPs.
In her letter, Ms von der Leyen sought to reassure the leaders of the EU27, ahead of the European Council meeting, about the ongoing contact between the European Commission and the Biden Administration and the work of the IRA ‘task force’ (see EUROPE 13051/26).
The European Commission hopes for a concrete solution from the USA by early January, when the IRA will enter into force.
A complicated EU27 debate
These proposals are likely to provoke a lengthy debate at the EU summit. Several Member States, such as the Netherlands and Germany, are reluctant to release new funds, preferring to see existing funds used or redirected.
On the other hand, the relaxation of the rules on state aid seems more consensual.
See the draft conclusions of the European Council: https://aeur.eu/f/4m1 (Original version in French by Léa Marchal, Lionel Changeur and Pascal Hansens)