In the wake of the recent European summit (see EUROPE 13085/2), on Monday 19 December the Franco-German tandem unveiled joint proposals to support the development of a European industry based on green technologies, in response to the American Inflation Reduction Act (IRA).
“The markets of the future are green and we all need to invest heavily in the development and roll-out of the technologies needed for the transition towards a climate neutral society”, wrote German minister Robert Habeck and French minister Bruno Le Maire in a joint document.
The Franco-German proposals provide for the development of new European funding, the aim being to go further and, above all, faster with the existing instruments.
First, they suggest continuing negotiations with the US so that European companies can also benefit from the measures of the IRA, which will provide, from January 2023, massive public support for the purchase of certain locally produced or assembled green technologies (see EUROPE 13012/16).
According to the two ministers, the EU should benefit, like countries with a free trade agreement with the United States - such as Canada or Mexico - from “exceptional measures” on certain products. According to several sources, the Americans had already sent signals that they wanted to explore this avenue.
For products whose IRA subsidies are conditional on local production or assembly, the US should use the exception clauses to allow European products to benefit from US support, suggest Le Maire and Habeck. They also call for greater transparency between the EU and the US on public support for transition technologies.
In addition, the two European ministers raised the idea of a “green partnership” with the United States, which could be used to develop common standards or, at least, mutual recognition of the respective standards. “It is in our mutual interest to find common ground on this issue and avoid disruptions in terms of competitiveness between two close partners, in a context of cooperation to deal with Russia’s war in Ukraine”, insists the Franco-German tandem.
The recently launched Sustainable Trade Initiative within the EU-US Trade and Technology Council (TTC) is already built on a similar ambition to align standards. It could be extended, said a source close to the case.
State Aid. Furthermore, the two ministers advocate adapting the European framework for state aid so that it better serves the EU’s industrial policy. This framework will have to be made “more agile”, notably by making decision-making processes “simpler, faster and more predictable”, they stress. In particular, the establishment of a ‘Important Project of Common European Interest’ (IPCEI) should take half the time and benefit from certain exemptions, they argue.
The IRA act is “a wake-up call to accelerate” the deployment of possible aid in the EU to key sectors in order to build world-leading companies, a national ministerial source said, rejecting any idea of a “trade war” with the US. According to a second source, it is not a question of introducing a ‘Buy European Act’, but of mobilising financial instruments “in a more intelligent way”.
Berlin and Paris also propose to allow experimenting targeted subsidies and tax-credits using fast-track and predictable umbrella schemes for key industrial sectors. These include wind, hydrogen, heat pump and photovoltaic technologies.
For existing industries, the priority must be decarbonisation. Unused financial resources should contribute to this objective. Similarly, the role that the EIB and national development banks could play will have to be analysed, say Mr Habeck and Mr Le Maire.
Other measures to be taken are also being considered. These include maintaining affordable electricity prices, gradually including quality criteria in public procurement procedures, speeding up the granting of permits for new production sites, and ensuring security of supply of critical raw materials.
These measures will feed the reflection of the European Commission, which has been invited to make concrete proposals by the end of January 2023, while an extraordinary European summit has been convened on 9 and 10 February to make rapid progress on this issue.
In the meantime, the two ministers will travel to the United States to discuss possible joint measures with their American counterparts.
See the Franco-German proposals: https://aeur.eu/f/4q7 (Original version in French by Mathieu Bion and Léa Marchal)