Following initial announcements in mid-January in Davos, European Commission President Ursula von der Leyen will unveil, on Wednesday 1 February, ahead of the special EU summit on Thursday 9 and 10 February, elements of a European response to the US Inflation Reduction Act, including a Net-Zero Industry Act to stimulate European industrial investment in clean technologies (see EUROPE 13101/9).
The Green Deal Industrial Plan, the European strategy that the Commission is currently finalising, aims to support European industry in its energy and climate transition by ensuring that it finds the regulatory environment and financial tools within the European Union to grow and create the jobs of tomorrow. It comprises four main axes, according to a draft communication of which EUROPE has a copy: - simplification of the regulatory framework; - faster access to sufficient funding; - strengthening professional skills; - an ambitious trade agenda.
On the simplification and harmonisation of the regulatory framework, the EU institution intends to propose a ‘Net-Zero Industry Act’ in order to facilitate the increase of production capacities in key sectors of activity (hydrogen, electronic chips, batteries...) to reach the EU’s climate neutrality objective by 2050. In particular, production targets will be set by 2030, ‘one-stop-shops’ at Member State level will be opened to speed up administrative procedures and ‘regulatory sandboxes’ will be set up to facilitate experimentation with disruptive technologies.
The Commission reiterates its intention to present a Critical Raw Materials Act, potentially in early March. This specific initiative will aim to strengthen the security of supply of the raw materials needed to make the transition a success, striving not to establish new dependencies on leading third countries, and to accelerate recycling efforts in the EU (see EUROPE 13032/2).
On energy transition, the Commission recalls the path taken since the Russian military aggression on Ukraine with the REPowerEU strategy to reduce dependence on Russian hydrocarbons and combat soaring energy prices. It also recalls that it will present a reform of price formation in the electricity market in the spring, as a public consultation is underway (see EUROPE 13105/10).
The Commission intends as well to launch a first call for tenders in autumn 2023, with an indicative budget of €800 million, to support the production of renewable hydrogen. Depending on the pilot mechanism, the winners of this green hydrogen auction will receive a fixed premium for each kg of renewable hydrogen produced over 10 years. “This (measure) will have a similar impact as the production tax credit in the US IRA, the difference being that the premium, based on the received bids, will make EU support cost-effective, fast and administratively light”, the draft communication says.
The institution also plans to extend this mechanism to the large-scale manufacture of components for solar and wind energy, batteries and electrolysers.
In order to avoid undue delays in the deployment of the EU’s strategic energy infrastructure, the Commission is considering as well legislative action to ensure that Member States provide the necessary cross-border energy infrastructure. In addition, a unified energy label for heat pumps will be proposed by the end of 2023 to enable users to compare different technologies.
Towards the creation in the medium term of a sovereignty fund
The additional investment needs are colossal (€477 billion in the transport and energy sectors and €170 billion per year in clean technologies by 2030, according to the Commission), the issue of access to finance is the most controversial among Member States. Basically, the ‘frugal’ countries from a fiscal point of view, such as the Netherlands and Germany, warn against a race for public subsidies, recommend mobilising all existing financial means (loan components of the Next Generation EU Recovery Plan, REPowerEU, European cohesion funds), saying they are hostile to any new money.
“European competitiveness (...) cannot be built on permanent or excessive non-targeted subsidies”, say the finance ministers of Finland, Denmark, the Czech Republic, Estonia, Austria, Ireland and Slovakia in a letter to the Commission at the end of last week, a copy of which was sent to EUROPE. “Any additional measures [to existing resources] should be based on a thorough analysis by the Commission of the remaining financing gap, and no new funding should be introduced”, they add.
On the other hand, other countries, such as France, which is at the forefront of this issue, supported by Spain and Portugal, are open, on the contrary, to the development of new financial tools for Member States that do not have the same budgetary resources. It is also a way, they say, of avoiding fragmentation of the Single Market.
“On the financial instruments, we are seeing a certain momentum on how to ‘recycle’ existing European funding, by giving more flexibility to Next Generation EU and, in a second phase, by granting more flexibility in the consumption of cohesion funds”, noted the French Secretary of State for European Affairs, Laurence Boone, who was in Brussels on Monday, 30 January, where she met with the Commission’s Executive Vice-President, Margrethe Vestager.
In order to accelerate access to existing EU funding, the European Commission will consult stakeholders on how to further adapt EU State aid rules to simplify procedures and make it more predictable to obtain eligible financial support (see EUROPE 13100/3).
In this respect, five axes are envisaged: - simplification of aid for renewable energy deployments, as defined in the ‘RED II’ directive; - simplification of aid for decarbonising industrial processes (amount of aid proportional to investment costs, flexibility of ceilings for small projects); - enhanced investment support schemes for production of strategic net-zero technologies, including “the possibility of granting higher aid to match the aid received for similar projects by competitors located outside of the EU”; - increasing the notification thresholds for public subsidies in key sectors of activity (carbon capture, charging infrastructure, training of skilled workers); - more transparent and predictable support for new production projects along value chains, “including through tax credits”.
These tax credits would be proportionate, limited in time and focused on sectors where there is a risk of relocation in order to ensure a level playing field internationally, the Commission justifies.
At this stage, even if it considers it necessary to “step up” the EU’s financial means, the European institution does not seem inclined to announce the launch of a new European loan on the model of the SURE instrument that supported national unemployment insurance schemes during the Covid-19 pandemic. However, it plans to increase the funding of the InvestEU programme over the period 2024-2027, which is responsible for attracting private investment, and to examine the financial requirements for implementing projects eligible for the Connecting Europe Facility.
Above all, “for the mid-term, the Commission intends to give a structural answer to the investment needs by proposing a European Sovereignty Fund as part of the revision of the Multiannual Financial Framework before summer 2023”, the draft states. In an op-ed published in the Financial Times, the Commission’s executive vice-presidents, Margrethe Vestager, Frans Timmermans and Valdis Dombrovskis, spoke out in favour of such an initiative.
“On the sovereignty fund, in order to convince people, we must first talk about strategic sectors and projects, then about resources. We are not at the stage of determining its funding or governance”, Ms Boone said.
Several Member States, including the ‘frugal’ countries, were upset that the first draft conclusions of the European Council, drawn up by the services of its President, Charles Michel, presented them with a fait accompli by suggesting an agreement of the EU27 on the creation of a European sovereignty fund, while the Commission has not made any formal proposal (see EUROPE 13106/7).
For an ambitious EU trade agenda
Trade policy should be an asset in the strategy to enable companies to be leaders in low-carbon industries. For the Commission, it will, on the one hand, open up new markets for EU exporters and, on the other, diversify and secure sources of supply of strategic resources.
Several areas of work have been identified. The first is to support the work of the World Trade Organization (WTO) and its reform. As a matter of priority, the WTO can be the place to “promote ‘green’ investments in a way that minimises disruption”, according to the Commission.
The US IRA is not explicitly mentioned as an example of a discriminatory and disruptive measure that could be coordinated in Geneva, but the EU has described the IRA as such in the past.
In this regard, the EU should continue to seek solutions with Washington at the highest political level to limit the IRA's discrimination against European producers, the draft communication only states.
Another major area of work is to increase the number of free trade agreements. Those with Chile, Mexico and New Zealand should be ratified soon and negotiations on the one with Australia is expected to be concluded before the summer, the Commission hopes. On the other discussions, including the EU/Mercosur agreement, only progress is expected (see EUROPE 13108/14).
In addition to initiatives such as the Global Gateway or the Sustainable Investment Facilitation Agreements (SIFAs), the EU wants to get closer to reliable and strategic partners via new platforms. The first is a “Critical Raw Materials Club” to bring resource-rich countries closer to consumer countries.
The Commission also mentions another avenue it wants to develop, namely the creation of ‘clean tech’ or ‘net zero’ industrial partnerships, without giving any further details on their principle and functioning. It also recommends working on an export credit strategy for emission-neutral infrastructure.
Finally, the trade defence tools adopted or developed in recent months, such as the regulation against unfair foreign subsidies or the regulation on international public procurement, need to be implemented quickly, bearing in mind the key sectors of transition.
See the draft communication from the European Commission: https://aeur.eu/f/54m (Original version in French by Mathieu Bion with Léa Marchal and Damien Genicot)