In response to the US Inflation Reduction Act, there have been increasing calls for the European Union to ensure European undertakings’ continued competitiveness vis-à-vis its American counterparts. This includes introducing a similar support scheme for European industry and the European green transition.
In a speech at the World Economic Forum in Davos, European Commission President Ursula von der Leyen announced a new Green Deal Industrial Pact. The actual details of this legislative proposal are still unclear, but her speech outlined four main points of reform. The proposed new piece of EU legislation shall ensure:
- “speed and access”.
This objective shall be strengthened via a new EU Net-Zero Industry Act to ensure conducive conditions and scalability for sectors crucial to the green economy, modelled on the European Chips Act, which is also currently being finalised. The Net-Zero Industry Act will seek to simplify and fast-track permitting and focus investments on strategic projects in the entire supply chain. It will work together with the Critical Raw Materials Act, which aims to secure European undertaking’s access to and processing of rare minerals essential for key technologies.
- sufficient funding and state aid.
The American Inflation Reduction Act involves a large amount of state aid to US undertakings on the condition that subsidised products are manufactured in the US. The EU has indicated that it might soften its own state aid rules in response. In fact, Margrethe Vestager has already sent a letter to the EU Member States proposing a new temporary framework meant to simplify state aid rules for green projects and ensure that companies don’t relocate abroad as a direct response to the Inflation Reduction Act.
This has led to worries among EU Member States that the Commission will allow a situation in which France subsidises French companies and Germany subsidises German ones, to the detriment of small countries that cannot compete. To alleviate this fear, a European Sovereignty Fund has been suggested for the medium term, meant to ensure funding across the Union.
- the development of necessary skills for a green economy.
A transition will require a large increase in relevant skills and skilled workers. As yet, there are no concrete proposals on what measures this policy objective will include although this objective is seen in connection with the Commission initiative on making 2023 to the “European Year of Skills”.
- open and fair trade.
This point was possibly added by the Commission President to reassure stakeholders that the European Union is not abandoning its existing free trade principles and goals by this initiative. Perhaps this point may even be seen as subtle criticism of the US for moving in the direction of protectionism by its US Inflation Reduction Acts.