The European Union reacts. Brussels has picked up the gauntlet thrown by the United States and will implement unprecedented measures to live up to the support agreed by the Biden Administration to the green technology industry. This is a more flexible State aid framework that will allow member states to match the aid that a company in another country can potentially receive to avoid relocations to the other side of the Atlantic.
Although a massive exodus of companies is not expected, the Volkswagen case shows that the risk is there. According to the Financial Times newspaper, the German multinational has put its plans to open a new battery manufacturing plant for electric cars in Europe on hold, given the prospect of receiving some $10 billion in aid if it is installed in the United States.
The European response to situations like this, which will have more immediate effects, involves the new temporary relaxation of the rules on State aid adopted this Thursday by the European Commission. The measure will be in force for almost three years, until December 31, 2025. Its objective is to allow governments to support with aid investments for the production of certain green technologies "at risk of being attracted" by the United States (solar panels , batteries, wind turbines, heat pumps and electrolysers for the production of hydrogen) without the need to receive the green light from Brussels.
The condition for an EU country to match an offer of aid in any third country is that the company in question maintains the investment for at least five years. They will be "exceptional cases" and it must be demonstrated that there is a "real risk", points out the Commission. The aid may be a figure equivalent to what the company can receive outside the EU or the amount "necessary" to encourage its installation in the European Economic Area, whichever is cheaper.
Time is short. But, as the European head of Competition, Vice President Margrethe Vestager, was able to verify in the preliminary consultations with the member states, a large group of countries –either because of their small size, their limited fiscal space or their more liberal vision of the economy– expressed strong reservations about the initiative, fearing that Germany and France would take advantage of the situation to give massive support to their companies (in 2022 they granted 77% of the 672,000 million in public aid approved in the EU) and put at risk the Interior market.
Brussels has provided some safeguards to avoid these distortions, such as not using the open door to public aid to hide investments from other EU countries. The main precaution is that aid can only be given in regions that benefit from cohesion aid or, alternatively, if it is about projects located in at least three EU countries and affect at least two territories that receive financial assistance.
In the poorest regions (category A) aid may reach 350 million euros or the equivalent of 55% of the investment. In the territories declared by category B, the subsidy can reach 240 million or 40% of the project. In the richest regions, aid will be limited to 150 million or 35% of the investment. State support, the European Commission recalled this Thursday, can be given either in the form of subsidies, loans or tax cuts.
The new Temporary Crisis and Transition Framework, which will come into force in a matter of weeks, will allow more than 90% of State aid to be granted without requesting authorization from Brussels, which will speed up its deployment. The measure is one of the legs of the European Commission's plan to respond to the United States Inflation Reduction Act, the name given to the macro plan to stimulate the deployment of renewable energies with aid worth 369,000 million dollars. . The decision was announced a few hours after the meeting between Ursula von der Leyen and Joe Biden today in Washington.
The adoption of the American subsidy program created great discomfort in Europe last year but the White House has always responded that, instead of criticizing it, the EU should imitate them and approve its own stimulus plan. Some kind of compromise is expected to come out of today's meeting to mitigate the discriminatory effects of some provisions on access to subsidies for European companies.
The EU's plan to deal with increasing global competition and respond to energy challenges stemming from the Russian invasion of Ukraine includes more measures. Von der Leyen has decided to convene two meetings of the college of European commissioners next week, instead of one, to approve the different proposals: an industrial plan to favor zero-emission technologies, a law on access to critical raw materials for the green transition and the reform of the electricity market, measures of enormous magnitude that the Twenty-seven will try to approve before the European elections in May 2025.
