Green Deal: EU Commission counters US and Chinese subsidy plans

There’s a lot at stake, and that’s why the commissioners had a lot to talk about. Up until the very last minute, they, at the head of the European Commission, were discussing a project intended to catapult Europe to the forefront of the green revolution. They had postponed the decision once, the officials reached an agreement on Thursday, and now it’s in place: the so-called net zero industry law, which at the same time secures the competitiveness of the EU states, makes Europe less dependent on imports and accelerates the European energy transition should. Because in order to achieve the climate goals, countless wind turbines and solar systems, heat pumps, hydrogen systems and batteries for electric cars are needed, which should be built in Europe if possible.

That’s what the law is about. It is the most important building block in Europe’s hastily put together response to the subsidy race with the US and China. While the People’s Republic has been operating in a planned economy for years, the US government has recently Inflation Reduction Act (IRA) provoked an industrial policy response from the EU. In a series of corresponding legislative projects, such as the relaxation of state aid rules and the domestic production of critical raw materials, the net zero plan stands out in particular.

The EU is thus attempting to turn away from principles in the economic policy of the international community that have been unshakeable for decades: ensure competition, limit subsidies, promote free trade. It’s a paradigm shift. Welcome to the new world of planned economy.

“Leading the Clean Tech Revolution”

The EU has never before undertaken such a comprehensive plan to restructure the economy and strengthen domestic industry. The core of the project is the idea of ​​promoting large-scale investments in future technologies. These include wind turbines and solar modules, batteries for electric cars and heat pumps for efficient heating systems. Along with measures for training and further education due to the shortage of skilled workers, faster approval procedures and investment incentives, the new law prescribes targets for the domestic production of the listed green technologies. By 2030, Europe should be able to manufacture 40 percent of it within the Union. The member states should also be able to distribute state aid for corresponding projects more quickly, with the help of tax breaks and funds from existing EU pots.

Europe is determined “to take a leading role in the clean technology revolution,” was how Commission President Ursula von der Leyen formulated her claim at the beginning of February when she presented her industrial plan for the “Green Deal”. introduced. The green transformation of the European economy has dominated the political agenda of the Commission since she took office. Three years ago, von der Leyen presented the Union’s comprehensive climate protection program for the first time, with numerous reform projects to be completed by next year’s European elections.

In the competition with the subsidy plans of China and the USA, the EU has now also come under pressure to act. The consequences are short-term laws whose scope is disproportionate to their preparation – which many within the authority see critically.

A law with protectionist features

Von der Leyen has denied the accusation that she is practicing protectionism, that is, trying to shield Europe’s economy from the rest of the world. However, that is obviously part of the plan. In the foreword to the Net Zero Industry Act, the Commission already writes about “considerations on security of supply” and “strategic autonomy”. There is talk of geostrategic interests and a “worldwide technological race”. The security of the energy systems can only be guaranteed if the Union secures its access to these future technologies. So if you no longer have to import a large part of the solar modules, wind turbines and heat pumps or at least the components for them, as is currently the case. Almost 90 percent of the photovoltaic modules imported to Germany last year came from China.

In addition to the subsidy counter, this is the second geoeconomic component of the industrial plan: dramatic supply bottlenecks during the Corona crisis and the energy price shock fueled by Russia’s war against Ukraine have united the member states in the goal of becoming less dependent on imports, especially for key technologies for the green transition. Experts from the Berlin think tank Center for European Reform can therefore gain a lot from the plans. According to them, with the plans, Europe is “sending an important political signal that the EU will not deindustrialize without a fight and that decarbonization is an opportunity for green industrialization.”

That is also in this context Critical Raw Materials Act, which Commission Vice-President Valdis Dombrovskis and Internal Market Commissioner Thierry Breton presented on Thursday. It stipulates that by the end of the decade, ten percent of the 30 raw materials classified as critical will be mined within the EU, 40 percent of their further processing will take place within the Union and recycling will be strengthened. On the list There are, for example, rare earths, lithium and cobalt, but also natural rubber, magnesium or coking coal.

The proposed laws now have the usual path ahead of them. First, the Council of the EU and the European Parliament determine their positions, then the Commission, the Council and MEPs negotiate in the so-called trialogue. Industrial policy, a planned economy and a state-controlled claim to a leadership role in clean technologies as the basis for cooperation at European level? What seemed unimaginable just a few years ago is suddenly a reality.

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