How acute the situation is now and how sustainable the US courtship of European companies, some of which are leaders in areas that are or will be important for the energy transition, was recently shown at the World Economic Forum in Davos, where several US governors used it and governors the opportunity to court company representatives at their own meetings and dinners.
Also in Davos, EU Commission chief Ursula Von der Leyen announced a counter-package. The basic idea: no direct subsidies, but a green investment fund worth billions, which should allow all EU states to set economic policy priorities in the area of climate protection. However, state aid – i.e. subsidies – should be allowed for a limited period of time. At the EU summit on February 9th and 10th, a concrete proposal will be discussed. But the debate has already begun.
Many countries against the Brussels plan
As Reuters reported on Friday, seven states have now lodged their opposition to the plans in a joint letter to the commission. Rather, they are demanding that the Commission, instead of spending fresh money, first use up the 800 billion euros in guarantees and cheap loans that are already available as a post-pandemic stimulus. According to Reuters, only 100 billion of the 390 billion in guarantees from this title have been drawn so far, emphasize the signatories Czech Republic, Denmark, Finland, Ireland, Estonia, Slovakia and Austria. The 400 billion in loans have not yet been fully exhausted.
The group of states warns against further borrowing by the EU. You have to see beforehand “that the economy can absorb the EU funds that have already been granted”. Finally, according to Reuters, the letter clearly states: “… and no new funding should be introduced”.
Also Germany against Von der Leyen
According to Reuters, the Netherlands and Belgium and even Germany, after all Von der Leyen’s homeland, also share this negative attitude. France, on the other hand, is vehemently demanding a joint and far-reaching EU counter-package to the US subsidy program.
In their letter, the seven states demand that the priority should be to facilitate investments by reducing bureaucracy and to implement the capital markets union, which has been stuck since 2014. The latter is intended to increase private investment.
The EU Commission, on the other hand, argues that new funds are needed so that poorer countries can also push ahead with the restructuring of their national economies in the direction of climate protection and that there are no excessive differences within the Union. Struggling to remain competitive in green technology is made even more difficult in Europe by the current much higher energy prices. This is also an argument for companies to relocate their production to cheaper countries.
No time for long debate
The boundaries in the internal EU debate are thus clearly drawn – essentially between net contributors and net recipients. Regardless of which solution is ultimately reached, Europe cannot afford a lengthy debate because time is of the essence, as numerous statements made by industry representatives in the recent past show. For months, national and EU industry associations have been warning of an imminent migration in view of the high production costs, especially for energy-intensive industries.
The first countries, above all France and Belgium, sounded the alarm at the beginning of the year. Delegations from several US states have been on a promotional tour of Europe for months to lure companies to their state with tempting subsidies. US states are now competing with each other to attract European companies, Chris Camacho of the investment promotion agency Greater Phoenix Economic Council in Arizona told the Financial Times.
The Inflation Reduction Act (IRA) – the slimmed-down version of US President Joe Biden’s Build Back Better package passed in August 2022 – contains subsidies worth €4,000 just for the conversion of the US economy to green energy and other climate protection technologies $369 billion (€340 billion). However, the condition for the huge subsidies is that the companies produce in the USA. This also excludes European companies from the attractive US market.
First successes for USA in Europe
At the Economic Forum in Davos, Michigan Governor Gretchen Whitmer, Georgia Governor Brian Kemp, and Illinois Governor Jay Pritzker, as well as West Virginia Senator Joe Manchin, who played a key role in negotiating the IRA, campaigned for European companies.
Back in October, BMW announced it would build a $1.7 billion electric car and battery plant in South Carolina. The Norwegian battery specialist Freyr also wants to build a $2.6 billion factory in Georgia. Swedish battery manufacturer Northvolt is considering shelving a new battery factory in Germany and preferring a factory in the US. The decision about a VW battery plant in Eastern Europe was also postponed months ago. Despite commitments to the European location, expansion plans in the USA are likely to be behind this as well.
Subsidies as a way into protectionism?
Freyr company boss Tom Jensen nevertheless emphasized to the “Financial Times” in Davos that Europe should counter with its own subsidy package if it wants to remain competitive. Europe has long criticized the US for being too slow on climate protection and green energy. “And since they finally decided on the best climate protection policy, they have been criticized for it,” says Jensen. Admittedly, this is inaccurate: Brussels criticizes the fact that US subsidies are linked to production in the country and warns against protectionism, which ultimately harms everyone.
The Brussels think tank Center for European Policy Studies (CEPS) already emphasized at the end of November that the EU also subsidizes green technologies in various ways, such as research programs. And that the USA perceives the EU’s planned CO2 border adjustment for imported goods to be just as protectionist as the EU perceives the “Build American” condition for US subsidies.
In any case, it is still unclear whether the EU will be able to escape this pull in view of the enormous nationally colored subsidy measures in China, India and the USA. The EU was the first major economic power to draft an extensive legislative package with its “Fit for 2055” program (55 percent less net greenhouse gas emissions by 2030) to achieve the climate targets set. In practice, however, the EU is now not only in danger of losing its much-claimed pioneering role in matters of greening, but above all companies that are leaders in the development of green technologies.
