All eyes were on Davos earlier this week as Commission President, Ursula von der Leyen spoke before the World Economic Forum on 17 January. As highly anticipated, the Commission President used the Davos stage to shine a light on what Brussels is planning in order to boost European industry and more specifically, respond to US President Biden’s massive subsidy package, the Inflation Reduction Act (IRA).
In an attempt to address the ever-growing concerns of industry and European governments, von der Leyen announced that Brussels will temporarily water down its state aid regulations by loosening its restrictions on subsidies and accelerating permits for new projects. “To keep European industry attractive, there is a need to be competitive with offers and incentives that are currently available outside the European Union”, the Commission President said. And the European Commission will do just this under the proposed, “Net-Zero Industry Act”.
The overarching objective of the so-called Net-Zero Industry Act is to make Europe the home of industrial innovation and clean tech. Announcing the Act, von der Leyen argued that the EU needs to get “better at nurturing” its own clean tech industry. The Net-Zero Industry Act, which is built upon the following four pillars, will identify clear goals for clean tech by 2030. The four pillars are as follows:
- The Regulatory Environment
The aim of pillar one is to focus investment on strategic projects. Here the Commission will propose various ways to simplify and speed up investment plans. The Commission has also promised to reflect on how it could make the IPCEI (Important Projects of Common European Interest) easier to access. Under pillar two, the Commission will propose to temporarily adapt state aid rules in order to speed up and simplify processes. Pillar three will focus on skills and upskilling the EU’s workforce to support the transition over the upcoming years. This ambition fits in nicely with 2023 being Europe’s Year of Skills. Lastly, pillar four will focus on trade. Announcing the act, Von der Leyen stated that the EU must respond “more robustly” to unfair international trade practices, referring explicitly to China. “We see aggressive attempts to attract our industrial capacities away to China or elsewhere. We have a compelling need to make this net-zero transition without creating new dependencies. And we know that future investment decisions will be taken depending on what we do today.”
While EU capitals remain divided on how the EU can best respond to Washington’s IRA, some businesses have expressed scepticism about the EU’s ability to compete with US incentives and keep industries in Europe.
One major point of contention between EU capitals is the huge diversity in fiscal power of MS – an issue which was acknowledged by von der Leyen in Davos when she noted that loosening state aid rules “will only be a limited solution which only a few member states can use”. For instance, under the Temporary Crisis Framework, which the Commission introduced in March 2022, €672 billion of state aid has now been approved. 53% of the approved state aid was notified by Germany, approximately 24% by France and just over 7% by Italy – figures which show the massive discrepancies across EU MS.
Evidently, the debate in Brussels is far from over. Discussions between EU capitals and EU policymakers on how the EU can best support MS and their industries is likely to continue for some time yet.