The EU on Wednesday unveiled proposals to counter the threat to European industry from US green subsidies and unfair competition from China, with measures including a controversial expansion of state aid.

The bloc is racing to compete with the United States and China to avoid businesses relocating to Asia or North America where energy costs are cheaper, but there has been division among EU member states on how to respond.

European Commission President Ursula von der Leyen outlined the bloc’s proposals but said there would be no immediate new EU funding.

“At the moment being we need to work with what we have right now. And focus it on the clean tech industry,” she said.

The majority of the EU’s response involves repackaging already existing funds, a stop-gap measure that has earned much criticism.

German MEP Markus Ferber described the proposals on Wednesday as “old wine in new bottles” and “predictably disappointing”.

Von der Leyen left the door open to a new EU sovereignty fund being created in the future.

But that idea has already been strongly opposed by some member states including Denmark and Finland which oppose throwing money at the problem, or boosting borrowing to resolve it.

“If you have state aid, the other side of the coin has to be funding at the EU level,” von der Leyen said during a news conference.

The new measures give flexibility on providing aid to companies in the green and renewable energy sector and those involved in the decarbonisation of industry.

There will also tax benefits available for investments in production facilities in defined, strategic net-zero sectors.

‘Toothless’

The measures are a response to a landmark US spending bill last year that funnels $370 billion into subsidies for America’s energy transition—including tax cuts for US-made electric cars and batteries, which left European manufacturers dismayed.

European countries are unnerved by parts of the Inflation Reduction Act (IRA) since it offers lavish advantages for US buyers of electric vehicles if they “Buy American”.

The EU’s response was worked out against a backdrop of disagreement among member states on how best to protect Europe’s businesses, and fears of triggering a trade war.

While countries like France support state aid expansion, others argue that would help only richer member states and fragment the single market.

EU leaders will discuss the proposals at a summit in Brussels next week, and final decisions on the bloc’s response are expected in March.

The EU is pushing the United States to make exemptions for European companies. But a special joint taskforce set up to address Brussels’ concerns has yielded little fruit.

Environmentalists criticized the EU’s plan, saying the measures did not go far enough.

“Green subsidies are good but not enough to have a meaningful effect on climate. Without cutting fossil fuel subsidies, pricing carbon properly and introducing measures to reduce demand, these financial efforts will be toothless,” Luke Haywood, head of climate policy at the European Environmental Bureau, said in a statement.

Von der Leyen last month also slammed “aggressive attempts” by China to persuade Europe’s clean technology companies to relocate and take advantage of its cheaper labor and more lenient regulations.

© 2023 AFP