John Whelan: EU Green Deal could squeeze Ireland out of sustainability race
“European countries are not equal when it comes to state aid,” said EU competition chief Margrethe Vestager. Picture: PA
Irish firms may get squeezed out of big projects as EU leaders ponder opening up state-aid rules to speed up the international race for green goods and services.
Confronted by what many EU countries see as unfair competition from the US's vast green tech investment plan, European leaders at their most recent summit in Brussels reviewed proposals for releasing new funds and dropping long standing restrictions on state aid as a means of countering the US plan.
European Commission president Ursula von der Leyen, ahead of the summit, had released the proposed new Green Deal Industrial Plan, in reaction to the US Inflation Reduction Act (IRA) which provides close on $400bn (€373bn) in subsidies for clean industry development, provided it was done in America.
The EU’s Green Deal Industrial Plan, is to make it easier for sustainable EU companies to access tax breaks, redirect cash toward clean-tech industries and relax state aid rules.
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But member states were divided on how far to go without risking a subsidy race with Washington or causing damage to the level playing field within the EU single market.
More specifically, the plan faces major criticism, for two reasons.Â
It is largely drawing from existing, not new, funding lines and it risks casting smaller EU countries such as Ireland against big powers Germany and France, over fears that the bulk of subsidies will benefit the latter two.
The latter point strongly supported by the EU’s competition chief Margrethe Vestager who, in cautioning against opening the state aid flood gates, stated that Germany and France had accounted for nearly 80% of state aid approved under emergency subsidy rules to date. She said:
Adding to the Irish Government dilemma in opposing loosening of state-aid rules is the daunting prospect that the Inflation Reduction Act will damage IDA Ireland opportunities to attract green tech industries here, putting more pressure on the IDA to attract more European investors, green or otherwise into Ireland.
The biggest worry is that the vast subsidies offered by the US under their new act, will attract not just US companies to invest at home, but may also tempt European companies to build their green tech factories there also.
The net effect of the US subsidies will be to make imported green goods less competitive than those manufactured on US soil.Â
This has particular implications for Europe’s electric car producer, such as VW, Renault and Fiat, but also for many Irish manufacturer of green technology who could find it impossible to continue to compete in the market, unless they moved operations there.
The European Commission has recently widened its "subsidies war" front by inviting member states to give feedback on the implementation of a Foreign Subsidies Regulation (FSR).
The draft for the regulation clarifies practical and procedural aspects related to the application of the new EU rules to address distortions caused by foreign subsidies in the single market. The feedback period will last four weeks into March.
Information from the summit in Brussels indicates that the Commission is turning to unspent funds from its €800bn Covid-19 recovery package, which if repackaged would release €220bn in unused loans with a €20bn top-up in new grants.
Many in the electric vehicle, battery, hydrogen and carbon capture sector, see the funding as falling well short of what would be needed to maintain a leading position on global markets and well behind the US subsidies package.
Regarding state aid, the Commission’s comment to EU leaders was that state aid "procedures need to be made simpler, faster and more predictable, and allow for targeted, temporary and proportionate support to be deployed speedily".
The sentiment will be applauded by Irish business who have been frustrated by the slow pace of state aid approvals.
EU leaders have been given four weeks to consider their positions, before the next summit meeting and we shall see if a cohesive package can be agreed to balance EU economies against the US green subsidies initiative.
If we end up with little more than old wine in new bottles, then the EU generally and Ireland especially will lose its position in attracting new technology investment either foreign or local.
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