The EU funding plans for inexperienced applied sciences are splitting the worldwide subsidy race

The EU’s new green-tech funding plan has raised concerns about an escalating global subsidy race.

The initiative was launched in response to the US Inflation Reduction Act. The law provides $369 billion in subsidies for green technologies, mostly through tax credits for products “made in America”.

The stimulus has sparked fears that EU companies will be tempted to redirect investment and production to the US. Critics see the measures as protectionism that violates existing trade agreements.

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In response to the law, the EU this week unveiled the Green Deal Industrial Plan – a roadmap to make the bloc’s clean-tech sector competitive.

The proposals are divided into four pillars: efficient regulation, easier access to finance, improved skills and open trade for resilient supply chains. The European Commission said the plan will protect the single market from unfair trade in clean technology while ensuring that outside the bloc subsidies do not distort competition.

“We have a unique opportunity to lead the way with speed, ambition and determination to ensure the EU’s industrial leadership in the fast-growing net-zero technology sector,” said Ursula von der Leyen, President of the Commission. “Europe is determined to lead the clean tech revolution.”

The measures have been widely welcomed by German and French politicians – but not everyone is a fan.

“European countries are not equal when it comes to state aid.

A particularly controversial proposal is the lRelaxing state aid rules by the end of 2025. Smaller EU member states fear states with bigger pockets will benefit disproportionately.

Your claim has compelling evidence. Germany and France accounted for almost 80% of the State aid granted by the Commission under the emergency aid schemes in 2022.

“European countries are not equal when it comes to state aid,” admitted EU Competition Commissioner Margrethe Vestager on Wednesday.

Critics also shy away from accelerating a subsidy race with the US. Milan Elkerbout, researcher at Brussels-based think tank CEPS, warned in November that the union should prioritize transatlantic cooperation.

“There is also a risk of throwing subsidies at sectors that could inevitably shift their production to a low-carbon world anyway,” he said.

Politicians in EU member states have their own concerns. The finance ministers of Estonia, Finland, Austria, Ireland, the Czech Republic, Denmark and Slovakia have warned of a subsidy race, Reuters reported this week. Meanwhile, the governments of Finland, Ireland, the Netherlands, Poland, Denmark and Sweden fear that state aid will fragment the internal market and weaken regional development.

Another source of contention is that the new subsidies come largely from repurposing existing funding programs rather than from new investments.

There are also compelling arguments for the EU’s approach. Supporters of the plan say there is a sizable enough market on either side of the Atlantic. Both the US and the EU could benefit from green tech incentives. Still, the discord seems to be simmering.

French President Emmanuel Macron warned in December that “super-aggressive” American legislation could “divide the West”. But the EU’s response threatens to split the bloc.

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