The EU has raised concerns in its Green Deal Industrial Plan over the future level playing field in the 27-member bloc, as Brussels seeks to counter competition from the US amid rising calls from European industry.  

The plan, presented by the EU on February 1, exists to provide a more supportive environment for the scaling up of the EU’s manufacturing capacity for the green transition. While the plan is centred around four pillars, the second pillar — faster access to public and private funding for clean tech production — has raised eyebrows among member states. 

In a letter sent last week, the finance ministers of Finland, the Czech Republic, Denmark, Estonia, Ireland, Austria and Slovakia warned the EU trade commissioner Valdis Dombrovskis against the risk of endangering the level playing field, according to Politico. 

Relying too much on subsidies “endangers the level playing field of the internal market, as well as fiscal sustainability and risks leading to harmful subsidy competition that is non-sustainable for individual member states and detrimental to the EU as a whole”, the letter, which was seen by Politico, reads.

Hosuk Lee-Makiyama, director of the European Centre for International Political Economy, tells fDi that unlike the US’s Inflation Reduction Act, where a lot of what is proposed is tax credits, the “EU cannot respond on a European level because we don’t have EU-level taxes”. Rather, European taxes are administered on a state member level. 

“The problem with loosening state aid is that it may create a global level playing field, but it doesn’t create a European level playing field,” he says, pointing out that some of the same medium-sized countries competing on the same markets will have different fiscal space. “Sweden has quite a considerable auto industry, but doesn’t have Germany’s fiscal firepower.”

The plan follows a speech made by president of the European Commission, Ursula von der Leyen, during the World Economic Forum in Davos on January 17, in which she said that the EU was preparing legislation to promote cleantech and innovation, as it attempts to counter the US’s move to offer $369bn worth of green subsidies.

Renaud Foucart, senior lecturer at Lancaster University, says one big element missing from the announcement is whether there will be common European borrowing facilities, “meaning that the EU could give its member states an equivalent level of subsidies and that European companies wouldn’t need to go to the US”.

He points out that the subsidies “arms race” between the EU and the US is akin to a “chicken and egg story”, with the Americans saying this started with the €750bn Next Generation EU recovery fund agreed in 2020 and the Europeans saying that it began with the the US Inflation Reduction Act.

The EU announced last year plans to create a sovereign wealth fund, called the European Sovereignty Fund. In a blog post dated to September, Thierry Breton, the EU commissioner for the internal market, said that the fund will provide “direct, fast and flexible budgetary support” across any sector, notably in clean and digital technologies.

“I believe that we should consider the possibility [of financing] this fund through common debt, like we successfully did with Next Generation EU,” he wrote. 

Commenting on the EU’s planned sovereign wealth fund, Mr Lee-Makiyama says: “If the private sector does not want to invest in Europe, in either clean energy or digital infrastructure, the EU needs to create a political entity that will.”

Meanwhile, as negotiations roll on, it remains to be seen what other measures the EU has in store.

“I think it’s not given that we’ve seen all the EU responses on the table just yet,” Mr Lee-Makiyama says, alluding to other instruments, such as trade defence instruments. “We’re moving towards a situation where China and the US are of equal concern.”