It’s one of the central legislative projects for the regulation of large online platforms – the Digital Markets Act. According to information from Europe.Table, the negotiators in the European Parliament have now reached an agreement: The last major point of contention, the handling of personalized advertising, was resolved on Wednesday evening, as it is said in negotiating circles. Next Monday, the Internal Market Committee will now vote. You can read more details in the news section of this issue.
That Europe can supply itself with semiconductors is “an illusion”, Competition Commissioner Margrethe Vestager said last week. “It is an illusion to believe that Europe should rely on others for chips,” countered industry commissioner Thierry Breton. Vestager, on the one hand, and Breton and Commission President Ursula von der Leyen, on the other, publicly argued over whether member states should be allowed to subsidize semiconductor factories.
The compromise reached now widens the scope for promoting the industry in EU state aid law, without immediately opening all the floodgates. A corresponding communication of the authority on competition policy is to be adopted today, Till Hoppe has evaluated it in advance. Experts are already warning that subsidies and the construction of new factories alone will not solve the problem of the ongoing chip bottlenecks.
The EU’s planned CO2 border adjustment mechanism has attracted a lot of criticism in recent months. But now the CBAM is having an effect even before it is introduced – this is clearly illustrated by the example of Turkey. In Glasgow, Turkey’s chief negotiator Mehmet Emin Birpinar admitted that the prospect of the CBAM had been a major factor in Turkey’s decision to ratify the Paris climate agreement. Timo Landenberger has written about the country’s plans to achieve its climate targets and how it intends to cooperate with the EU to this end.
For Angela Merkel, the lesson to be learned from the ongoing chip bottlenecks is clear: EU states should mobilize massive state aid to encourage semiconductor manufacturers to build state-of-the-art factories. “South Korea and Taiwan show that without state subsidies, for example, competitive chip production in the 3- or 2-nanometer range is basically no longer possible,” the outgoing German chancellor told Reuters news agency. “And if we don’t have certain support instruments in addition to the existing EU state aid rules, we can’t advance to the top of the world.”
Commission President Ursula von der Leyen sees it the same way. The Brussels authority is now opening the door a bit wider for aid to the chip industry. The Commission will “consider authorizing public support to fill possible funding gaps in the semiconductor ecosystem, in particular for the establishment of hitherto non-existent facilities in Europe”, according to a communication from the authority on competition policy to be adopted this Thursday. However, “strict safeguards” are to apply to this as well, so the aid paid does not unnecessarily distort competition. The paper is available to the Europe.Table team.
Behind the wording lies a dispute between Competition Commissioner Margrethe Vestager on the one hand and Industry Commissioner Thierry Breton and von der Leyen on the other. Vestager is opposed to softening the EU rules on state aid. These already allow high subsidies in the form of Important Projects of Common European Interest (IPCEI), including for the semiconductor industry.
However, eligible projects must meet a number of criteria. For example, companies from several member states must be involved and the projects must clearly go beyond the current state of the art. This allows funding of research and development up to market launch, but not pure production. Projects such as the planned second microelectronics IPCEI also require complex and often lengthy coordination among the governments, companies, and the Commission.
According to the communication, the Brussels authority now wants to open up a different path for chip manufacturers: Accordingly, it would not have to examine the aid based on the IPCEI criteria, but alternatively based on the provisions of Article 107 (3) of the Treaty on the Functioning of the European Union (TFEU). This would give the Commission much more flexibility, says Ulrich Soltész, a state aid lawyer at law firm Gleiss Lutz. “This could also allow member states to promote pure production facilities in the semiconductor sector.”
Several member states are currently trying to persuade leading international semiconductor manufacturers such as Intel, TSMC, and Samsung to locate here. Intel CEO Pat Gelsinger reported in October that his company had received around 70 proposals from about ten different countries. Peter Altmaier, still the Federal Minister of Economics, is also enticing the US company with the prospect of billions in subsidies. The locations Magdeburg and Dresden are under discussion. Penzing near Munich has also been traded but is unlikely to be successful due to a lack of space. Gelsinger wants to announce a decision by the end of the year.
The scramble for chip companies is triggering concerns about a subsidy race within the EU. Vestager warned last week that the race could be at the expense of taxpayers. It was “an illusion” that Europe could supply itself with semiconductors. Breton countered during a visit to Dresden: “It is an illusion to believe that Europe should rely on others for chips”.
Von der Leyen is on Breton’s side on the issue: “Only those who can manufacture the next generation of semiconductors in large quantities will retain their technological and economic independence,” she said. The Commission President has tasked Breton with presenting a European Chips Act by the summer of 2022. The goal: to double the EU’s share of global chip production to 20 percent by 2030.
The communication on competition policy states that the persistent supply bottlenecks “reveal the dependence on a limited number of companies and regions“. It also said Europe was vulnerable to export restrictions imposed by other countries, such as those imposed by the US on the Chinese company Huawei. This had led to other Chinese companies stocking up on semiconductors as a precaution, thus triggering bottlenecks. The Commission said that China’s dependence was also reinforced by the “very high barriers to entry and the capital intensity of the sector”.
Given the multitude of factors, experts warn against narrowing the discussion too much to state aid: If policymakers want to bring more chip factories to Europe, they cannot avoid subsidies, says Jan-Peter Kleinhans of the Stiftung Neue Verantwortung. “But it should not harbor the illusion that it will thereby reach the root of the evil.”
Kleinhans and his colleague Julia Hess have examined the causes of the supply crisis in a new study. Building new fabs alone will not provide a remedy, they warn. After all, there have also been bottlenecks at the chemical companies that supply the chip manufacturers.
The researchers recommend that policymakers address structural causes in the industry. For example, due to the high investment costs, semiconductor manufacturers are dependent on their factories always being fully utilized, which means that bottlenecks can quickly occur when demand increases. Moreover, the long production times of four to six months prevent a rapid ramp-up of unit numbers.
Manufacturers, therefore, need economic incentives to maintain larger excess capacities. In addition, customers in the automotive industry, for example, need “incentives for strategic inventory management“, says Kleinhans: Just-in-time production is hardly compatible with the production cycles of chip suppliers.
With numerous declarations, goals, and promises, the 26th UN Climate Change Conference (COP26) came to an end last weekend in Glasgow. For the skeptics, these are at best recommendations for action. And indeed: concrete measures were hardly announced, let alone decided. One exception is Turkey, of all countries, which only managed to ratify the Paris climate agreement in October.
The EU delegation led by Commission Vice-President Frans Timmermans traveled to Scotland with its Fit for 55 package and the declared aim of showing the world the way to decarbonization. It was not successful in doing so. “The ambition of most parties by 2030 is not enough. Practically no major emitter has positioned itself as clearly and as ambitiously as the European Union,” said CDU MEP Peter Liese, co-negotiator of the EU Parliament. When implementing the Fit for 55 package much more attention must therefore be paid to how to motivate other contracting parties to increase their ambitions.
The European Emissions Trading Scheme (ETS) is the model of choice. Partial success: the initial criticism of it has evaporated, said Timmermans. Since 2005, emissions in the ETS sectors have fallen by 43 percent as a result of CO2 pricing, he said. “The ETS is working, and that is setting a precedent.” Canada, China, Japan, New Zealand, South Korea and parts of the United States either have their systems in place or are in the planning stages, he said. Others are expected to follow.
No country that wants to decarbonize its economy can avoid a CO2 price, Timmermans continued. This, in turn, inevitably entails the risk of carbon leakage. To protect its industry, the European Union is therefore planning to introduce a border adjustment mechanism (CBAM) to gradually replace the allocation of free emission allowances, which has attracted much criticism from third countries in recent months.
But the resistance is becoming less. Instead, the CBAM is already having its first effects before its introduction. For example, in Turkey, one of the EU’s most important trading partners: only last October, and therefore shortly before the climate conference, the country ratified the Paris climate agreement – not least because of the threat posed by the planned EU border tax on CO2, as the Turkish chief negotiator Mehmet Emin Birpinar admitted in Glasgow.
Previously, the country had refused to agree for years. Also because it demanded to be classified as a developing country to gain access to climate financing. The pledges from Germany and France of 3.2 billion dollars in financial support were ultimately able to convince Turkey.
Now Ankara wants to follow suit, adjust its climate protection targets and become climate neutral by 2053. As early as next year, the government will pass a climate law including corresponding measures, Birpinar announced. Among them, an emissions trading system based on the European model. “We take climate protection seriously. We no longer want to be perceived as a brake block, but as a pioneer in our region to lead by example,” Birpinar told Europe.Table. Especially since Turkey is strongly affected by the consequences of climate change. The severe forest fires in the Mediterranean region last summer hit the country hard.
Ankara wants to work closely with the European Union on this. The planned CBAM is also an incentive to restructure the country’s industry with the help of the EU, to make it future-proof and to adapt it to the Green Deal to minimize any possible impact on trade relations, says Birpinar. He stresses that the EU is by far the country’s largest trading partner, accounting for 48 percent of Turkey’s export volume. Just under ten percent of export goods go to Germany alone.
This is entirely in line with the EU, which has established a “high-level dialogue” with the partner country to support Turkey in introducing its own ETS. This is because the European border adjustment would serve solely to protect against carbon leakage. “An ideal world would be one in which you don’t need the CBAM at all because there are comparable standards,” said Jochen Flasbarth, chief negotiator of the German delegation, in an interview with Europe.Table.
In a study on the issue presented on Tuesday, the Centre for European Policy (CEP) also concludes that a unilaterally introduced CBAM would be detrimental to climate protection, as border adjustment weakens countries’ willingness to cooperate and poses considerable risks of international trade conflicts. Instead, the EU should strive for multilateral cooperative solutions that promote higher global mitigation efforts and the avoidance of carbon leakage, the authors argue.
The establishment of so-called climate clubs, as suggested by Germany, could be such a solution, provided that they are “carbon-leakage-proof”. However, this is not yet the case with the solutions currently under discussion. Rather, the different CO2 price levels among the participating states would lead to carbon leakage within the climate clubs.
The fact that climate and environmental protection can only work internationally is her mantra. “The common thread running through my activities at the German Federal Environment Ministry is, on the one hand, international cooperation and, on the other, cross-cutting work on numerous BMU issues and with a large number of specialist colleagues,” says Eva Kracht, Head of the Sub-Department Europe at the BMU. The German EU Presidency 2020 was a challenge in this position, but coordination between Berlin, Brussels, and the European member states is also a central task now. How does one deal with this, in very practical terms?
“A key challenge – and I’m not giving away any secrets here – is always to develop a German position early on,” says Kracht. “In the German system, the ministries have a strong position. That has clear advantages: In the struggle for the federal government’s position, all aspects and arguments are considered, discussed, and weighed in detail.” But this becomes a problem when things move faster in Brussels than in Berlin and Bonn. Then one cannot optimally promote German concerns.
The BMU wants to do its utmost to help shape and support the Green Deal that the EU Commission has set itself. For this purpose, there is the Green Deal interface between Berlin and Brussels, in which Kracht plays an essential role. “Within the German government, we coordinate the German position on environmental dossiers and participate in giving instructions to other ministries. The Environment Unit at the Permanent Representation and the Deputy Permanent Representative are central points of contact for us, as negotiators and as providers of advice and information,” she explains.
In addition to institutional processes such as Council conclusions, meetings of the Permanent Representatives Committee, or the Environment Councils, informal contacts are of course also essential. “Some exchange formats take place regularly, for example, the meeting of the Directors General for Climate or Environment from the EU member states with the EU Commission or a new group on the Zero Pollution Action Plan.” Discussions with the Directorates-General for Environment and Climate and other institutions and actors in Brussels are also important.
The exchange with environmental associations is also important. Kracht: “German environmental associations are very interested in European environmental policy, since the majority of German environmental policy – around 80 percent, it is estimated – is shaped there.”
Kracht is a lawyer who completed her doctorate at the Institute for International Law at the University of Bonn on the scientific concretization of indeterminate legal concepts. Coming from the Rhineland, she joined the Federal Ministry for the Environment in 2003, where she initially started as a consultant for interdisciplinary environmental law. A short time later, she became a personal advisor to the then Environment Minister Jürgen Trittin (Greens) and then, from 2005 to Trittin’s successor Sigmar Gabriel (SPD), mainly responsible for international appointments.
This is one of the reasons why some people believe that Eva Kracht will be given even more tasks under a future traffic light coalition. Well-connected, technically experienced – and also equipped with the necessary political experience to bring together widely divergent positions. And at the same time practiced in getting along with characters who are considered more difficult. Constantin Eckner
It’s one of the central legislative projects for the regulation of large online platforms – the Digital Markets Act. According to information from Europe.Table, the negotiators in the European Parliament have now reached an agreement: The last major point of contention, the handling of personalized advertising, was resolved on Wednesday evening, as it is said in negotiating circles. Next Monday, the Internal Market Committee will now vote. You can read more details in the news section of this issue.
That Europe can supply itself with semiconductors is “an illusion”, Competition Commissioner Margrethe Vestager said last week. “It is an illusion to believe that Europe should rely on others for chips,” countered industry commissioner Thierry Breton. Vestager, on the one hand, and Breton and Commission President Ursula von der Leyen, on the other, publicly argued over whether member states should be allowed to subsidize semiconductor factories.
The compromise reached now widens the scope for promoting the industry in EU state aid law, without immediately opening all the floodgates. A corresponding communication of the authority on competition policy is to be adopted today, Till Hoppe has evaluated it in advance. Experts are already warning that subsidies and the construction of new factories alone will not solve the problem of the ongoing chip bottlenecks.
The EU’s planned CO2 border adjustment mechanism has attracted a lot of criticism in recent months. But now the CBAM is having an effect even before it is introduced – this is clearly illustrated by the example of Turkey. In Glasgow, Turkey’s chief negotiator Mehmet Emin Birpinar admitted that the prospect of the CBAM had been a major factor in Turkey’s decision to ratify the Paris climate agreement. Timo Landenberger has written about the country’s plans to achieve its climate targets and how it intends to cooperate with the EU to this end.
For Angela Merkel, the lesson to be learned from the ongoing chip bottlenecks is clear: EU states should mobilize massive state aid to encourage semiconductor manufacturers to build state-of-the-art factories. “South Korea and Taiwan show that without state subsidies, for example, competitive chip production in the 3- or 2-nanometer range is basically no longer possible,” the outgoing German chancellor told Reuters news agency. “And if we don’t have certain support instruments in addition to the existing EU state aid rules, we can’t advance to the top of the world.”
Commission President Ursula von der Leyen sees it the same way. The Brussels authority is now opening the door a bit wider for aid to the chip industry. The Commission will “consider authorizing public support to fill possible funding gaps in the semiconductor ecosystem, in particular for the establishment of hitherto non-existent facilities in Europe”, according to a communication from the authority on competition policy to be adopted this Thursday. However, “strict safeguards” are to apply to this as well, so the aid paid does not unnecessarily distort competition. The paper is available to the Europe.Table team.
Behind the wording lies a dispute between Competition Commissioner Margrethe Vestager on the one hand and Industry Commissioner Thierry Breton and von der Leyen on the other. Vestager is opposed to softening the EU rules on state aid. These already allow high subsidies in the form of Important Projects of Common European Interest (IPCEI), including for the semiconductor industry.
However, eligible projects must meet a number of criteria. For example, companies from several member states must be involved and the projects must clearly go beyond the current state of the art. This allows funding of research and development up to market launch, but not pure production. Projects such as the planned second microelectronics IPCEI also require complex and often lengthy coordination among the governments, companies, and the Commission.
According to the communication, the Brussels authority now wants to open up a different path for chip manufacturers: Accordingly, it would not have to examine the aid based on the IPCEI criteria, but alternatively based on the provisions of Article 107 (3) of the Treaty on the Functioning of the European Union (TFEU). This would give the Commission much more flexibility, says Ulrich Soltész, a state aid lawyer at law firm Gleiss Lutz. “This could also allow member states to promote pure production facilities in the semiconductor sector.”
Several member states are currently trying to persuade leading international semiconductor manufacturers such as Intel, TSMC, and Samsung to locate here. Intel CEO Pat Gelsinger reported in October that his company had received around 70 proposals from about ten different countries. Peter Altmaier, still the Federal Minister of Economics, is also enticing the US company with the prospect of billions in subsidies. The locations Magdeburg and Dresden are under discussion. Penzing near Munich has also been traded but is unlikely to be successful due to a lack of space. Gelsinger wants to announce a decision by the end of the year.
The scramble for chip companies is triggering concerns about a subsidy race within the EU. Vestager warned last week that the race could be at the expense of taxpayers. It was “an illusion” that Europe could supply itself with semiconductors. Breton countered during a visit to Dresden: “It is an illusion to believe that Europe should rely on others for chips”.
Von der Leyen is on Breton’s side on the issue: “Only those who can manufacture the next generation of semiconductors in large quantities will retain their technological and economic independence,” she said. The Commission President has tasked Breton with presenting a European Chips Act by the summer of 2022. The goal: to double the EU’s share of global chip production to 20 percent by 2030.
The communication on competition policy states that the persistent supply bottlenecks “reveal the dependence on a limited number of companies and regions“. It also said Europe was vulnerable to export restrictions imposed by other countries, such as those imposed by the US on the Chinese company Huawei. This had led to other Chinese companies stocking up on semiconductors as a precaution, thus triggering bottlenecks. The Commission said that China’s dependence was also reinforced by the “very high barriers to entry and the capital intensity of the sector”.
Given the multitude of factors, experts warn against narrowing the discussion too much to state aid: If policymakers want to bring more chip factories to Europe, they cannot avoid subsidies, says Jan-Peter Kleinhans of the Stiftung Neue Verantwortung. “But it should not harbor the illusion that it will thereby reach the root of the evil.”
Kleinhans and his colleague Julia Hess have examined the causes of the supply crisis in a new study. Building new fabs alone will not provide a remedy, they warn. After all, there have also been bottlenecks at the chemical companies that supply the chip manufacturers.
The researchers recommend that policymakers address structural causes in the industry. For example, due to the high investment costs, semiconductor manufacturers are dependent on their factories always being fully utilized, which means that bottlenecks can quickly occur when demand increases. Moreover, the long production times of four to six months prevent a rapid ramp-up of unit numbers.
Manufacturers, therefore, need economic incentives to maintain larger excess capacities. In addition, customers in the automotive industry, for example, need “incentives for strategic inventory management“, says Kleinhans: Just-in-time production is hardly compatible with the production cycles of chip suppliers.
With numerous declarations, goals, and promises, the 26th UN Climate Change Conference (COP26) came to an end last weekend in Glasgow. For the skeptics, these are at best recommendations for action. And indeed: concrete measures were hardly announced, let alone decided. One exception is Turkey, of all countries, which only managed to ratify the Paris climate agreement in October.
The EU delegation led by Commission Vice-President Frans Timmermans traveled to Scotland with its Fit for 55 package and the declared aim of showing the world the way to decarbonization. It was not successful in doing so. “The ambition of most parties by 2030 is not enough. Practically no major emitter has positioned itself as clearly and as ambitiously as the European Union,” said CDU MEP Peter Liese, co-negotiator of the EU Parliament. When implementing the Fit for 55 package much more attention must therefore be paid to how to motivate other contracting parties to increase their ambitions.
The European Emissions Trading Scheme (ETS) is the model of choice. Partial success: the initial criticism of it has evaporated, said Timmermans. Since 2005, emissions in the ETS sectors have fallen by 43 percent as a result of CO2 pricing, he said. “The ETS is working, and that is setting a precedent.” Canada, China, Japan, New Zealand, South Korea and parts of the United States either have their systems in place or are in the planning stages, he said. Others are expected to follow.
No country that wants to decarbonize its economy can avoid a CO2 price, Timmermans continued. This, in turn, inevitably entails the risk of carbon leakage. To protect its industry, the European Union is therefore planning to introduce a border adjustment mechanism (CBAM) to gradually replace the allocation of free emission allowances, which has attracted much criticism from third countries in recent months.
But the resistance is becoming less. Instead, the CBAM is already having its first effects before its introduction. For example, in Turkey, one of the EU’s most important trading partners: only last October, and therefore shortly before the climate conference, the country ratified the Paris climate agreement – not least because of the threat posed by the planned EU border tax on CO2, as the Turkish chief negotiator Mehmet Emin Birpinar admitted in Glasgow.
Previously, the country had refused to agree for years. Also because it demanded to be classified as a developing country to gain access to climate financing. The pledges from Germany and France of 3.2 billion dollars in financial support were ultimately able to convince Turkey.
Now Ankara wants to follow suit, adjust its climate protection targets and become climate neutral by 2053. As early as next year, the government will pass a climate law including corresponding measures, Birpinar announced. Among them, an emissions trading system based on the European model. “We take climate protection seriously. We no longer want to be perceived as a brake block, but as a pioneer in our region to lead by example,” Birpinar told Europe.Table. Especially since Turkey is strongly affected by the consequences of climate change. The severe forest fires in the Mediterranean region last summer hit the country hard.
Ankara wants to work closely with the European Union on this. The planned CBAM is also an incentive to restructure the country’s industry with the help of the EU, to make it future-proof and to adapt it to the Green Deal to minimize any possible impact on trade relations, says Birpinar. He stresses that the EU is by far the country’s largest trading partner, accounting for 48 percent of Turkey’s export volume. Just under ten percent of export goods go to Germany alone.
This is entirely in line with the EU, which has established a “high-level dialogue” with the partner country to support Turkey in introducing its own ETS. This is because the European border adjustment would serve solely to protect against carbon leakage. “An ideal world would be one in which you don’t need the CBAM at all because there are comparable standards,” said Jochen Flasbarth, chief negotiator of the German delegation, in an interview with Europe.Table.
In a study on the issue presented on Tuesday, the Centre for European Policy (CEP) also concludes that a unilaterally introduced CBAM would be detrimental to climate protection, as border adjustment weakens countries’ willingness to cooperate and poses considerable risks of international trade conflicts. Instead, the EU should strive for multilateral cooperative solutions that promote higher global mitigation efforts and the avoidance of carbon leakage, the authors argue.
The establishment of so-called climate clubs, as suggested by Germany, could be such a solution, provided that they are “carbon-leakage-proof”. However, this is not yet the case with the solutions currently under discussion. Rather, the different CO2 price levels among the participating states would lead to carbon leakage within the climate clubs.
The fact that climate and environmental protection can only work internationally is her mantra. “The common thread running through my activities at the German Federal Environment Ministry is, on the one hand, international cooperation and, on the other, cross-cutting work on numerous BMU issues and with a large number of specialist colleagues,” says Eva Kracht, Head of the Sub-Department Europe at the BMU. The German EU Presidency 2020 was a challenge in this position, but coordination between Berlin, Brussels, and the European member states is also a central task now. How does one deal with this, in very practical terms?
“A key challenge – and I’m not giving away any secrets here – is always to develop a German position early on,” says Kracht. “In the German system, the ministries have a strong position. That has clear advantages: In the struggle for the federal government’s position, all aspects and arguments are considered, discussed, and weighed in detail.” But this becomes a problem when things move faster in Brussels than in Berlin and Bonn. Then one cannot optimally promote German concerns.
The BMU wants to do its utmost to help shape and support the Green Deal that the EU Commission has set itself. For this purpose, there is the Green Deal interface between Berlin and Brussels, in which Kracht plays an essential role. “Within the German government, we coordinate the German position on environmental dossiers and participate in giving instructions to other ministries. The Environment Unit at the Permanent Representation and the Deputy Permanent Representative are central points of contact for us, as negotiators and as providers of advice and information,” she explains.
In addition to institutional processes such as Council conclusions, meetings of the Permanent Representatives Committee, or the Environment Councils, informal contacts are of course also essential. “Some exchange formats take place regularly, for example, the meeting of the Directors General for Climate or Environment from the EU member states with the EU Commission or a new group on the Zero Pollution Action Plan.” Discussions with the Directorates-General for Environment and Climate and other institutions and actors in Brussels are also important.
The exchange with environmental associations is also important. Kracht: “German environmental associations are very interested in European environmental policy, since the majority of German environmental policy – around 80 percent, it is estimated – is shaped there.”
Kracht is a lawyer who completed her doctorate at the Institute for International Law at the University of Bonn on the scientific concretization of indeterminate legal concepts. Coming from the Rhineland, she joined the Federal Ministry for the Environment in 2003, where she initially started as a consultant for interdisciplinary environmental law. A short time later, she became a personal advisor to the then Environment Minister Jürgen Trittin (Greens) and then, from 2005 to Trittin’s successor Sigmar Gabriel (SPD), mainly responsible for international appointments.
This is one of the reasons why some people believe that Eva Kracht will be given even more tasks under a future traffic light coalition. Well-connected, technically experienced – and also equipped with the necessary political experience to bring together widely divergent positions. And at the same time practiced in getting along with characters who are considered more difficult. Constantin Eckner
