The IRA provides $369 billion in grants and tax credits for energy security and climate protection starting this year. For the most part, this funding is conditional on goods being manufactured in the US. The EU is looking for ways to remain attractive to clean technology manufacturers. Engaging in a subsidy race may seem an obvious solution, but it leads to new problems, Till Hoppe reports.
In recent months, the EU Commission has been demonstrating how an idea that is actually well-intentioned keeps getting pushed back. In March 2020, it announced a legislative proposal on the sustainable consumption of goods and the right to repair. The draft was to be presented in July 2022, but the deadline could not be met. It is possible that the right to repair will be delayed beyond the current legislative period, writes Leonie Düngefeld.
In Brussels, NATO Secretary General Jens Stoltenberg, EU Commission President Ursula von der Leyen, and EU Council President Charles Michel have agreed on even closer cooperation. It also aims to improve cooperation between the two organizations in the protection of critical infrastructure. The cooperation is primarily directed against the Russian regime, but the possible threat from China was also discussed. Stephan Israel knows the background.
$350 million for German solar producer Meyer Burger, $1.75 billion for Swedish battery hope Northvolt: these are the sums the companies could rake in thanks to the Inflation Reduction Act (IRA) if they opened a plant in the US – per year. “What would you do if you were the CEO of one of these companies?” asked Diego Pavia yesterday, as the head of startup agency Inno-Energy presented the figures at the EU Commission’s Investors Dialogue on Energy.
The Biden administration is luring technology companies with massive subsidies to the USA, their operating costs (OPEX) included. Producers of green hydrogen, for example, could halve their production costs to $3 per kilogram of the sought-after energy carrier through subsidies alone, Pavia calculated. The EU should follow suit, he advises: If the overall package sits, only “a little bit of operating cost subsidies” is needed, consisting of the usual location factors such as skilled labor, infrastructure, approval deadlines, and robust supply chains.
The EU is desperately looking for ways to remain attractive to manufacturers of clean technologies. Not only the USA but also China and other countries are tempting them with high subsidies. In addition, high energy prices are weighing on Europe as a business location.
France’s Minister of Economy and Finance, Bruno Le Maire, therefore announced last week in Parliament that he would introduce a bill in the summer to support the industry. Manufacturers of batteries, semiconductors, hydrogen, and carbon capture are to benefit from the support of the government in Paris.
EU Commission President Ursula von der Leyen is expected to present her industrial policy response to the IRA on February 1. The heads of state and government are to discuss the proposals at a special summit on February 9 and 10.
Changes to the EU state aid regime will be the core of the initiative. Shortly before Christmas, the Director General for Competition, Olivier Guersent, had already asked what action the member states see as necessary. At the same time, the questionnaire gives an indication of the approach preferred by at least the competition authorities in the Commission.
The questions are aimed at changes to the temporary framework, which the Commission presented in March in response to the Russian attack on Ukraine and has since amended twice. For example, it allows national governments to support companies hit by the energy crisis and to provide greater support for expanding renewable energies – currently limited until the end of 2023.
“Extending the crisis aid framework would be a first cautious step,” says Sarah Blazek, a partner at law firm Noerr. The Directorate General for Competition is careful not to overturn the established state aid control system in the internal market in a fast-track procedure. Andreas Schwab, spokesman on internal market policy for the EPP in the European Parliament, also warns against “believing that we can solve the problem with subsidies alone.”
The Commission Vice President responsible, Margrethe Vestager, recently emphasized that the most essential precaution against excessive distortions of competition is to limit the measures in time and to tailor them to specific sectors. For example, Guersent asked whether the governments consider it necessary to include investment aid for manufacturers of solar systems, heat pumps, clean hydrogen, or batteries in the aid framework.
Von der Leyen had recently advocated allowing member states to match one-to-one subsidies from third countries for greenfield investments. That would be a fairly direct response to the lavish subsidies in the US and China, and legally feasible: “International trade law allows states to match unjustified subsidies from other countries,” says Robin van der Hout, a partner at law firm Kapellmann.
Competitive disadvantages vis-à-vis other economic blocs could be offset by matching. However, this would possibly be at the expense of less financially strong EU states: “If Germany were simply allowed to counter subsidies in the US, this would have a considerable impact on competition in the internal market – and on us taxpayers,” says Blazek. This would lead to a paradigm shift – ensuring fair competition in the internal market has been the raison d’être of EU state aid control until now.
Economic Affairs Commissioner Paolo Gentiloni thus warns of the “danger of increasing economic disparities between financially stronger and weaker EU states.” Von der Leyen is counting on balancing the different budgetary margins via new EU pots. She plans to present proposals for a new European sovereignty fund in the summer. But there is considerable political resistance – including from German Finance Minister Christian Lindner.
Another approach with fewer side effects on the internal market would be changes to the IPCEI instrument. This is also discussed by the Commission and member states and would allow states to provide more funding for innovative projects by companies or research institutes if they are of “common European interest.” As a rule, at least four member states must be involved and the projects must not go beyond the “first commercial use.”
The politically desired mass production of heat pumps or solar panels could thus not be promoted within the framework of an IPCEI. In addition, it sometimes takes two years for member states and companies to coordinate their projects and for the Commission to approve them.
The procedures could be accelerated if, for example, only two or three member states had to be involved, says van der Hout. Blazek also considers this a comparatively mild approach: “Relaxing the requirements for IPCEI would possibly be less problematic than opening the floodgates for subsidies from individual member states.” With Manuel Berkel and Claire Stam
Already in March 2020, the Commission announced a legislative proposal on sustainable consumption of goods and the right to repair as part of the Green Deal – its priority. Targeted amendments to the Directive on the sale of goods and a new right to repair are planned, either within the Directive or in a separate instrument. The Commission had planned to present the draft in early July 2022. In the meantime, the deadline has been postponed by almost a year.
In December, Ana Gallego Torres, Director General of the responsible DG JUST, announced the draft for the beginning of 2023 and explained in a hearing in the EU Parliament that they were still working on the impact assessment. The Parliament has been pushing for a legislative proposal for years. Its last resolution on April 7, 2022, was adopted with an overwhelming majority.
The Commission’s current agenda now lists May 31 as the new deadline. “We are working intensively on this important proposal,” says a Commission spokeswoman. “It’s important to ensure comprehensive preparation to achieve the best possible solution for consumers and businesses.” However, there is no further comment on the internal processes.
The reason for postponing the November deadline was a negative opinion from the Regulatory Scrutiny Board, which reviews the quality of impact assessments of proposed legislation.
Anna Cavazzini (Greens), Chair of the Internal Market and Consumer Protection Committee (IMCO), and René Repasi (S&D) wanted to examine, among other things, whether there had been direct lobbying influence by companies on the panel. The composition of the committee and the criteria for selecting experts from the business community were not transparent. The two MEPs thus submitted a request for access to the relevant documents. The Commission’s response stated: “The members of the Board do not discuss individual dossiers with directly affected stakeholders. For this reason, they have not met with external stakeholders on the subject of the initiative.”
Cavazzini had already spoken with the chairman of the Regulatory Scrutiny Board. It wasn’t 100 percent clear how the Board worked, she says, for example, on whether it examined impact assessments primarily for companies or also included environmental and social concerns. “I wasn’t that convinced by their answer,” Cavazzini says.
Why the bill is now being postponed again is a matter of surprise and concern for members of Parliament and consumer advocates. If the deadline of May remains, it will be very difficult to push the project through Parliament during the current legislative period. After all, the mandate ends just one year later.
The scope of the project and coordination with other related legislative proposals probably play a role in the delay: In March 2022, the Commission presented its drafts for an Ecodesign Regulation and a Directive to empower consumers for environmental change. These, too, are part of the bundle of instruments intended to strengthen the right to repair.
“One of the problems for DG JUST could be that it has to ensure consistency with these instruments, but these other initiatives are already underway,” a consumer advocate told Europe.Table. “They are already being amended by the Parliament and the Council, so they are a moving target.” However, to best align all the projects, it would have been smarter to present everything in one overall package, notes Anna Cavazzini.
“The proposals, ideas, and demands are complex and extensive in terms of content,” says Werner Scholz of the German Electrical and Electronic Manufacturers’ Association (ZVEI). “The consultations and stakeholder dialog are correspondingly demanding.” However, no further talks with stakeholders have taken place since the postponement.
In terms of content, the draft is to be based on three pillars, report participants in the public consultation and the stakeholder survey: on an extension of the statutory warranty for products, on repair regulations outside the warranty, and a strengthening of the second-hand market.
The industry only partially supports a right to repair. “More repairs are indeed desirable for reasons of sustainability, and we support some proposals for this,” explains Scholz, “but the cost and also convenience are the biggest hurdles.” He says very careful consideration needs to be given to which measures only look good on paper and which would actually lead to more repairs. The association rejects longer warranty periods or a longer obligation to provide spare parts, for example.
Patrycja Gautier of the European Consumers’ Organisation (BEUC) is already anticipating disappointment: “From what we have heard, the Commission proposal will not introduce the most important changes, such as longer statutory warranty rights for more durable goods or the possibility for consumers to address their claims directly to the manufacturer.” She explains there will be no real right to repair without these elements.
The Federal Ministry for the Environment (BMUV) is still informed that the draft will be presented in March, said a spokesman. The federal government considers the bill “very important” and is working to ensure that the current timetable is adhered to. Meanwhile, it is also focusing on its own measures: For this year, it has announced the action program “Repair instead of discard.” It aims to bring together new measures to promote repairing more effectively in Germany. In September, the BMUV named a budget of €2 million.
Fiscal rules are necessary in the European Monetary Union, but unpopular. The rules are often described as a “budgetary straitjacket.” Supposedly, they would make it difficult for countries to fulfill political spending promises or provide desired public investments.
However, in a monetary union like the euro area, where members have only fiscal policy as their own macroeconomic instrument, we must agree on fiscal rules to ensure sound government finances. Fiscal rules maintain trust between the member states and strengthen the confidence of citizens and financial markets in the euro.
The Stability and Growth Pact (SGP) sets out the fiscal rules. Since the Pact was negotiated in 1997, it has been adjusted several times. Often this happened because the Pact appeared incomplete in view of the economic challenges.
Even before the pandemic, the need to reform the SGP towards a new, simpler, and more effective framework for managing the various economic and financial risks became clear. Following a public consultation, the EU Commission evaluated all proposals and presented a revised fiscal framework last year.
Through the new fiscal framework, the Commission aims to strengthen countries’ debt sustainability while promoting sustainable and inclusive growth through investment and reform.
In its proposal, the Commission pays special attention to countries where debt sustainability is a major problem. In such cases, gradual debt reduction is prescribed after an adjustment phase. The Commission would keep the rule that budget deficits must not exceed 3 percent of GDP, while member states would be given more leeway to design their own fiscal strategy.
Under this proposal, countries would have to submit national plans that ensure compliance with the fiscal criteria, while at the same time presenting reform and investment projects. It would be the Commission’s task to assess the plans.
By giving countries more time to make fiscal adjustments as they invest and move towards a more sustainable economy, the proposal seeks to strike the right balance between stability and growth, the two objectives of the Pact.
The Commission’s proposal is largely in line with the objective of the ESM’s contribution to the discussion. The EU Commission’s proposal now forms the basis for the political discussion. The EU fiscal framework is of great importance for the mandate and activities of the ESM. The ESM is ready to actively participate in this discussion:
First, the assessment of debt sustainability is at the heart of the ESM’s work. Debt sustainability analysis is an important building block of the fiscal rules. Irresponsible budgetary policies in individual member countries, if they jeopardize debt sustainability, can endanger the financial stability of the monetary union. Safeguarding this stability in the euro area is the core mandate of the ESM.
Second, access to ESM financial assistance, in particular to its precautionary credit lines, is closely tied to criteria linked to the EU fiscal rules.
Third, the fact that the ESM keeps track of countries’ ability to repay their ESM loans (the so-called early warning system) is closely linked to post-program surveillance, which is also addressed in the Commission’s communication. These three points show that the ESM’s work is interwoven with the EU Commission’s proposal.
EU Member States now need to discuss the Commission’s proposal and agree on the changes and improvements to the fiscal framework. Governments should not miss the opportunity to come to a successful conclusion before the general escape clause – which allows for the rules to be suspended in exceptional circumstances – expires at the end of this year. This will be an important contribution to fostering a stronger and more sustainable future for Europe.
The IRA provides $369 billion in grants and tax credits for energy security and climate protection starting this year. For the most part, this funding is conditional on goods being manufactured in the US. The EU is looking for ways to remain attractive to clean technology manufacturers. Engaging in a subsidy race may seem an obvious solution, but it leads to new problems, Till Hoppe reports.
In recent months, the EU Commission has been demonstrating how an idea that is actually well-intentioned keeps getting pushed back. In March 2020, it announced a legislative proposal on the sustainable consumption of goods and the right to repair. The draft was to be presented in July 2022, but the deadline could not be met. It is possible that the right to repair will be delayed beyond the current legislative period, writes Leonie Düngefeld.
In Brussels, NATO Secretary General Jens Stoltenberg, EU Commission President Ursula von der Leyen, and EU Council President Charles Michel have agreed on even closer cooperation. It also aims to improve cooperation between the two organizations in the protection of critical infrastructure. The cooperation is primarily directed against the Russian regime, but the possible threat from China was also discussed. Stephan Israel knows the background.
$350 million for German solar producer Meyer Burger, $1.75 billion for Swedish battery hope Northvolt: these are the sums the companies could rake in thanks to the Inflation Reduction Act (IRA) if they opened a plant in the US – per year. “What would you do if you were the CEO of one of these companies?” asked Diego Pavia yesterday, as the head of startup agency Inno-Energy presented the figures at the EU Commission’s Investors Dialogue on Energy.
The Biden administration is luring technology companies with massive subsidies to the USA, their operating costs (OPEX) included. Producers of green hydrogen, for example, could halve their production costs to $3 per kilogram of the sought-after energy carrier through subsidies alone, Pavia calculated. The EU should follow suit, he advises: If the overall package sits, only “a little bit of operating cost subsidies” is needed, consisting of the usual location factors such as skilled labor, infrastructure, approval deadlines, and robust supply chains.
The EU is desperately looking for ways to remain attractive to manufacturers of clean technologies. Not only the USA but also China and other countries are tempting them with high subsidies. In addition, high energy prices are weighing on Europe as a business location.
France’s Minister of Economy and Finance, Bruno Le Maire, therefore announced last week in Parliament that he would introduce a bill in the summer to support the industry. Manufacturers of batteries, semiconductors, hydrogen, and carbon capture are to benefit from the support of the government in Paris.
EU Commission President Ursula von der Leyen is expected to present her industrial policy response to the IRA on February 1. The heads of state and government are to discuss the proposals at a special summit on February 9 and 10.
Changes to the EU state aid regime will be the core of the initiative. Shortly before Christmas, the Director General for Competition, Olivier Guersent, had already asked what action the member states see as necessary. At the same time, the questionnaire gives an indication of the approach preferred by at least the competition authorities in the Commission.
The questions are aimed at changes to the temporary framework, which the Commission presented in March in response to the Russian attack on Ukraine and has since amended twice. For example, it allows national governments to support companies hit by the energy crisis and to provide greater support for expanding renewable energies – currently limited until the end of 2023.
“Extending the crisis aid framework would be a first cautious step,” says Sarah Blazek, a partner at law firm Noerr. The Directorate General for Competition is careful not to overturn the established state aid control system in the internal market in a fast-track procedure. Andreas Schwab, spokesman on internal market policy for the EPP in the European Parliament, also warns against “believing that we can solve the problem with subsidies alone.”
The Commission Vice President responsible, Margrethe Vestager, recently emphasized that the most essential precaution against excessive distortions of competition is to limit the measures in time and to tailor them to specific sectors. For example, Guersent asked whether the governments consider it necessary to include investment aid for manufacturers of solar systems, heat pumps, clean hydrogen, or batteries in the aid framework.
Von der Leyen had recently advocated allowing member states to match one-to-one subsidies from third countries for greenfield investments. That would be a fairly direct response to the lavish subsidies in the US and China, and legally feasible: “International trade law allows states to match unjustified subsidies from other countries,” says Robin van der Hout, a partner at law firm Kapellmann.
Competitive disadvantages vis-à-vis other economic blocs could be offset by matching. However, this would possibly be at the expense of less financially strong EU states: “If Germany were simply allowed to counter subsidies in the US, this would have a considerable impact on competition in the internal market – and on us taxpayers,” says Blazek. This would lead to a paradigm shift – ensuring fair competition in the internal market has been the raison d’être of EU state aid control until now.
Economic Affairs Commissioner Paolo Gentiloni thus warns of the “danger of increasing economic disparities between financially stronger and weaker EU states.” Von der Leyen is counting on balancing the different budgetary margins via new EU pots. She plans to present proposals for a new European sovereignty fund in the summer. But there is considerable political resistance – including from German Finance Minister Christian Lindner.
Another approach with fewer side effects on the internal market would be changes to the IPCEI instrument. This is also discussed by the Commission and member states and would allow states to provide more funding for innovative projects by companies or research institutes if they are of “common European interest.” As a rule, at least four member states must be involved and the projects must not go beyond the “first commercial use.”
The politically desired mass production of heat pumps or solar panels could thus not be promoted within the framework of an IPCEI. In addition, it sometimes takes two years for member states and companies to coordinate their projects and for the Commission to approve them.
The procedures could be accelerated if, for example, only two or three member states had to be involved, says van der Hout. Blazek also considers this a comparatively mild approach: “Relaxing the requirements for IPCEI would possibly be less problematic than opening the floodgates for subsidies from individual member states.” With Manuel Berkel and Claire Stam
Already in March 2020, the Commission announced a legislative proposal on sustainable consumption of goods and the right to repair as part of the Green Deal – its priority. Targeted amendments to the Directive on the sale of goods and a new right to repair are planned, either within the Directive or in a separate instrument. The Commission had planned to present the draft in early July 2022. In the meantime, the deadline has been postponed by almost a year.
In December, Ana Gallego Torres, Director General of the responsible DG JUST, announced the draft for the beginning of 2023 and explained in a hearing in the EU Parliament that they were still working on the impact assessment. The Parliament has been pushing for a legislative proposal for years. Its last resolution on April 7, 2022, was adopted with an overwhelming majority.
The Commission’s current agenda now lists May 31 as the new deadline. “We are working intensively on this important proposal,” says a Commission spokeswoman. “It’s important to ensure comprehensive preparation to achieve the best possible solution for consumers and businesses.” However, there is no further comment on the internal processes.
The reason for postponing the November deadline was a negative opinion from the Regulatory Scrutiny Board, which reviews the quality of impact assessments of proposed legislation.
Anna Cavazzini (Greens), Chair of the Internal Market and Consumer Protection Committee (IMCO), and René Repasi (S&D) wanted to examine, among other things, whether there had been direct lobbying influence by companies on the panel. The composition of the committee and the criteria for selecting experts from the business community were not transparent. The two MEPs thus submitted a request for access to the relevant documents. The Commission’s response stated: “The members of the Board do not discuss individual dossiers with directly affected stakeholders. For this reason, they have not met with external stakeholders on the subject of the initiative.”
Cavazzini had already spoken with the chairman of the Regulatory Scrutiny Board. It wasn’t 100 percent clear how the Board worked, she says, for example, on whether it examined impact assessments primarily for companies or also included environmental and social concerns. “I wasn’t that convinced by their answer,” Cavazzini says.
Why the bill is now being postponed again is a matter of surprise and concern for members of Parliament and consumer advocates. If the deadline of May remains, it will be very difficult to push the project through Parliament during the current legislative period. After all, the mandate ends just one year later.
The scope of the project and coordination with other related legislative proposals probably play a role in the delay: In March 2022, the Commission presented its drafts for an Ecodesign Regulation and a Directive to empower consumers for environmental change. These, too, are part of the bundle of instruments intended to strengthen the right to repair.
“One of the problems for DG JUST could be that it has to ensure consistency with these instruments, but these other initiatives are already underway,” a consumer advocate told Europe.Table. “They are already being amended by the Parliament and the Council, so they are a moving target.” However, to best align all the projects, it would have been smarter to present everything in one overall package, notes Anna Cavazzini.
“The proposals, ideas, and demands are complex and extensive in terms of content,” says Werner Scholz of the German Electrical and Electronic Manufacturers’ Association (ZVEI). “The consultations and stakeholder dialog are correspondingly demanding.” However, no further talks with stakeholders have taken place since the postponement.
In terms of content, the draft is to be based on three pillars, report participants in the public consultation and the stakeholder survey: on an extension of the statutory warranty for products, on repair regulations outside the warranty, and a strengthening of the second-hand market.
The industry only partially supports a right to repair. “More repairs are indeed desirable for reasons of sustainability, and we support some proposals for this,” explains Scholz, “but the cost and also convenience are the biggest hurdles.” He says very careful consideration needs to be given to which measures only look good on paper and which would actually lead to more repairs. The association rejects longer warranty periods or a longer obligation to provide spare parts, for example.
Patrycja Gautier of the European Consumers’ Organisation (BEUC) is already anticipating disappointment: “From what we have heard, the Commission proposal will not introduce the most important changes, such as longer statutory warranty rights for more durable goods or the possibility for consumers to address their claims directly to the manufacturer.” She explains there will be no real right to repair without these elements.
The Federal Ministry for the Environment (BMUV) is still informed that the draft will be presented in March, said a spokesman. The federal government considers the bill “very important” and is working to ensure that the current timetable is adhered to. Meanwhile, it is also focusing on its own measures: For this year, it has announced the action program “Repair instead of discard.” It aims to bring together new measures to promote repairing more effectively in Germany. In September, the BMUV named a budget of €2 million.
Fiscal rules are necessary in the European Monetary Union, but unpopular. The rules are often described as a “budgetary straitjacket.” Supposedly, they would make it difficult for countries to fulfill political spending promises or provide desired public investments.
However, in a monetary union like the euro area, where members have only fiscal policy as their own macroeconomic instrument, we must agree on fiscal rules to ensure sound government finances. Fiscal rules maintain trust between the member states and strengthen the confidence of citizens and financial markets in the euro.
The Stability and Growth Pact (SGP) sets out the fiscal rules. Since the Pact was negotiated in 1997, it has been adjusted several times. Often this happened because the Pact appeared incomplete in view of the economic challenges.
Even before the pandemic, the need to reform the SGP towards a new, simpler, and more effective framework for managing the various economic and financial risks became clear. Following a public consultation, the EU Commission evaluated all proposals and presented a revised fiscal framework last year.
Through the new fiscal framework, the Commission aims to strengthen countries’ debt sustainability while promoting sustainable and inclusive growth through investment and reform.
In its proposal, the Commission pays special attention to countries where debt sustainability is a major problem. In such cases, gradual debt reduction is prescribed after an adjustment phase. The Commission would keep the rule that budget deficits must not exceed 3 percent of GDP, while member states would be given more leeway to design their own fiscal strategy.
Under this proposal, countries would have to submit national plans that ensure compliance with the fiscal criteria, while at the same time presenting reform and investment projects. It would be the Commission’s task to assess the plans.
By giving countries more time to make fiscal adjustments as they invest and move towards a more sustainable economy, the proposal seeks to strike the right balance between stability and growth, the two objectives of the Pact.
The Commission’s proposal is largely in line with the objective of the ESM’s contribution to the discussion. The EU Commission’s proposal now forms the basis for the political discussion. The EU fiscal framework is of great importance for the mandate and activities of the ESM. The ESM is ready to actively participate in this discussion:
First, the assessment of debt sustainability is at the heart of the ESM’s work. Debt sustainability analysis is an important building block of the fiscal rules. Irresponsible budgetary policies in individual member countries, if they jeopardize debt sustainability, can endanger the financial stability of the monetary union. Safeguarding this stability in the euro area is the core mandate of the ESM.
Second, access to ESM financial assistance, in particular to its precautionary credit lines, is closely tied to criteria linked to the EU fiscal rules.
Third, the fact that the ESM keeps track of countries’ ability to repay their ESM loans (the so-called early warning system) is closely linked to post-program surveillance, which is also addressed in the Commission’s communication. These three points show that the ESM’s work is interwoven with the EU Commission’s proposal.
EU Member States now need to discuss the Commission’s proposal and agree on the changes and improvements to the fiscal framework. Governments should not miss the opportunity to come to a successful conclusion before the general escape clause – which allows for the rules to be suspended in exceptional circumstances – expires at the end of this year. This will be an important contribution to fostering a stronger and more sustainable future for Europe.
