EU proposes state aid changes in face of US’ IRA

The European Commission today set out plans to boost competitiveness in the bloc's "green industry", in the face of the US' Inflation Reduction Act (IRA), aiming to speed up decarbonisation while avoiding a "subsidy race" between member states.

As well as the Green Deal Industrial Plan, the commission is consulting EU member states on a proposal for temporary changes to state aid rules — "to respond to the double challenges of the energy crisis and the Inflation Reduction Act of the US", commission executive vice-president Margrethe Vestager said today. The US' IRA, signed into law in August, provides large tax incentives for energy and climate change measures.

EU member states, in response to a 13 January letter from Vestager, agreed that part of the IRA "is a threat to the competitiveness of specific key sectors for the green transition of the European industry", but that the EU-US relationship must be nurtured, and any EU response should "be based on facts, and address only those specific problems triggered by the IRA", Vestager said.

Retaining the integrity of the EU's single market is crucial, Vestager said. "Whatever we do, we must avoid a subsidy race", she added. The commission proposes making calculating state aid simpler, approvals faster, and broadening the scope of its Temporary Crisis Framework — adopted in the wake of Russia's invasion of Ukraine — to "support all possible renewable sources of energy".

It also proposes a "very exceptional temporary option" of "so-called ‘matching aid'". The draft suggests that member states would be allowed to match subsidies offered by third countries, to ensure that investments are not "unfairly diverted to the highest bidder outside Europe". Provisions apply only to sectors affected by the IRA, and there would be strict conditions attached, including whether the project benefits more than one member state, Vestager noted.

"Using state aid to establish mass production and to match foreign subsidies is something new... It comes with significant risks for the integrity of the single market," Vestager said. The changes proposed would apply until the end of 2025, she added.

By Georgia Gratton