(Bloomberg) -- The European Union is seeking to rapidly accelerate production of clean technologies by offering tax credits and domestic subsidies to companies in a bid to catch up with US President Joe Biden’s landmark green package.

The European Commission, the EU’s executive arm, will propose a plan enabling the bloc to avoid strategic dependencies on key clean technologies by diversifying suppliers and developing local production, according to a draft of the commission’s Green Deal Industrial Plan seen by Bloomberg News.

The initiative, which is still subject to change ahead of its adoption on Wednesday, would ease state-aid rules to compete with the US Inflation Reduction Act, which includes roughly $500 billion in new spending and tax breaks over a decade. Some member states have expressed concerns that the EU plan could unfairly benefit wealthier countries that have more fiscal capacity. 

“We need to be cautious in relaxing state-aid rules,” Italian Prime Minister Giorgia Meloni told reporters in Rome on Monday. “We should help companies but we can’t risk weakening the single market — we should guarantee a level playing field.”

Leaders Meet

Leaders from the EU’s 27 member states will discuss the commission proposal in Brussels next month. A plan for a sovereignty fund to finance innovative sectors, first proposed last September, will come by the summer as part of the review of the EU’s long-term budget, according to the draft.

Some of the key items in the commission’s proposal include:

  • A Net-Zero Industry Act to simplify regulations, speed up permits and promote cross-border projects to accelerate climate neutrality.
  • A further loosening of state-aid rules for a limited period. This will cover the deployment of all renewable technologies and the decarbonization of industrial processes. It will also enhance investment support for the production of strategic clean technologies, with higher aid to match what the US and China offer.
  • Support for new investments in factories in key green sectors, including through tax benefits to match what third countries are offering. This aid will be limited in time and targeted to those areas where there are risks of relocating jobs and investments elsewhere. The commission would seek greater transparency from member states on the fiscal incentives being offered at the national level.
  • Increase the threshold for notifying to the commission support in sectors such as hydrogen or clean vehicles and simplify the procedure for Important Projects of Common European Interest. These initiatives are undertaken by several member states in cutting-edge fields.
  • In the draft, the commission doesn’t propose new funding in the short term. At least €380 billion ($413 billion) of existing EU funds will be invested in the green transition until 2030 and the commission will help member adapt their pandemic recovery funds for green initiatives, including the possibility of using tax breaks.
  • A first auction to produce renewable hydrogen. The winner will receive a fixed premium for each kilo of the fuel they produce for a period of 10 years. The first auction will have a budget of €800 million. The scheme’s impact will be similar to the production tax credit in the US clean tech package. The commission will also aim to make the purchase of a heat pump simpler for consumers by proposing a unified energy label by the end of the year.
  • The bloc would work to establish a critical raw materials club bringing together consumers and resource-rich countries to develop common principles. The EU will also develop an exports credit strategy, while the commission is ready to use its trade defense instruments and other tools to combat unfair practices.

The Financial Times reported on the draft proposal earlier Monday.

The EU has urged the US to tweak its law to give European companies more flexibility to take advantage of the credits being offered. But officials have grown skeptical that Washington will make meaningful changes and have started mapping out ways to protect European industry. 

The EU’s competition chief Margrethe Vestager has cautioned that too much national support for companies could disadvantage smaller and poorer countries that have less fiscal capacity. Germany and France, the EU’s two largest economies, have benefited the most after the commission eased existing rules to help firms grapple with high energy costs.

“We need no excessive extension of EU subsidies,” German Finance Minister Christian Lindner told reporters in Berlin on Monday. “Subsidy rules must be more agile, we must reach decisions more quickly, but we don’t need any excessive extension of subsidies in the European Union.”

--With assistance from Alberto Nardelli, Chiara Albanese and Kamil Kowalcze.

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