(Bloomberg) -- The European Union unveiled a roadmap for how it plans to keep its industries competitive as the bloc tries to catch up to the US and China, which offer huge subsidies to domestic green technologies.

The European Commission wants to use its Green Deal Industrial Plan to boost national support for companies through investment aid and tax credits, while also tapping into common European funds to underwrite important projects involving sectors such as hydrogen and quantum computing, according to the proposal presented on Wednesday.

The plan, which the EU’s 27 leaders will discuss next week, is a response to US President Joe Biden’s Inflation Reduction Act, which includes roughly $500 billion in new spending and tax breaks over a decade. The commission plan has received a mixed reception in the bloc, with some concerned that the subsidies will only help richer countries like Germany, which have the fiscal capacity to invest in domestic firms. 

“We are competitive. We need competition. What we are looking at is that we have a level playing field in the global competition, as well as a level playing field within the single market,” Commission President Ursula von der Leyen said in a statement. “This is, for us, so important.”

American Competition

European leaders are concerned that the subsidies offered in the US green package will not only make European companies uncompetitive, but also lure investments to the US. Earlier this month, Belgian Prime Minister Alexander De Croo accused the US of trying to lure green industries across the Atlantic. 

“They are calling Belgian firms, German firms in a very aggressive way to say: ‘Don’t invest in Europe, we have something better,’” he said. 

In a move that may upset smaller countries, the commission, the EU’s executive arm, isn’t planning on raising new financing in the package since there is already more than €380 billion ($414 billion) of joint funds committed for the green transition through 2030. 

Instead, they’ll seek to simplify regulations, speed up permits and focus on cross-border projects, according to the proposal. In addition, the plan calls for a further loosening state-aid rules, which limit national subsidies to maintain a level playing field in the EU’s internal market.

German Economy Minister Robert Habeck said Wednesday that the state aid procedures need to be accelerated. “It should not take two or three years; it must be completed within six months, at the longest,” he told reporters, adding it’s also important that the funds can be used to boost production of clean-energy technology.

Internal Market

Some member states including Italy and Spain have warned against easing state-aid rules, which they say would favor larger nations such as Germany and France. These two countries, the EU’s two largest economies, already benefited the most after the commission eased existing rules to help firms grapple with high energy costs.

“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.”

Several top EU officials, including the EU’s competition chief Margrethe Vestager, have also cautioned that too much national support for companies could disadvantage member states with less fiscal capacity. 

“Any tinkering with state aid rules should be done with utmost care, focusing on the efficiency of processes, simplification and predictability,” commission Vice President Valdis Dombrovskis said Wednesday. “If we are not careful, we risk increasing economic and social divergences and regional discrepancies across the union.”

Countries including the Netherlands and Sweden have warned about the risk of fragmentation of the internal market, harmful subsidy races and weaker regional development.

Other key items in the commission’s proposal include:

  • Increasing 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.
  • 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.
  • 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.

--With assistance from Petra Sorge, Stephanie Bodoni, Katharina Rosskopf and Jillian Deutsch.

(Updates with fresh von der Leyen quote in third paragraph)

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