EU won’t borrow more to counter U.S. green subsides -draft document

By Jan Strupczewski

BRUSSELS (Reuters) – The European Commission will not propose any new joint EU borrowing on Wednesday when it presents ideas on how to support Europe’s green industry facing Chinese and U.S. competition, a draft of its “Green Deal Industrial Plan” showed on Monday.

Instead, the draft seen by Reuters offers to re-purpose some of the money the EU has already agreed to raise jointly for its post-coronavirus pandemic recovery fund. It will also loosen state aid rules to allow governments to support their firms more.

European funding for the green industry – makers of wind turbines, solar panels, batteries, electric vehicles or hydrogen – has become an issue after the United States offered $369 billion of subsidies largely for manufacturers based in North America, threatening to lure companies away from Europe.

The Commission’s plan is to outline how Europe can keep its place as a manufacturing hub for green products and respond to multi-billion dollar subsidies of China and the United States.

Europe’s first line of defence will be looser state aid rules that will allow each of the 27-nation bloc’s governments to help its industry with public money, the Commission said.

But not all countries can afford the same amount of aid, which creates an inequality that threatens to disrupt fair competition on the EU’s single market. To keep a level playing field, France, Italy and others have called for the EU to jointly borrow new money and help those who cannot afford it.

This proposal ran into opposition from at least 10, mostly northern European countries, which said the EU should not be borrowing more, if it has not been able to spend what it had already agreed to jointly raise for the 800 billion euro Recovery Fund.

The Commission will therefore propose on Wednesday that EU governments change their plans on how to spend the grants and loans that each is getting from the recovery fund and redirect them to support the green industry, the draft showed.

Green transition

The Recovery Fund already earmarks 250 billion euros in total to be spent on the transition to a green and sustainable economy. But an additional 225 billion euros in the Recovery Fund has not even been claimed by any country because these are cheap loans and governments prefer grants.

The Commission said governments will now be able to use these unclaimed loans for green industry support, along with a 5.4 billion euro reserve in the EU budget created to counter the effects of Brexit.

Governments will be able to spend the Recovery Fund money on tax breaks or other forms of support for green investments either as a tax credit, an accelerated depreciation or a subsidy linked to the acquisition or improvement of green assets.

It could also go towards setting up one-stop-shops for the permitting of renewables and clean-tech projects to accelerate the process and for skills training.

The Commission will also say that the EU’s investment scheme InvestEU, which uses 26 billion euros of EU budget guarantees to attract private capital, can also be used to help green companies obtain financing.

In the medium term, the Commission said it would strive to establish a European Sovereignty Fund. It gave no details, but mentioned that it would be part of the review of the EU’s seven-year budget that is to start in the middle of this year.

(Reporting by Jan Strupczewski and Philip Blenkinsop; editing by Grant McCool)