Caution over EU Green Deal
Experts urge European Union against zero-sum logic that could hurt aims to counter global climate change
As the European Commission prepared on Feb 1 to unveil the industrial plan underpinning its Green Deal, experts warned against a zerosum mentality in a race that might harm global efforts to counter climate change.
A draft document of “A Green Deal Industrial Plan for the Net-Zero Age” leaked to the press on Jan 30 described the European Union’s plan as based on four pillars: a predictable and simplified regulatory environment; faster access to sufficient funding; skills; and open trade for resilient supply chains.
While the plan names China, the United States and some other countries for their subsidy policies, its words on China are harsher.
The draft plan said that the Chinese subsidies have long been twice as high as those in the EU, relative to gross domestic product, with a pipeline of $280 billion of investment, distorting the market and ensuring China’s lead in a number of technologies.
“Europe and its partners must do more to combat the effect of these unfair subsidies and prolonged market distortion,” it said.
The draft plan, which was still subject to potential changes, was designed to outline how Europe can keep its place as a manufacturing hub for green products such as electrical vehicles and respond to subsidy programs in China and the US.
It came ahead of an EU summit in Brussels on Feb 9-10.
The commission will make use of a foreign subsidies regulation that took effect last month to investigate if subsidies granted by third countries impact the EU’s internal market, according to the plan.
“The EU will also work with partners to identify and address distortive subsidies or unfair trading practices relating to IP theft or forced technology transfer in non-market economies,” the draft plan said.
The EU also plans to strike back at the $369-billion US Inflation Reduction Act, or IRA, by easing restrictions to allow tax credits for green investment.
European Commissioner for Competition Margrethe Vestager acknowledged in the plan that COVID recovery funds could be redirected under the proposed loosening of state-aid rules.
There is widespread concern in Europe that the IRA will lure EU companies away to the US by taking advantage of the US subsidies.
Vestager described the US legislation as having a “toxic” effect on some European industries and insisted that a further relaxation of state-aid rules should be targeted and temporary.
German Finance Minister Christian Lindner said on Jan 30 that Europe did not need an “excessive” overhaul of rules but backed plans to streamline decision-making.
Dutch Prime Minister Mark Rutte said on Jan 30, after a meeting with French President Emmanuel Macron, that France and the Netherlands are aligned when it comes to the ways the European Union could deal with the “unintended consequences” of the IRA.
“While there are legitimate concerns over the fairness of other countries’ green industrial policies, it is important that the EU’s response does not reflect a zero-sum thinking as the US does,” said Yan Shaohua, an associate professor at the Institute of International Studies at Fudan University in Shanghai.
“China and the EU have more consensus and common interests than differences in the area of the green transition. Both sides should work together to make sure that their competition serves not only their national interests but also the common good of our planet.”
Qin Yan, an Oslo-based lead carbon analyst with financial data provider Refinitiv, said the EU measures will provide a positive impetus to reduce emissions in European industrial sectors and maintain their competitiveness in global markets.
“However, this communication and in particular the net zero industrial act mentioned in this plan is mainly a response to the green subsidy under the US IRA,” she said.
“The measures outlined in the plan will de facto launch a global green subsidy race that could counteract global climate efforts.”
Qin pointed out that large government subsidies are not always effective. They can create barriers that only benefit domestic producers and hold back global cooperation and the advancement of technological breakthroughs, the analyst said.
“Countries should be looking for ways to work together on clean energy and emissions reduction efforts rather than designing these kinds of inefficient protection policies and dragging each other’s feet,” she said.