EU’s investment plan to rival US green subsidies

European leaders are grappling with how to compete with the financial might of the United States’ green tech investment plan. The US Inflation Reduction Act’s subsidies for clean technology have raised concerns among European capitals, as they fear it will draw investment away from Europe and disrupt their own recovery plans.

In response, the European Commission, led by Ursula von der Leyen, has proposed loosening Europe’s restrictions on state subsidies and allowing member states to provide grants or tax breaks to companies in the renewable energy and low-carbon sectors. However, some EU members are wary of igniting a subsidy war with the US or destabilizing the single market.

In the face of this opposition, France is pushing for new shared investment funds to pool European investment and tackle competition from the US and China. Von der Leyen has pledged to create a “Sovereignty Fund” to finance joint investment in strategic businesses within the next five months. However, member states are divided over this plan, with Germany and other net contributors to EU funds opposing joint borrowing or increased EU membership contributions to pay for the fund.

Despite these obstacles, France remains steadfast in its pursuit of the sovereignty fund plan, with President Emmanuel Macron’s office affirming that it will be included in the post-summit joint statement. Meanwhile, existing EU investment funds, including the 800-billion-euro NextGenerationEU, could be utilized to finance Europe’s green transition, bringing the bloc’s investment close to the $370 billion planned by the US. German Chancellor Olaf Scholz has stated that “Europe need not blush” in the face of the US competition.