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EU to overhaul state aid rules in response to Biden’s green energy plans

EU US - Alex Brandon/AP
EU US - Alex Brandon/AP

Brussels is to overhaul rules on state aid amid fears Joe Biden's $430bn (£350bn) green technology energy subsidies risk sparking an exodus of cash from Europe.

EU president Ursula von der Leyen said on Sunday that the bloc had to “simplify and adapt” state aid rules in response to the US Inflation Reduction Act, which has been described as “super aggressive” by French president Emmanuel Macron.

Ms von der Leyen said: “Competition is good ... but this competition must respect a level playing field.”

State aid rules limit the support that nation states can give to businesses or industries. Ms von der Leyen said the EU should adjust those rules to make it easier for public investments.

It comes in the wake of pressure from nation states over the threat of Mr Biden’s green subsidies package, which includes measures such as offering companies tax breaks on making components used for renewable energy if they make them in North America.

The subsidies have ignited tensions between the EU and US and fuelled fears of a trade war. Germany has warned that the measures risked companies moving jobs over to the US, while Mr Macron last week told Mr Biden during a state visit that the measures threatened to “fragment the West”.

Mr Biden later admitted there were “glitches” in the bill and vowed to tweak parts of it. He said: “It was never intended to exclude folks who were cooperating with us.

“We're going to continue creating manufacturing jobs in the US, but not at the expense of Europe.”

However, Ms von der Leyen said that Brussels must respond to increasing global competition on green technologies, warning it would undermine the single market if investments were “leaking away” from the EU.

The planned overhaul could see sweeping changes to rules that have been the subject of criticism in recent years. Thomas Schäfer, chief executive of Volkswagen Passenger Cars, said last month that while the US was offering “highly attractive incentives to invest” in new car plants in the country, “the EU, on the other hand, is sticking to outdated and bureaucratic state aid rules”.

Others have previously voiced frustration at the rules, including British businesses when the UK was still an EU member state. Some early-stage start-ups had lashed out at the rules as ones which prevented them from gaining access to government grants, in particular in the biotechnology industry where they had built up steep losses before creating drugs to bring to market, and so were unable to get state funding.