The US Inflation Reduction Act (the IRA) has raised concerns in the EU about the potential impact on international investment – particularly the possibility that such investment will be pulled into the US, rather than directed to the EU and may encourage ‘green industries’ to relocate production to the US. The EU has been working on an appropriate response that would increase the attractiveness of the EU as a green investment destination without breaching either WTO rules or its own State Aid rules.
Background
The IRA has provoked diverse reactions across EU Members States. Whilst some countries have lined up behind calls for a “Made in Europe” strategy which would accelerate production targets (cf the EU Chips Act); weaken state aid rules; establish an EU emergency sovereign fund; and mobilize WTO-compliant trade defense instruments. Other Member States have expressed concern that such an approach would risk undermining EU provisions on State Aid and fragmenting the EU internal market.
With some justification, smaller EU Member States are concerned that weakening the EU’s State Aid rules would favour more fiscally powerful Member States (52% of the Temporary Crisis Framework (“TCF”) established following Russia’s invasion of Ukraine was notified by Germany and a further 24% by France). Such Member States would prefer the creation of a joint EU fund – a proposal in turn opposed by fiscally conservative Member States who reject any further joint EU borrowing.
On 1 February, the Commission released its Communication for A Green Deal Industrial Plan for the Net Zero Age (The Communication) which contains a series of proposals for discussion at the EU Council Summit on February 9-10. The differences between the various Member States noted above, are likely to influence the discussions at the Council Summit and impact the formal proposal which is expected to be presented to the European Council in late-March.
Continue Reading The EU’s Green Deal Industrial Plan for the Net-Zero Age