Brussels has kicked off a major ideological battle over big state interventions in Europe’s economy, as it finalises proposals to drive down carbon emissions and match US ambition on the green economy.
The European Commission will this week unveil long-awaited proposals aimed at boosting green industry and domestic supplies of key raw materials, the main planks of the EU’s response to industrial competition from US and China. Last week Brussels put forward reforms that would enable capitals to match subsidies available in the US and elsewhere.
But the draft proposals have sparked a fierce debate within Brussels, with more liberal EU member states objecting to distortions of free trade and open markets. Among the key points of friction are the inclusion of green production targets, potential barriers to imports of raw materials, and the extent to which constraints on public subsidies should be eased.
“The balance has gone in this discussion — we are only talking about sovereignty,” said an EU diplomat. “By doing these things we are going to completely restructure the European economy in a way we are not confident will actually bring us to where we need to be in 10 or 20 years time.”
Some of the most fraught debates have been over the net zero industry proposal, a direct response to the US Inflation Reduction Act announced last August. The US bill provides $369bn for clean energy technologies, a massive incentive package that has left EU officials fearing an exodus of companies across the Atlantic.
Under leaked drafts of the EU response, domestic production in five key sectors — solar, wind, heat pumps, batteries and electrolysers — would need to meet at least 40 per cent of the bloc’s total requirements. The highest targets set are for the wind and heat pump sectors, at 85 per cent.
But specific industry targets have been repeatedly removed and restored in drafts of the legislation as negotiations over the final proposal continue into this week.
According to one EU official, a pro-competition camp has pressed for a more open list of technologies that would be considered as “strategic net zero” industries, while Thierry Breton, commissioner for the internal market, wanted a more fixed set of sectors. “Breton is more about boosting what we have,” they said.
Officials are also debating rules requiring companies exporting minerals to the EU to meet criteria, such as environmental standards and labour rights, that would potentially create formidable barriers to imports from some developing countries.
One diplomat from a developing nation said that the EU was advancing “at a rapid pace a whole set of requirements” that were making it “very expensive” to trade with the bloc.
The EU is already immersed in a tough discussion over how far to relax restrictions on state aid, as the bloc seeks to compete with US and Chinese subsidies. Valdis Dombrovskis, the trade commissioner, warned journalists on Thursday of “the risks of going into a costly and inefficient subsidy race”.
Member states including the Netherlands, Sweden, Denmark and Ireland are among those stressing the importance of maintaining a level playing field within the single market, rather than enabling bigger economies to pour large quantities of public subsidies into industry.
Simon Coveney, Ireland’s enterprise minister, said the EU must be “careful that we don’t go too far” in loosening subsidy rules. He also warned against “protectionist policies”.
“A small open economy like ours will lose out,” Mariin Ratnik, Estonia’s chief trade diplomat, told the FT.
One EU diplomat said that France in particular is pushing the opportunity to shape Europe’s industrial policy, which Paris has long seen as too liberal. “We are building European competitiveness on subsidies. Free markets and open trade are no longer at the table,” the diplomat said.
Raphaël Glucksmann, a French socialist MEP who chairs the European parliament’s foreign interference committee, said that Europe’s push for cheap solar energy was a good example of how the EU’s free trade policy had led to heavy dependencies on other states.
“Thirty years of ideology have led to dependency, which is the big paradox of our time. Thirty years of deregulation and free trade policy have led to the triumph of the Chinese Communist party,” he said. “That is the Faustian pact between pro market ideologues and communism. This is very ironic but this is the result we are in now.”
