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EU Modifies State Aid Regulations for Green Tech to Lower Carbon Emissions

CIO Insider Team | Friday, 10 March, 2023
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In an effort to address the threat that US and Chinese subsidies pose to European industry, the European Commission modified state aid regulations for green technology that reduces carbon emissions.

To prevent the relocation of green technology firms to the US and maintain the EU's ability to compete globally, the European Commission has kept its commitment to further modify the EU's enduring regulations on national subsidies.

Due to the Russian invasion of Ukraine and the energy crisis, the regulations had already been significantly loosened, allowing member states to more freely inject public funds into struggling businesses and vulnerable households.

But, the Inflation Reduction Act (IRA), a sizable state-aid package supported by US President Joe Biden and passed last summer, has forced the Commission to extend the crisis framework even farther and even broaden its purview to protect domestic businesses need to combat climate change.

The Commission acknowledges that this possibility is probable and has put out a number of safeguards to ensure that the matching aid does not get out of hand, including requiring that the aid be given in less developed areas or that the project be located in at least three member states.

The IRA will distribute up to $369 billion in tax credits and direct refunds over the next 10 years to assist businesses in scaling up the production of green, cutting-edge technology, but only if these goods are primarily made in North America.

The EU concerns that enterprises would be lured by state aid and cheaper energy prices in Asia and North America and decide to relocate, despite its desire to avoid starting a race to the bottom on subsidies.

The Commission has modified the state aid regulations to make it easier to approve subsidies for six important technologies: batteries, solar panels, wind turbines, heat pumps, electrolysers (a device needed to produce green hydrogen), and carbon capture technology.

With the aim of sustaining the development of these green tech products, which are essential to reducing greenhouse gas emissions and achieving climate neutrality by 2050, the new procedures will give member states greater flexibility to inject public money in the form of grants, loans, or tax credits.

Countries will be able to match the subsidies provided by a non-European government, such as the US, in situations where there is a strong danger of relocation, keeping the enterprise within EU boundaries. Conversely, nations will be able to fill the funding shortfall that the business predicts will exist.

The Commission acknowledges that this possibility is probable and has put out a number of safeguards to ensure that the matching aid does not get out of hand, including requiring that the aid be given in less developed areas or that the project be located in at least three member states.

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