View from Brussels - January 2023

19 January 2023

In a week when the collapse of BritishVolt, the electric vehicle (EV) battery maker demonstrates the challenges of creating viable business models prior to significant consumer demand, the EU’s answer is to create a subsidies regime in the shape of a Green Tech Act.  

The plan unveiled by Thierry Breton, the EU Industry Commissioner, comprises two elements: a coordinated response both with horizontal legislation that responds to the US Inflation Reduction Act; and subsidies for key industries in Europe, with the focus on green supply chains. Breton’s vision is of a “Made in Europe” scheme that would favour investments and new factories on the Continent with the emphasis on sustainability criteria, which could indirectly encourage local production.

The plan has been given extra credence with backing from Margrethe Vestager, the Competition Commissioner, who is keen to match US efforts to support domestic industries. She has suggested a new "temporary crisis and transition framework," to simplify state aid rules for green projects, notably “all renewable energy technologies.” Hydrogen and electric-vehicle sectors could also get exemptions for state aid notification requirements under the bloc's General Block Exemption Regulation. EU-based firms (which might be tempted to move to the US) would be discouraged from moving outside of the bloc with “anti-relocation” investment aid. 

Also under consideration is a joint EU fund to allow countries to subsidize green industries on equal footing – last year France and Germany accounted for the 80% of temporary subsidies granted. This proposal may yet be opposed by a significant cohort of Member States who regard this as undermining the Internal Market. 

The demise of BritishVolt is a major blow to the UK’s green ambitions. It was intended to be the second gigafactory plant to produce electric car batteries at scale (after Sunderland) and had not yet drawn on any of the £100m funding the Government had allocated. Boris Johnson’s Government envisaged the development of eight such plants. The added complication is that under the terms of the Brexit deal, the UK has until the end of 2026 to develop its own infrastructure (unless it sources them from the EU), otherwise tariffs will be imposed on UK-manufactured EVs exported to the EU (currently about half of the market). The only viable solution may be to rely on EU-based production.

Published 19 Jan 2023