View from Brussels - March 2023

14 March 2023

The prospect of a green subsidy ‘war’ is looming with the EU having last week announced a Temporary Crisis and Transition Framework which in effect gives EU national governments the green light to relax state aid rules to achieve Net Zero. Under this arrangement – which is in place until the end of 2025 – EU Member States can subsidise “the manufacturing of strategic equipment” such as solar panels, batteries, heat pumps, and electrolysers as well as the production of key components and related critical raw materials. This protectionist approach is expected to be reinforced in the publication this week of the European Commission’s Net Zero Industry Act.

This is a response from Brussels to the threat of EU-based firms relocating to regions such as Asia and North America where energy costs are lower. In 2022, the Biden administration adopted the Inflation Reduction Act which included incentives to buy American electric vehicles.

From a UK perspective, the Government has been cautious in supporting direct intervention or imposing protectionist measures. We continue to discuss a Green Finance Wholesale Guarantee for consumer and business lenders to stimulate greater take-up of greener technologies, including electric vehicles, with HM Treasury. We are also working with the British Business Bank on ‘greening’ their existing support portfolio. The publication of the Government’s imminent review of its Green Finance Strategy should bring much needed clarity to this important area.  

Meanwhile, some EU Member States appear to be trying to unravel the car emission reducing elements of the Green Deal which had been agreed in principle. Led by Germany and Italy with support from the Czechs and the Poles, they oppose the 2035 phase-out of petrol and diesel engines unless the Commission agrees to exempt synthetic e-fuels which can be used in conventional engines, to benefit the big car manufacturers. France, which brokered the agreement on 2035 under its Presidency of the EU last year, is holding firm alongside Spain and many Northern European countries. It remains to be seen whether the UK sticks with its 2030 deadline.    

Published 14 Mar 2023