EU liberals fight for greater state role in green economy plans

Brussels has unleashed a major ideological battle over major government intervention in Europe’s economy as it finalizes proposals to cut carbon emissions and align with US ambitions for a green economy.

This week, the European Commission will unveil long-awaited proposals to boost green industry and domestic supply of key raw materials, the EU’s main response to industrial competition from the US and China. Last week in Brussels nominate reforms that would allow capital to match the subsidies available in the US and other countries.

But the draft proposals have sparked fierce debate in Brussels, with more liberal EU member states objecting to the distortion of free trade and open markets. Among the key points of contention are the inclusion of green production targets, potential barriers to raw material imports, and the extent to which restrictions on government subsidies are loosened.

“The balance in this discussion is upset – we are only talking about sovereignty,” the EU diplomat said. “By doing these things, we are going to completely restructure the European economy in a way that we are not sure will really get us where we need to be in 10 or 20 years.”

One of the most heated debates has been around the industry’s proposal for zero net profits, which is a direct response to the US Inflation Reduction Act, unveiled last August. The US bill provides $369 billion for clean energy technologies, a massive stimulus package that has left EU officials wary of companies fleeing across the Atlantic.

According to the leaked draft EU response, domestic production in five key sectors – solar, wind, heat pumps, batteries and electrolysers – must meet at least 40 percent of the bloc’s total needs. The highest targets are set for the wind and heat pump sectors, at 85 percent.

But industry-specific targets have been repeatedly removed and reinstated in bills as negotiations on the final proposal continue this week.

According to one EU official, pro-competitionists pushed for a more open list of technologies that would be considered “strategic zero” industries, while Thierry Breton, the internal market commissioner, wanted a more fixed set of sectors. “Breton is more about improving what we have,” they said.

Officials are also discussing rules requiring companies exporting minerals to the EU to comply with criteria such as environmental standards and labor rights, which could potentially create huge barriers to imports from some developing countries.

One diplomat from a developing country said the EU is “rapidly pushing through a range of requirements” that make trade with the bloc “very expensive”.

The EU has already plunged into a heated debate about how much to loosen restrictions on state aid as the bloc seeks to compete with US and Chinese subsidies. Valdis Dombrovskis, trade commissioner, warned journalists on Thursday of “the risks of engaging in a costly and inefficient race for subsidies.”

Member States, including the Netherlands, Sweden, Denmark and Ireland, are among those emphasizing the importance of maintaining a level playing field in the single market rather than allowing larger economies to invest large amounts of government subsidies in industry.

Simon Coveney, Ireland’s Enterprise Minister, said the EU should be “careful not to go too far” in loosening subsidy rules. He also warned against “protectionist policies”.

“A small open economy like ours will lose out,” Estonia’s top trade diplomat Mariin Ratnik told the FT.

One EU diplomat said that France, in particular, is promoting the possibility of shaping a European industrial policy that Paris has long considered too liberal. “We are building European competitiveness on subsidies. The free market and open trade are no longer discussed,” the diplomat said.

Raphael Glucksmann, a socialist French MEP who chairs the European Parliament’s committee on foreign interference, said Europe’s push for cheap solar power is a good example of how the EU’s free trade policy has led to heavy dependence on other states.

“Thirty years of ideology has led to addiction, which is the great paradox of our time. Thirty years of deregulation and free trade policies have led to the triumph of the Chinese Communist Party,” he said. “This is a Faustian agreement between market ideologues and communism. It’s very ironic, but that’s the result we’re at now.”