EU proposes US-style tax rebates

wind farms

In the future, it should also be possible to promote mature green technologies.

(Photo: dpa)

Brussels The EU Commission wants to counter the American Inflation Reduction Act (IRA) with tax rebates. The EU state aid rules are to be relaxed in such a way that European governments can grant tax breaks for certain green investments. This emerges from a draft that the Commission wants to present on Wednesday and that is available to the Handelsblatt.

The US law IRA, which has been in force since January, provides tax rebates and subsidies for certain industries amounting to 369 billion euros over ten years. Europe’s politicians now fear that European companies could migrate to the US given the generous grants.

The 27 EU heads of government want to discuss a European response to the IRA at a special summit on February 9th. The Commission draft should form the basis for this.

Brussels is changing course

The fact that the Commission wants to allow tax rebates based on the US model means a change of direction in Brussels. Companies and associations had criticized the fact that green subsidies in Europe flow too slowly because they first have to be applied for and approved in a cumbersome manner. With tax rebates, on the other hand, it works the other way around: they are granted first – and checked later.

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The Commission estimates that by 2030 the clean tech industry will have to invest at least 170 billion euros in production capacities for solar panels, wind turbines, batteries, heat pumps and hydrogen. That is why mature green technologies should also be able to be funded in the future.

>> Read here: With these three measures, the Federal Ministry of Economics wants to ensure more investment

The award procedures for “Important Projects of Common European Interest” (IPCEI) are also to be accelerated. These are funding projects in which companies from several Member States are involved. So far there are five IPCEIs for hydrogen, battery manufacturing and microelectronics.

The traffic light coalition in Berlin is not yet in complete agreement as to whether tax breaks are the right way to go. According to government circles, the Chancellery should have a very positive attitude towards corporate aid via taxes. This would have the great advantage that the companies could immediately identify their funding opportunities.

Federal Minister of Economics Robert Habeck (Greens) brought this path into play in a paper before Christmas. However, not everyone in his ministry is convinced. The fear: tax breaks are not precise enough, the state aid would be used too inefficiently.

Smaller countries are demanding a compensation mechanism

In several smaller countries, the proposal has met with protest for other reasons. They fear that financially strong countries like Germany and France will massively support their industry and distort competition in the internal market. They call for a compensation mechanism in the form of an EU fund. However, the Commission does not want to talk about additional EU funds until later.

>> Read here: Dispute over new debt fund – the EU still has that much money in reserve

She wants to set up the announced “sovereignty fund” by the summer. The draft only says that “appropriate funding at EU level” is needed. That leaves all options open – including the possibility that there will be no additional funds.

In an interview with the “FAZ” on Monday, EU Economic Commissioner Paolo Gentiloni emphasized once again that he believes new joint debts are necessary. But this opinion is controversial even within the Commission. In Brussels it is expected that the authority will not propose new borrowing but will create the sovereignty fund by reallocating existing budget funds.

Because the resistance in the EU Council to new debt is too great. According to diplomats, around ten countries are against it, with Germany leading the way. The commission cannot ignore such a large group, says a diplomat. Another argues that several countries’ concerns about unfair competition should be taken seriously.

This is also how the Greens in the European Parliament see it. The softening of the subsidy rules should not unilaterally benefit the states with deeper pockets, says the Green MEP Rasmus Andresen. One must keep an eye on the financial leeway of all member states, “whether by adapting the outdated fiscal rules or a common fiscal capacity at the EU level”.

More: The EU Commission wants to brace itself against the USA with new debts

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