By Kim Mackrael
BRUSSELS--The European Union's competition czar said Wednesday that the bloc's response to the U.S. Inflation Reduction Act should be firm but proportionate, while steering clear of using procurement policies to favor European businesses.
Margrethe Vestager said during a speech at a clean-tech conference in Brussels that the bloc is preparing counter-measures to the U.S. legislation including a temporary easing of government subsidy rules and the creation of a new pot of money to help finance green incentives from less-wealthy countries.
Business leaders have warned that the IRA's $369 billion in incentives and funding for clean energy could push them to invest more in the U.S., potentially at Europe's expense. The U.S. plan is boosting global competition for clean-tech investment and prompting the EU and other governments to rethink their approach to subsidies.
Ms. Vestager said more climate-related spending is good for the environment and EU companies. But she said the IRA contains what she called questionable provisions that run the risk of diluting the shared sense of purpose on tackling climate change.
The EU's response to the IRA "will be firm, but of course [will] remain proportionate," Ms. Vestager said.
She said the bloc would not "go down the slippery slope" of using procurement to favor European businesses. "In order to speed up clean-tech and climate neutrality, the European Union and the U.S. -- we should continue to work together," she said.
The EU's state subsidy rules are meant to level the playing field across the bloc's single market between wealthy countries that can spend heavily and those with less fiscal leverage. The rules were loosened during the Covid-19 pandemic and in response to Russia's invasion of Ukraine.
The European Commission, the bloc's executive arm, says it now wants to do more to temporarily speed up and simplify governments' abilities to provide subsidies in response to the IRA. The Commission also wants to introduce a so-called Sovereignty Fund, which would set aside common money to ensure that all EU member countries have the means to provide clean-tech subsidies.
Ms. Vestager earlier this month sent a letter to EU finance ministers asking for their views on the commission's plans, and the topic is set to be a key discussion at a summit of European leaders next month.
Ms. Vestager said the EU's plan to relax government subsidy rules is broadly expected to focus on the same clean-tech sectors as the IRA. Adaptations to state aid rules "must be targeted to the sectors that are really strategic," she told reporters at the conference in Brussels.
High energy prices in Europe have exacerbated the impact of the IRA, Ms. Vestager said. European energy prices jumped last year as Russia squeezed the continent's supply of natural gas, putting pressure on energy-intensive industries and prompting some to idle factories.
"One of the reasons why the Inflation Reduction Act is toxic is the differences in energy prices," Ms. Vestager said. The U.S. "can provide low stable energy prices. In Europe they are high, they are volatile, they are unpredictable."
She said the EU's push to accelerate the green transition, including the deployment of renewable-energy sources, should help bring down prices and make the bloc more competitive.
Write to Kim Mackrael at kim.mackrael@wsj.com
(END) Dow Jones Newswires
01-25-23 0626ET
