Brussels says it will retaliate if US does not make concessions on its green subsidies

The EU is preparing a law to make life easier for its green industry

European Commission executive vice president Valdis Dombrovskis with US trade representative Katherine Tai in Brussels on Tuesday. AP

European Commission executive vice president Valdis Dombrovskis on Tuesday said the EU and the US must find “workable solutions” to mitigate the effects of a US green subsidies package or Brussels will face “even stronger calls” to respond.

“Subsidies must not come at the cost of well-functioning markets and fair competition,” Mr Dombrovskis said alongside US trade representative Katherine Tai in Brussels.

The EU is particularly worried about tax cuts and significant subsidies for US-maelectric vehicles and batteries, and renewable energy projects that are included in a stimulus package adopted by US Congress in August, called the Inflation Reduction Act.

EU officials believe the act unfairly discriminates against European companies and a task force has been working on finding a negotiated compromise since October.

On December 29, the Commission claimed EU companies could benefit from the act’s commercial clean vehicle credit scheme, but more is needed, Mr Dombrovskis said.

“We need to work on removing key trade irritants,” he said.

“There is still some time to have those discussions and have satisfactory outcomes."

Ms Tai said that the EU and US needed to work together to build a “prosperous global order".

Before her meeting with Mr Dombrovskis, she said the US has placed the highest priority on addressing EU fears.

Both are due to head to the World Economic Forum in Davos.

As part of its response to the US act, Brussels is also working on relaxing its rules on subsidising green technology.

Speaking in Davos, European Commission President Ursula von der Leyen said the EU should “get ahead of the competition” for a share of a potential $650 billion clean-technology industry.

Ms von der Leyen told the WEF that the EU was facing “aggressive attempts” to lure industry to China and to the US.

“This is why we will propose to temporarily adapt our state aid rules to speed up and simplify: easier calculations, simpler procedures, accelerated approvals,” she said.

Ms von der Leyen’s Green Deal Industrial Plan will be discussed by the bloc’s 27 leaders during a summit in Brussels on February 9-10.

German Chancellor Olaf Scholz told Bloomberg he was convinced a trade war with the US could be avoided.

But some countries, including France, want much bigger subsidies for sectors such as hydrogen, electric batteries, solar panels and semiconductors.

Because of the Covid-19 pandemic since 2020 and Russia's war in Ukraine since February, the EU has already temporarily loosened subsidy regulations to help industries survive.

Germany and France — the two largest European economies — have been the major beneficiaries.

Of the €672 billion ($727.5 billion) in EU aid approved to help member states deal with the effects of the war in Ukraine, 53 per cent was for Germany and 24 per cent for France.