The European Union will respond to Inflation Reduction Act of the United States with a series of measures to prevent the flight of investments to North America. Among other things, the European Commission has adapted the rules on state aid to simplify the approval process for subsidies for sectors such as batteries or renewables.
As readers will recall, the law passed by the Biden administration contemplates a credit of $35 per kWh of annual capacity for battery manufacturers producing cells on US soil. Taking into account that battery plants usually have tens of GWh of capacity, the aid would amount to billions of dollars for each factory.
The European amendment gives member countries greater room for maneuver when it comes to granting public funds, whether in the form of grants, loans or tax credits. In addition, in those cases where there is a high risk of relocation, Aid offered by a non-European government may be compensated to keep the company in the European Union.
This modification of the regulations is temporary and initially will only be applied until the end of 2025. On paper, these measures should prevent or at least mitigate the massive migration of battery manufacturers to the United States, since there are already several companies that have made public their intention to concentrate their investments in that region.
The measures adopted by the EU are temporary
“The framework we have adopted today gives Member States the option to provide state aid in a fast, clear and predictable way. Our rules allow Member States to accelerate investments at this critical time, while protecting a level playing field in the single market and cohesion objectives. The new rules are proportionate, specific, and temporary.”Explain Margrethe VestagerExecutive Vice President of the European Commission in charge of Competition and the Digital Age.
thomas schmalla member of Volkswagen’s board of directors and head of its components division, warned a few days ago of the loss of competitiveness that Europe could face if the authorities did not react quickly to the measures adopted by the United States.
“Today, the battery business is led by Asian companies. And while the United States is catching up thanks to the Inflation Reduction Act, Europe is falling further and further behind. The IRA terms are so attractive that Europe risks losing the race for billions in investments to be decided in the coming months and years.”