European Union unveils its ‘Green Deal Industrial Plan’: What does it entail?

European Union unveils its ‘Green Deal Industrial Plan’: What does it entail?

Context- In a bid to support and expand its green industry, the European Union on February 1 revealed the “Green Deal Industrial Plan” that aims to cut red tape and provide massive subsidies. The move has come just a few months after the United States announced its Inflation Reduction Act (IRA), which contains billions of dollars of tax cuts for clean energy and climate change programs with incentives for US-based manufacturing.

The plan will be debated by EU leaders at a summit next week, DW reported. The 27 national governments must approve the initiative for its implementation.

(Source- Rystad Energy)

What is the ‘Green Deal Industrial Plan’?

  • According to the website of the European Commission, which oversees trade policy of the EU, the proposal involves building a simpler regulatory framework, providing faster access to funds, enhancing skills and improving the EU’s trade network.
  • Simpler regulatory framework: The plan seeks to formulate a “Net-Zero Industry Act”, which will not only simplify rules but also speed up the issuance of permits for green projects, such as renewable energy generation arrays, carbon capture and renewable hydrogen production facilities.
  • It also includes a “Critical Raw Materials Act”, which will provide access to materials like rare earths that are crucial for developing net-zero technology.

Providing faster access to funds:

  • According to the proposal, state aid rules will be loosened in order to help EU’s 27 governments with investing in the clean energy projects.
  • Keeping in mind that every country doesn’t have deep pockets like France and Germany to provide subsidies to companies, the plan allows countries to take money from existing EU funds.
  • Notably, the proposal doesn’t involve any fresh cash and seeks to direct €250 billion to serve the green industry from the existing EU money, which is around €800 billion.
  • There is also a provision for setting up a “European Sovereignty Fund” in the future to “give a structural answer to the investment needs”.

Enhancing skills:

  • The plan aims to establish “Net-Zero Industry Academies” that will provide up-skilling and re-skilling programmes in strategic industries. According to the European Commission’s website, 30 to 40 per cent of the existing jobs might get affected due to green transition. Therefore, the “Green Deal Industrial Plan” focuses on developing the skills needed for well-paid quality jobs.
  • Improving the trade network: The plan underlines the importance of open trade and seeks to further “develop the EU’s network of Free Trade Agreements and other forms of cooperation with partners to support the green transition.”

Counter to the USA’s Inflation Reduction Act (IRA)

  • In August 2022, President Joe Biden’s administration unveiled its climate change legislation, which will direct $390 billion towards clean energy projects. The IRA provides huge tax breaks and incentives to both customers and manufacturers.
  • However, soon after the legislature was revealed, leaders of the European Union expressed concerns reqarding its possibly “discriminatory” provisions.
  • The EU members have claimed that IRA’s tax credits and subsidies to green product makers would put European companies at a disadvantage and might lure them to the United States.
  • Hence, it didn’t come as a surprise when the bloc announced to come up with their own plan of providing subsidies to sustainable companies.
  • Although analysts have praised the EU for recognising the need to act on Europe’s “worsening” competitiveness, a section of them fear that the IRA and the new “Green Deal Industrial Plan” might trigger a global subsidy war.
  • A recent report in The Wall Street Journal said, “Some economists and policymakers warn that wide-ranging government support such as contained in the act isn’t always effective and doesn’t necessarily create the strong industries it is supposed to.”
  • “Projects might not get built and companies could end up failing, wasting money, they argue.”

Conclusion- Green Deal Industrial plan aims to subsidize green industries and green projects, similar to USA’s Inflation reduction act. However, their actual effectiveness in propping up strong industries remains to be seen on ground.

Source- Indian Express

Syllabus- GS-2; International Relations