EU Readies Subsidy Response to U.S. Clean-Tech Tax Breaks

Ms. von der Leyen said the EU intends to develop an industrial plan focused on improving Europe’s regulatory environment and providing more money for the production of clean technology. The plan would also aim to boost workers’ skills and bolster trade with other countries, she said.

“We have a small window to invest in clean energy and innovation and clean tech before the fossil fuel economy becomes obsolete,” Ms. von der Leyen said.

The European push to advance the continent’s clean-tech industry is partly a response to the U.S. Inflation Reduction Act, which directs about $369 billion to clean energy and energy-security programs. EU officials have expressed frustration with “Buy American” provisions attached to the act, which is also known as the IRA, saying they are discriminatory and could lure European companies to the U.S.

“It is no secret that certain elements of the design of the Inflation Reduction Act raised a number of concerns in terms of some of the targeted incentives for companies,” Ms. von der Leyen said in her speech.

Although the U.S. last month said it would tweak its rules to allow some electric vehicles that are assembled overseas to qualify for the tax breaks offered through the IRA, those changes haven’t been enough to ease European concerns.

Ms. von der Leyen also expressed concern about China’s dominant role in producing clean-technology, including electric vehicles and solar panels, which she said are essential for the global transition away from fossil fuels. 

“China has been openly encouraging energy-intensive companies in Europe and elsewhere to relocate all or part of their production,” through the promise of cheap energy, low labor costs and looser regulations, Ms. von der Leyen said. “At the same time, China heavily subsidizes its industry and restricts access to its market for European Union companies.”

Although the EU should continue to trade with China, she said, it should also challenge what it sees as unfair practices. A new EU regulation targeting foreign subsidies, for example, could allow Europe to push back if it believes its markets are being distorted by state subsidies in China or elsewhere, she said.

The EU’s new foreign subsidy legislation is set to take effect later this year and will allow regulators to block companies from making certain acquisitions or winning large public contracts if they previously benefited from government aid that EU regulators believe was distortive. 

Chinese state-backed companies, which often receive concessionary loans and other government benefits, have won billions of euros in taxpayer-funded public procurement contracts in the bloc, sometimes drawing concern from their Western rivals.

Write to Kim Mackrael at kim.mackrael@wsj.com