Commissioner Margrethe Vestager calls for a plan to counter competition from US subsidies.

The European Commission’s Executive Vice President has proposed a new state aid framework to counter “urgent” challenges posed by the wave of green subsidies to US businesses, POLITICO reports.

Vestager, who also serves as Commissioner for Competition, is responsible for “long-term strategy for the EU’s industrial future”. In that capacity, the Danish politician is calling for a new “temporary crisis and transition framework” to simplify state aid rules for green projects, and “all renewable energy technologies” in particular.

EU fears US subsidies

The proposal comes as a direct response to the US Inflation Reduction Act. The law, passed last year, includes a $369 billion subsidy package that purports to encourage climate-friendly investment. Brussels, however, sees the program as a potential breach of international trade rules against protectionism.

The US legislation is part of a double blow to European business, coming on the heels of massive spikes in energy costs due to the sanctions imposed on Russian gas. Those sanctions have forced European energy providers to switch to buying liquid natural gas (LNG) shipped to Europe by the US — often at five times the price of its Russian counterpart.

EU officials now fear that the combination of green subsidies in the US and higher energy costs will make companies shift new investments to the U.S. rather than Europe. EU industry chief Thierry Breton warned that the US subsidy package poses an “existential challenge” to Europe’s economy.

Preventing relocations

In her letter to EU finance ministers, Vestager writes that the new framework would offer “anti-relocation investment aid” in a bid to keep firms from leaving the bloc to seek more favourable conditions (i.e., lower energy and operating costs) in the US.

“I envisage dedicated provisions to support new investments in production facilities, including tax breaks”, Vestager said. Hydrogen and electric-vehicle sectors could also get exemptions for state aid notification requirements under the bloc’s General Block Exemption Regulation.

Vestager has requested member countries to provide feedback on her changes by January 25. The subject of the framework is likely to be discussed when EU finance ministers meet in Brussels on Tuesday.