International Perspective - an update from Europe

The EU considers a European response to US green subsidies

Following the announcement of the landmark US federal legislation, the Inflation Reduction Act (IRA), which will direct new federal spending toward green technologies, for the purpose of attracting foreign investments and increasing domestic industrial capacity, the European Union has been considering its response.

Whilst the EU has welcomed US efforts to lower energy costs, decarbonise all sectors of the American economy and curb US greenhouse gas emissions, the European Commission has argued that the IRA contains provisions with discriminatory domestic content requirements, which are in breach of WTO rules. Moreover, there are fears that the measures will attract investment towards the US, and away from Europe, as well as giving US businesses an unfair competitive advantage.

Nevertheless, EU leaders remain divided over what the best course of action for Europe is; French President Emmanuel Macron is calling for a “Made in Europe” industrial plan to ensure the competitiveness of European industry whilst Germany is advocating instead for continued dialogue with the US. Following the European Council Summit on 16 December, EU leaders called on the European Commission to design an ambitious industrial policy and adopt proposals by the end of January 2023 that enable the mobilisation of national and EU tools and improve the conditions for investment in green and digital. Additionally, leaders also called on the Commission to present in early 2023 an EU strategy to enhance competitiveness and productivity. CBI will be keeping a close eye on discussions in both Brussels and Washington in order to understand the implications for the UK.

Take a first look at what the Swedish Presidency of the Council will look like

As we approach the end of the year, the Czech Presidency of the Council of the European Union is packing its bags after an intense 6 months of work and are handing over the rotating Presidency to Sweden. With the new Swedish government having only been formed in October, they haven’t had long to prepare for the Presidency. What is more, following the success of the far-right Sweden Democrats in the latest elections, there are concerns that they could influence Sweden’s position at EU level, leading to potentially a watering down of their stance on climate ambition and rule of law. Nevertheless, here is what we can expect from the Swedish Presidency of the Council in the first half of 2023.

The Swedish plans are focused around four main areas:

• Security, continuing the military support for Ukraine and building a united European security and defence policy.
• Resilience, furthering the global competitiveness of the Bloc and its single market.

• Prosperity, carrying on with the European efforts to deliver the green and energy transition towards a net-zero EU by 2050.
• Democratic Value and the Rule of Law, as a foundation for European unity.

The rotating Swedish Presidency of the Council will kick off on 1st January and will terminate in June 2023, after which Spain will take the lead. Over the coming 6 months, Sweden will seek for legislative progress on around 350 files – busy months lay ahead for the Swedes. CBI will continue to engage with the Swedish Presidency across our key priorities – get in touch with our team in Brussels to find out more.

The EU carbon levy is on its way

The EU is finalising the details of its own carbon levy as the European Parliament and Council reached a partial agreement to set up the EU Carbon Border Adjustment Mechanism (CBAM). CBAM’s scope, originally covering aluminium, steel, iron, cement, fertilisers, and electricity generation, has been expanded to include hydrogen, certain precursors, some downstream products (ex. screws and bolts), and indirect emissions. The final greenlight to the text should come from an additional round of negotiations, scheduled for mid-December, which will address some of the most contentious element: possible inclusion exports in CBAM and free allowances expiration date.  In parallel, EU institutions should reach an agreement on the reform of the EU ETS system.

The proposed legislation will oblige EU importers to buy carbon certificates for imported goods, corresponding to the carbon price that would have been paid, had the production taken place in the EU.  They will not be subjected to the scheme if they can prove that producers of the imported goods have paid the same price for emitting, when producing that product in their own country.  UK exporters to the EU will need to have at hand a proof of carbon payment that is consistent with the EU carbon price.

CBAM will enter into force in October 2023, with a three-year transitional period, whereby EU importers will be subjected to reporting obligations only. The UK Government was supposed to launch its consultation on a possible UK CBAM this Autumn, but it has been postponed. The CBI will continue to engage with its members to advise on potential concerns around the new EU carbon levy and it will follow its future developments.

For more information on the above topics, please get in touch with Emily Ritchy, Senior Policy Adviser, CBI Europe