Thierry Breton: EU will mobilise 350 billion for its green energy industry.
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The Internal Market Commissioner believes Europe needs a common framework and matching funding for the 27 to respond to the US.
Written in Spanish by SAMUEL SÁNCHEZ
Xavier Vidal-Folch
El País
Barcelona - 16 JAN 2023
Translation by Germán & Co
Europe will invest some 350 billion in the manufacture of industrial products to generate green energy. And to compete successfully against Chinese and US protectionism. This is what the European Commissioner for the Internal Market, Thierry Breton (Paris, 1955), believes in an interview with this newspaper during his recent stay in Spain.
Breton is a key player in the formulation of the Commission's imminent proposal on the matter, which is due in January. He recalls that "the internal market is the quintessence of what we do best: pooling a common good, which reaps more benefits than if we were each managing our own little perimeter". And that at the beginning of the pandemic it fizzled out, because some "closed their borders", but "we reopened, we won".
Question. Europe is subject to a US-China pincer. What will be the outcome?
Answer. Europe is strengthened in crises. As the founding fathers said. It works together. It is strengthened together. We saw it in the Great Recession and in the pandemic. Now we have a major energy and industrial crisis, resulting from the war in Ukraine.
P. The first war on our continent after the Balkans, even if this one was less global in scope.
R. That's right. And it affects the way we live, the way we feed ourselves, the way we produce... And the dependency relations that have been established with Russia. We give all our support to Ukraine, with the US and others. We will continue to do so. And then there are the autocracies, Russia. And China, that's why we call it a systemic rival, which does not mean not trading, but defending our values. We know where we stand. And we are a great democracy, 450 million people. And we are moving forward.
P. Yes, but at every opportunity it seems to forget the progress we have made together, without accumulating the solutions applied, and it returns to divisions, to ground zero, to having to relearn that joint action is essential. We spend a lot of time building consensus, making decisions.
R. I understand that point of view. But I must focus on what is my responsibility, the internal market. It is the quintessence of what we do best: pooling a common good, which reaps much better benefits than if we were each managing our own little perimeter. The internal market is a never-ending struggle. There are always forces that in times of crisis look backwards. I have to be here to remind us that we are stronger by pooling our resources than by closing in on ourselves.
Q. What example would you highlight?
R. At the beginning of the covid crisis, the internal market was closed. Some countries closed their borders to keep the masks on their people, and to prevent others from coming in and infecting them. I called the ministers one by one and urged them to reverse this action. There were strong discussions, but we reopened. We agreed to manufacture and distribute the vaccines. We won. Europe was the first continent to vaccinate its citizens and to export vaccines. We learned. Now we have the consequences of the energy crisis, which had started before the Ukrainian war, and the Ukrainian war amplified it enormously.
P. And history repeated itself.
R. It is true that some countries decided to intervene on their own and inject resources to protect their companies. I understand that intention. We have to make it easier for our companies to overcome the shock. Especially when other continents like the US and China inject considerable subsidies especially for new, green technologies: batteries, photovoltaic solar panels, wind power. I understand that governments are saying: we have to do something similar to retain and attract companies. That's why I'm going to see everyone. That is why I am coming to Spain, to Poland, to Belgium, to Denmark... To find an instrument, a general framework that maintains a similar capacity to react for all Member States, whatever their economic, financial, industrial or social situation. Especially in view of the US Inflation Reduction Act (IRA) of 14 August, which came into force on 1 January, and which supports strategic clean technologies such as hydrogen and photovoltaics. And which not only subsidises investment, but also the operation of companies [with 369 billion euros]. The response must be coordinated. Without it many of our companies will leave....
Q. ... to the US.
R. Of course, because it is more advantageous than staying here, given the better financial support. This is very dangerous for Europe. We have been discussing it for months, perhaps many months, since September, although it is true that this law is only dated 14 August.
P. You come to Spain, to Poland, to Belgium, but the problem of individual reaction with hundreds of billions of euros is rather in Berlin. Or in Paris.
R. I have already been to Berlin, I met with Vice Chancellor Robert Habeck. And in Paris, before Christmas, with the President of the Republic, Emmanuel Macron.
P. Give us the good news that they understand that they should not act on their own.
R. Macron has said it clearly in public. He said it to Joe Biden. And at the European Council in December, he stressed that a coordinated response was needed on the general framework and on financing, he was very precise. And the President of the European Council, Charles Michel, insisted. And he asked us - all 27 Member States asked us - the Commission to come back with a proposal. That's why I'm doing this tour of capitals.
P. I see you as less optimistic about Berlin, as if Germany is in its usual diesel mode: slow start and then constant speed.
R. He raises the question of relaxing state aid regulation. And he is very active on "permitting", facilitating and speeding up the procedures for setting up new technology factories. It often takes up to three years before they are opened.
Q. Your conclusion?
R. We are finalising the proposal. On the one hand, the idea of the general regulatory framework is advanced: speeding up authorisations, formalities and procedures for setting up new new technology plants; and speeding up the validation of public aid. We will make a specific Clean Tech Act for the green energy technologies industry, industrial decarbonisation and mobility. Just as we did the Chip Act, to encourage not only the deployment of new technologies but also to accelerate production in Europe. Because without a manufacturing base, our security of supply, our export capacity and our European jobs are at risk. It will be a horizontal rule, so that everyone who wants to can, with the same instruments, get on board in these industries and no one will be left by the wayside. We are working intensively on the financing chapter.
P. It is the one that can most distort the equality of each partner in the same market, due to its different capacity for public support, especially in the North-South line.
R. We are working on this issue to find a solution that works for everyone. For the time being, the financing is provided by the states. Those with the greatest capacity for debt, such as Germany, have announced that they will inject 200 billion. The Netherlands, 40 billion, which is a lot for that country. We are discussing how the figures will be specified. I estimate that in the German case, between 80,000 and 100,000 million will be dedicated to this industry [apart from those destined for families].
P. Much more than others, absolutely and relatively speaking.
R. We are at the moment evaluating and weighing it up. Other countries will be able to use the undrawn part of the Next Generation-EU recovery plan. Especially loans, rather than direct subsidies. This is the case of Spain. Or Italy. These are credits that were foreseen for this plan, it is necessary to verify if they fit well in the new Clean Tech Act. Other countries, such as Belgium, hope to be able to use increased specific support from the European Investment Bank. Others suggest gaining access to additional borrowing capacity, at an equivalent interest rate for all, through a mechanism similar to the SURE fund [for reinsuring unemployment insurance]: not all countries used it, but it was a success for those that did. With the guarantee of each state.
Q. Are you suggesting a variety of financial instruments?
R. Exactly. The idea I'm working on is that there will not be a single, stand-alone mechanism. But a set, a panoply of instruments. On the one hand, they should be able to respond to the different needs of each country. On the other hand, they should enable each and every one of them to provide a similar industrial investment response. It is not a proposal for a new Next-Generation, which would be difficult to accept, but a box of different financial instruments available.
P. Spain proposes that flexibility in State aid should be temporary, until 2026, and that it should be "imperative" to link it to the Nex Generation plan: what do you think?
R. These are structural changes. The US IRA is not a transitional measure; China's policy is long-term. So the framework we put in place cannot be limited to short-term temporary solutions. That is why we believe that a combination of regulatory measures and financial support must be prepared. And we are looking for solutions that work across the European Union, depending on different circumstances. In some Member States, NextGenerationEU can, with the necessary flexibilities, help. But this is not the case for all Member States. Some have already allocated their entire budget and used all possible loans. We need a package of national and EU measures to address the challenge of deindustrialisation linked to energy costs and the race for clean technologies: state aid, the best possible use of existing instruments (RFF, Repower), but also new European instruments to support in the very short term companies facing high energy costs and help them invest in clean technology manufacturing capacities.
P. Does this ensure that we do not turn the internal market into a patchwork of unconnected pieces and unequal players, which would denature the Union?
R. Yes, the idea is to guarantee a common ground for the participation of all, a regulatory level playing field, and the financial capacity for the States to intervene according to their needs, in a roughly similar way according to their specificities.
P. But the relaxation of state aid could stifle the single market.
R. This is a real risk, because some states would have deeper pockets to help their companies, even if they are only temporary exceptions. And they would be likely to distort competition. Only a framework that specifies for which companies, which sector, in what form, in terms of investment or operating subsidies, for how long, etc., will make it possible to respond to this risk, because the rules will be the same for everyone. But if only competition rules are opened up without further requirements, the risk would be higher.
Q. Will we avoid a Frankenstein-like Internal Market?
R. It seems to me that this is the only way to keep Europe competitive on the outside and at the same time harmonious on the inside. This is my fight.
Q. How much in total resources do you estimate?
R. Roughly speaking, and taking into account the American experience, it will be close to 2% of the Community's GDP, or some 300,000 or 350,000 million euros, but only in this specific industry, industrial production for clean energy equipment. These figures are an approximation, an order of magnitude.
Q. Is that all?
P. And then we have another mechanism, REPower-EU, to finance energy infrastructures that contribute to the Green Deal. From electricity grids to interconnections, renewable energy fields, or regasification terminals. It is a parallel device, but a different one. The Clean Tech Act aims to stimulate the industrial manufacture of energy products, such as batteries and photovoltaic panels, which are hardly produced in Europe today. The regulatory framework and financing comparable to that of our competitors will allow us to create an industry for renewable energies that is competitive with the American and Chinese industries.
P. We are starting almost from scratch.
R. Europe produces barely 2% of the world's solar panels. The overwhelming majority is made in China.
P. There is some in Germany.
R. Less and less. The president of one of the companies involved has just confessed to me that if he cannot count on support, he is about to rethink and look for another location for the investments he had planned in our continent. We must avoid this exodus. The Polish Prime Minister rightly commented to me the other day: "we Europeans must export our products, not our jobs" in these sectors of the future. For my part, I would add that these new productions require very select raw materials, rare earths, specific minerals such as nickel or cobalt or manganese. Many of these materials are extracted or processed in China.
P. Also in Ukraine.
R. Yes, but the processing, the lithium refineries, for example, are 90% in China. Chile produces, but has to send it by ship there, and then we import it. We depend on where it is produced. We have to set up factories in Europe and make import agreements with producers, such as Chile, Namibia or Canada, to diversify access to the raw material. We must also set up our own extraction mines. We should not rely entirely on others because we are wary of possible pollution: today there are sufficient technologies for clean production, while respecting the environment and biodiversity. Morally, we should not close our eyes in such a way that only others extract.
P. Europe's subsoil is less rich.
R. We have a lot of minerals in Europe. Lithium, cobalt, zinc. Roughly speaking, we could meet at least 30% of our needs. And now we have to add the recent discovery in Sweden. We are in the process of preparing another regulation, the Raw Materials Act. I will present it in March. We have unanimity in principle from the industry ministers on its various components: safety, research, recycling and circular economy.
P. President Von der Leyen has proposed a sovereign wealth fund for more global industrial investments, how does that fit in with the package we are talking about?
R. It is a longer-term proposal. We are working on it. It will be about sectors that need to be protected. And it will clearly require funding from the Commission. It will be an important element for the mid-term review of the financial perspectives.
Q. What is the status of the Chips Act?
R. The Council has already approved it. It is now in Parliament and then the trialogue between the three institutions begins. I am confident that it will be finished this year.
Q. How slow!
R. Our democracy is like that. Democracies are slower than autocracies. Dictatorships are very summary. But the key is that, as the roadmap is already sketched out, the companies have already proposed many projects. And they are signed.
P. This effect of anticipating the full effect of the regulation is significant; it is also happening in Spain with the projects of the Next Generation plan.
R. Yes, it is. I am at the disposal of all those who want to see me to adapt and to anticipate their projects. I have seen many of them, including Elon Musk from Twitter, Airbnb, all the big platforms; we have started voluntary audit tests...
P. On the new European digital regulation, will Musk obey you in your demand to moderate Twitter content and disinformation?
R. He doesn't have to obey me or not. I am very clear. Europe is the first big economic space and the first digital market in the free world: one and a half times more than the Americans in terms of users. It is normal that the big platforms want to come and take advantage of our market. We don't force them to come, they are welcome, but we tell them: here are our rules. In continental Europe you drive on the right. It's OK to drive or to send cars to us. That's all. They understand very well what the conditions of access to our market are, you have to comply with them and if you don't, there will be a scale of sanctions. It is not personal obedience. It is the law.
P. This is how European standards spread around the world, thanks to the regulatory power of the EU, as the legal scholar Anu Bradford has written in The Brussels effect.
R. Sure, but my responsibility is Europe. I have had that discussion with Musk. He has told me that he understands the approach and that he is comfortable and will comply. And I said that if they want to apply the same rules to their activities outside Europe, no problem.
P. Isn't that good for the EU? It exports rules.
R. In a way the US faces the same challenge, because it suffers from the consequences of excessive deregulation of the digital space, on social networks, on the protection of individuals, which ends up leading to a monopolisation that amounts to rentier-like monopolisation.