"Providing as Much as the US IRA"... European Subsidy System Reform

The European Union (EU) has decided to provide subsidies at the same level as third countries such as the United States to prevent European companies from relocating overseas. This move comes as major European automakers like Germany's Volkswagen are actively shifting their production bases to the U.S., which offers various economic incentives. Following the U.S. Inflation Reduction Act (IRA) and China's aggressive subsidy policies, the EU has also revealed its 'economic nationalism' industrial policy. The domestic industry is expected to face significant repercussions as it encounters new challenges following the discriminatory measures of the U.S. IRA.

On the 9th (local time), the EU Commission announced that it will significantly relax subsidy payment regulations related to eco-friendly technologies by the end of 2025. This is a revision and expansion of the existing subsidy regulations previously named the 'Temporary Crisis Framework,' aiming to facilitate smooth funding support to prevent the overseas outflow of key eco-friendly companies, starting with batteries, which are central to the electric vehicle industry, as well as solar panels and carbon capture. Due to the differing economic situations of the 27 member states, the EU had strict review procedures for granting subsidies to companies operating within its borders, but it has now decided to loosen these subsidy restrictions.

The newly introduced 'matching subsidy' system directly targets the U.S. IRA. The Wall Street Journal (WSJ) explained that this matching subsidy system exceptionally provides the same amount of subsidies that companies at high risk of shifting investments outside the EU due to the IRA can receive under the IRA. The revision of the subsidy regulations came as a response to the growing movement to relocate electric vehicle and battery production bases from Europe to North America, where the U.S. IRA offers various economic supports for investments.

Earlier, Volkswagen, Europe's largest automaker, announced that it has completely suspended plans to establish a new battery factory in Eastern Europe and is considering building a plant in North America. Volkswagen's move to North America is driven by the subsidies it can receive from the U.S. government under the IRA. Volkswagen estimates that the subsidies it could receive from the U.S. government will amount to 9 to 10 billion euros (approximately 12 to 14 trillion KRW). However, Volkswagen emphasized that no final decision has been made regarding the North American construction and stated, "Appropriate conditions under the 'Temporary Crisis Framework' will be necessary to build a factory in Europe," indicating that it is monitoring the EU authorities' policy changes.

This measure is part of the EU's Green Deal Industrial Plan, a blueprint for fostering eco-friendly industries within the region by providing subsidies and tax credit benefits to domestic companies. In response to the U.S. IRA, this plan, often called the 'European version of the IRA,' includes the Critical Raw Materials Act (CRMA), which aims to strengthen the supply chain of essential minerals and raw materials necessary for eco-friendly businesses such as electric vehicles. The EU is accelerating the implementation of additional measures, including the release of the CRMA draft on the 14th.

The CRMA is likely to include mechanisms to stabilize supply chains, such as providing subsidies to companies producing raw materials locally or reducing dependence on raw materials from specific countries like China. The EU, home to traditional automotive powerhouses such as Germany and France, is a region strongly committed to achieving carbon neutrality through the popularization of electric vehicles, making the establishment of a supply chain for key raw materials for electric vehicle and battery production absolutely crucial.

Accordingly, the Korean battery industry, which has a high dependence on raw materials from China, is expected to face considerable impact. Depending on the strength and direction of the CRMA, domestic automakers such as Hyundai Motor and Kia may also face increased pressure to produce eco-friendly vehicles locally. The industry has stated that it will closely monitor the situation as the detailed contents of the CRMA have not yet been disclosed.

Margrethe Vestager, EU Commissioner for Competition, said in a statement that the new measures "provide each member state with options to grant subsidies quickly, clearly, and predictably," adding that "while ensuring a level playing field, it will enable member states to accelerate carbon-neutral investments at this critical time."

This content was produced with the assistance of AI translation services.