The EU’s Green Deal Industrial Plan Is a Windfall for Corporations
Responding to the Inflation Reduction Act, the EU has unveiled its own green industrial plan. It has little to do with real decarbonization — but hands public money to big business, fueling a global race among “clean-tech” oligopolies.
A “man on the moon moment.” Speaking back in 2019, European Commission president Ursula von der Leyen used bold language to announce plans to make Europe the first carbon-neutral continent. Yet the Green Deal has turned out to be more of a “technocrats in Brussels moment” — and a fundamentally flawed one at that. Little fresh money was offered, and there was a strong bias toward the private and financial sector, with public funds directed to making projects profitable for investors. With only a slim budget to compensate for the impacts of decarbonization in fossil fuel—reliant regions, it was never going to usher into a just green transition.
Now, more than three years later, Von der Leyen has followed up on the Green Deal with the so-called “Green Deal Industrial Plan” (GDIP). Ostensibly, it’s meant to secure Europe a lead in a new “net-zero industrial age” by maximizing investment in the continent’s clean-tech manufacturing. If anyone still harbored hopes about the European Union developing a substantial green industrial policy, this plan — tellingly announced at the recent World Economic Forum in Davos — has definitively laid them to rest.
The EU’s plan is a direct reaction to the United States’ Inflation Reduction Act (IRA), a bill approving $370 billion in federal investments to build up the American clean-energy economy. Most of the money comes as tax credits for corporations, but grants and loans are also included. EU member states — already anxious about China’s lead in important parts of industrial sectors crucial for a low-carbon economy — see the IRA as a threat to the competitiveness of European industry. The latter are both upset at the IRA and being lured to move to the other side of the Atlantic to avoid high energy prices in Europe and benefit from US tax credits.
With growing economic woes in Europe — from disrupted supply chains in the aftermath of the pandemic to the energy crisis that came with the war in Ukraine — the US initiative has pushed Brussels to act. EU authorities are now preparing what they see as the right conditions for a mass rollout of subsidies in the name of improving European clean-tech industry investments, decarbonizing industry, and accelerating “green growth.”
To this end, the European Commission’s new Net-Zero Industry Act proposal — one of the key pillars of the GDIP — aims to ease the permit-granting process now slowing down advancement of big clean-tech projects. The other pillars include faster access to funding, enhancing of skills (including a proposal for “Net-Zero Industry Academies”), and trade openness to develop new export markets for European green industry on the one hand and to secure access to raw materials on the other.
For now there’s a lack of fresh EU money on the table. So the commission is relying on facilitating easier and faster flows of state aid, from individual member states, to finance the GDIP. Normally, such aid — considered to be any state resources flowing to corporations in the form of grants, tax breaks, guarantees, or governmental shareholding — is limited by the bloc’s rules on competition within the internal market.
On top of that, governments can tap into already existing investment channels (such as InvestEU, REPowerEU, and the Innovation Funds). Proposals for an entirely new fund stumble over the disagreements between member states and an already overstretched EU budget. Heads of European banks and institutions are also urging the creation of a “Capital Markets Union” to unlock access to larger private finance for European businesses through a European bond market. Here the EU is clearly lagging behind the US — bank loans are currently the main source of corporate borrowing as opposed to bond markets, while the opposite is true in the US.
The GDIP claims that “the race to net-zero can be good for the planet and for business.” In reality, it can only deliver bad news for Europe’s decarbonization targets. It props up already huge corporate profits with public budgets: there will be a steady supply of carrots but without any sticks. And hungry to sustain hefty profits, big companies that are already benefiting from record state aid for hydrogen — such as Iberdrola, Shell, and Enel — still demand the aid top-up. So do industries feeling high energy prices as well as pressure to decarbonize and go green in time to get an early advantage in the global market. This includes corporate giants like multinational steel producer ArcelorMittal, and German chemicals manufacturer BASF who — with the rest of the European Chemical Industry Council — called for the EU to learn the lesson from the IRA’s tax breaks and let them have more state aid.
In short, the GDIP is a top-down policy of corporate handouts, instead of one based on a collective debate about social and ecological needs that could determine Europe’s strategic industrial interests.
The GDIP’s most likely outcome is a monopolized renewables market and an accelerated clean-tech oligopoly race. The plan is centered on products like batteries, solar, windmills, biofuels, and hydrogen or carbon capture, and storage technologies that are inefficient, costly, unrealistic at scale, and causing damaging social and environmental impacts, but which work well for increasing the profits of large corporations. And it is the biggest energy sector companies, including fossil fuel producers — the top five having made record profits of $195 billion in 2022 — that will keep demanding governments hand out state aid to scale up the hydrogen market and carbon capture, while backtracking on their already shabby renewables commitments.
The GDIP fails to come up with a plan for what Europe actually needs for a just transition — green industrial-policy planning that defines essential industrial sectors for decarbonization. What it proposes is financing the same kind of centralized, unsustainable, and market-sensitive energy system that is serving the interests of the corporate few rather than the majority of society. The amounts of energy and water needed for transport and production of green hydrogen (and those are only one of many problems) clearly make it an unviable solution.
Moreover, hydrogen is estimated to be more costly than fossil fuels even in the long run, which means that a fixed flow of public funds will be required to sustain its competitiveness. Public finance should not be feeding an expansion and retrofitting of gas infrastructure well beyond a limited number of the “hard-to-abate sectors” just to save the corporate giants’ investments.
Other European plans like the Hydrogen Strategy 2030 or REPowerEU suggest that investment outside the EU can deal with this inconvenience and make up for limited domestic hydrogen production capacity. The GDIP condenses this agenda of expanding the market for consumers of European clean tech in exchange for cheap hydrogen in the future — regardless of the negative socioeconomic impacts this might have locally. Apart from Africa’s hydrogen potential, another case in point is the EU’s new Strategic Partnership on Biomethane, Hydrogen and Other Synthetic Gases with Ukraine announced in early February 2023. Despite the destructive war over the year since Russia’s invasion and the obvious need to address local (and renewable) energy needs during Ukraine’s reconstruction, Europe sees an opportunity to secure hydrogen imports to the EU.
EVs for Whom?
Electric vehicles (EVs) — as well as batteries and charging stations — also play a central role in the GDIP. Unsurprisingly, socially just schemes benefiting the majority — like green public transport and publicly financed shared mobility — are irrelevant to the plan, despite the clear positive effects resulting from a shift from private to shared ownership.
Indeed, the shift toward electric vehicles is also becoming a social question. In both the EU and the United States, demand for cars is in decline. According to the European Automobile Manufacturers’ Association, in 2023 sales are unlikely to match the pre-pandemic levels. Now leading car manufacturers are pledging to shift production to EVs only (Fiat from 2027, Mercedes from 2030, and Volkswagen from 2033) by targeting high-income households. Their lower-income counterparts, reliant on the cheaper secondhand car market, are left out.
Subsidies such as the IRA’s consumer tax credits for EV purchases try to address this issue. But a similar German subsidies scheme has been criticized for leaving poorer households behind, leaving high earners alone to benefit. Indeed, a public subsidies scheme does not guarantee a sustainable solution — it can create a volatile system of private ownership dependent on public financing. This was illustrated by a 13.2 percent drop in EV sales in Germany after the government halved subsidies — also leading to a 3.5 percent increase in sales of new petrol vehicles. The turn to EVs seems to work above all for the well-off — and for satisfying the automotive industry’s hunger for profits with a constant flow of state aid.
This push for EVs is driven by the automotive industry’s desire to slowly “green” the status quo of its business model on the back of the public purse. While carmakers can already afford to make cleaner cars with existing technology, they would rather lobby against emissions standards — which, they insist, would reduce their investments in EVs — and demand more public funds. For instance, Volkswagen’s profits reached €22.5 billion in 2022, up 13 percent from the year before. Yet the German carmaker has been squeezing Eastern European governments for state aid to support the construction of battery gigafactories. The entire project is now on hold as Volkswagen waits to assess the benefits offered by the EU’s answer to the IRA. But in the Czech Republic, a proposed gigafactory soon met with protests over its negative impact on the environment, local jobs, and the economy.
Replacing petrol cars with EV in the hands of the same few corporate giants — ones reliant on the Eastern European periphery for lower production costs — without changing the fundamental structure of individualized transportation doesn’t do much for a just green transition. Public money would be better spent directly investing in public transport. In many countries, the price of a train ticket today exceeds the cost of a two-person car ride on some routes. Last summer, a three-month experiment in Germany in which monthly tickets for all local and regional public transportation cost just €9 demonstrated the appeal of affordable public infrastructure, in particular for lower-income groups. But the resulting overcrowding of trains also pointed to the shortfall in public investment to expand routes, frequency, and capacity.
Completely missing from the GDIP is any consideration of the implications of the extractivism that Europe’s green transition presupposes. Global demand for lithium — an essential component of EV batteries — is expected to rise forty times over by 2040. The race to secure raw minerals like lithium risks severe environmental damage, land grabs, depletion of water resources, deepening inequalities, and more emissions. The Critical Raw Materials Act — a part of the GDIP — sets targets to increase domestic mining projects. But given public opposition (ironically acknowledged in the legislative proposal), it relies on securing raw minerals supply outside the EU, externalizing the ecological and social costs of Europe’s “green growth” to the Global South.
De-Risking Without Conditions
The GDIP offers no democratic revamp of industrial policy able to meet societal needs like quality jobs, public transport and services, and access to affordable renewable energy. At its heart is the de-risking of big private businesses’ investments and leveraging private finance to deliver decarbonization.
Doubts about the commission’s ability to leverage billions were already raised by the European Court of Auditors in 2015, in relation to the commission’s €315-billion Juncker Plan. It stressed that EU’s leveraging ambitions based on public guarantees might be just “hopes and expectations.” Now its successor, InvestEU — which is supposed to help finance the Green Deal and GDIP — already shows signs of a questionable uptake. Economist Daniela Gabor has raised doubts over the ability of de-risking to deliver decarbonization in time and at the necessary scale.
The de-risking approach effectively means that what gets financed is not determined based on a collective debate about what kind of economy and industry is needed for a genuinely just transition, but by what yields the highest and quickest return on investment.
It’s not surprising that shareholders afraid of lower short-term profits — in itself harmful to healthy industries — want free state handouts to develop clean technologies. But public finance should help sustainable, effective, and socially just renewable energy projects that require patient capital and actually need concessional funding. Yet GDIP is silent on conditionality that would help weed out free riders and prevent “green” state aid from going to polluting corporations that can already fund themselves or easily access private finance.
For instance, Iberdrola’s CEO José Galán was paid €13.2 million in 2021 (the same year the Spanish High Court launched an investigation into his involvement in alleged cases of bribery, privacy breach, and fraud). Galán’s salary was 171 times the average of Iberdrola’s employees — which fell by 1.3 percent. Now in 2023, Iberdrola expects net profit to go up by 8–10 percent and plans to keep paying out hefty dividends. Yet this year the European Investment Bank has signed off on a €150-million concessional loan to Iberdrola for renewable energy plants in Italy, following up on at least €650 million in 2021 and a further €550 million in 2022. Companies like Iberdrola that demand more state aid and pay out massive dividends to shareholders are going to be the real beneficiaries of the GDIP.
European governments are desperately looking for ways to boost the bloc’s global industrial competitiveness in the net-zero industrial age. But so far, the proposed vision of the new EU clean-tech oligopoly — centered on false solutions like green hydrogen at scale, working well for increasing the profits of large corporations — falls entirely short of considering who and what the “net-zero” clean-tech race is good for.
The GDIP doesn’t deal with the bigger issues European industry is facing. The most obvious are reinvestment requirements and limits on buybacks and dividend payouts — the sticks so despised by the corporations begging for state-funded carrots. But the deeper problem is the lack of a comprehensive industrial rethink, able to identify nonessential and polluting economic activity, and which is based on a collectively decided public investment strategy centered on the just transition.
Technocratic attempts to reconcile conflicting interests of “good for the planet” and “good for business” are failing. Democratic participation and fair multilateral cooperation are needed if the green transition is to surpass the zero-sum corporate game it is now.