EU leaders to debate green industry plan with eye on March deal

European Union flags flutter outside the EU Commission headquarters in Brussels

By Philip Blenkinsop

BRUSSELS (Reuters) - European Union leaders will debate on Thursday proposals to enable the bloc to compete with the United States in clean-tech production and reduce dependence on China, with the aim of settling differences such as those over subsidies by March.

The European Commission has proposed loosening rules on state aid for investments in renewable energy or decarbonising industry and faster approvals of green projects, partly in response to the U.S. Inflation Reduction Act.

Many EU leaders are concerned local content requirements of the $369 billion of green subsidies in the U.S. legislation will encourage companies to relocate, making the United States a leader in green tech at Europe's expense.

"European industries face pressure to install themselves in the United States so we need an urgent message on clean tech: the EU doesn't just have advantages that don't exist anywhere else but also act with this plan," an EU diplomat said.

France and Germany have led the push for looser state aid rules, but some EU states argue they will not be able to match the subsidies of the EU's two largest economies, unsettling the EU internal market.

Countries such as the Netherlands, the Nordics, the Czech Republic and Ireland have expressed concern in letters to the EU executive about the risk of excessive non-targeted subsidies and say work to improve the EU single market would be more effective.

"It's a potentially ground-breaking transformation of the EU state aid regime. We think it's all being done too fast and without sufficient analysis," said an EU diplomat.

The diplomat said that it looks like relaxation of state aid rules would take place, but hedged with conditions such as that it should only be temporary and should be proportionate.

EU leaders will reconvene in Brussels in late March, by when the European Commission should have proposed its Net-Zero Industry Act to speed up project or site approvals and the Critical Raw Materials Act, designed to boost processing and recycling in Europe and reduce reliance on China.

(Reporting by Philip Blenkinsop; additional reporting by Andrew Gray)