Europe's response to the US IRA must not entrench monopolies

March 13, 2023

The European response to the U.S. Inflation Reduction Act has been to relax State Aid rules, to allow governments to provide more support for the green transition.

The risk is that dominant firms capture all the largesse at the expense of smaller enterprises, the climate and the broader economy.

There’s been a lot of talk in Europe recently about the U.S. Inflation Reduction Act (IRA,) which from a European perspective risks sucking green investment out of Europe and across the Atlantic.

European State Aid rules (which limit giving selective advantages to domestic businesses) make it hard for European governments to follow suit and support the green transition.

So the European Commission has responded by relaxing State Aid rules, to allow governments to provide more support to accelerate the green transition. We support the idea of government support in this area, but we’re worried about the potential for dominant firms and monopolists to capture the lion’s share of these subsidies, and leave economies in Europe that are even more monopolised than they already are.

So we’ve sent a submission, in partnership with the new European offices of the Open Markets Institute, and the European Digital SME Alliance, to the European Commission, outlining our fears.

Large and dominant firms already enjoy all sorts of unassailable advantages over smaller ones, so we urge a switch towards channelling state aid away from dominant firms and towards SMEs, to try and help tip the playing field back towards level. As we note:

Channelling green subsidies towards SMEs rather than large multinationals would leave us with a more diverse and resilient European economy, strengthening competition, innovation and energy security and spreading prosperity and opportunity across the EU’s member states and regions.

* You can see our submission here*