By Sascha O'Sullivan
Windfall taxes, state aid rules, subsidies in the US. Comment and Features editor Sascha O’Sullivan looks at the brewing storm over incentives for climate firms in the UK – and holding onto the ones we have.
Of all the arguments during Brexit, state aid was hardly the one to get the most airtime.
But it’s a brewing storm for the government, with energy execs complaining about windfall taxes in the UK, while climate-friendly firms in America are given generous incentives.
This isn’t only a problem for Britain, either. After Joe Biden passed the Inflation Reduction Act, a piece of legislation aimed at keeping inflation down while also investing in green companies based in the US, the European Union has been struggling with what to do next.
Current rules in the EU limit subsidies which would “distort the market”, but Ursula von der Leyen, the EU commissioner, has suggested the bloc will need to relax these rules to rival those in America – or at the very least stop clean energy companies abandoning the continent.
The UK isn’t subject to EU state aid rules, but it was a sticky issue when hashing out the Northern Ireland protocol.
Earlier this morning, Energy UK boss Emma Pinchbeck warned that the combination of windfall taxes, which apply to renewable resources, and failure to provide competitive incentives could mean Britain loses out on clean energy investment.
Pinchbeck warned that when it comes to UK onshore wind, “it’s not just ’how do we get more of it?’ it’s ’how do we not lose the stuff we already have’”
If energy firms were to flee the UK, it would put both the Conservative and Labour Party, who argued fervently in favour of taxes, in a sticky spot.
It would slap a massive question mark over Labour’s plans for “fairer, greener future”.
Equally, if the Conservatives designed fresh incentives for energy firms, they would face backlash from wings of the party which see it as more financial intervention in the free market.
It won’t be a simple task to introduce state aid rules in the European Union, with former Italian Prime Minister and antitrust chief Mario Monti telling Politico relaxed state aid rules, like the pandemic-era ones, are “like an addiction”.
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