Spain wants to bring together all the debates that have taken place in the European Union in recent months related to the energy transition. The government has proposed a major pact for a green economy to Brussels. According to the response sent to Brussels by Vice-President Nadia Calviño and to which EL PAÍS had access, this agreement must include the reform of the electricity market, the review of state aid and its financing by the Recovery Fund, the RepowerEU plan, the reform of stability – and Growth Pact and finally the promotion of pending trade agreements with Latin America. The letter also points to sectors that Madrid believes should be strategic and prioritized in “accelerating strategic investments”, such as green hydrogen, biogas, the electric vehicle industry or semiconductors.
Just five months after Spain took over the EU presidency, Pedro Sánchez’s government has used the open debate on the EU’s state aid scrutiny to present something similar to its second-semester priorities in Spain will take over the Council of the European Union. They are in the letter Calviño sent to Commission Vice-President and Competitions Director Margrethe Vestager. She responded to those sent to capitals last January by the Danish commissioner to seek opinions on the overhaul of the state aid model that France and Germany are pushing, arguing that Europe is not losing ground in the green and digital transitions vis-à-vis China and the United States, which just passed legislation subsidizing green investment.
The Spanish text notes that this grand green pact must have four legs and is the concretion of what the executive defines as “open strategic autonomy”. The concept of “strategic autonomy” has been very fashionable in Brussels lately. The paternity is French and, in principle, had a clear geostrategic orientation, without forgetting the geoeconomic part. This part has grown in recent months due to the consequences of Ukraine’s invasion on energy markets plus inflation, the growing challenge from China and its control of supply chains, and finally massive US subsidies to boost digital transformation that could lead to investments flying in the EU. Therefore Spain adds the adjective ‘open’ when proposing this concept for its Presidency.
The first part of the deal Spain is demanding comes straight from one of its workhorses in Brussels over the last long year: reforming the electricity market. After months of outcry in the desert, the outbreak of the energy crisis following the invasion of Ukraine, Spain’s third vice president and minister for ecological transition, Teresa Ribera, has been confronted with arguments. The Commission is already working on this reform, which Madrid considers “top priority” because it is the “main disadvantage of European industry”.
The second point fully intervenes in the main open debate between Member States and the Commission on the revision of the model of public aid to companies. Brussels will present its plans next Wednesday, having first sought the opinion of the 27, and Calviño’s document is framed here. Like Germany and France, Spain fears that the multi-million dollar subsidies from the USA will trigger an investment flight to Europe, which is why it is “advocating an accelerated procedure for strategic projects as part of the national recovery plans”. in key sectors that offer greater strategic, technological and energy autonomy, such as clean energy, semiconductors, electric vehicles or critical technologies”. At the same time, however, she does not support the dismantling of state aid policies that support the internal market, but defends raising the thresholds above which Brussels must be informed of the subsidies granted (they are now between 10 and 20 million) or those linked to the restructuring plan do not require a suitability test or subsequent evaluation.
The key sectors that Spain is targeting are 10: Deployment of renewable energy, storage and other energy sources such as “renewable hydrogen, offshore wind energy and biogas”, “Investments in existing industries and investments in new facilities enabling the decarbonization of industrial production processes” , hydrogen production, circular economy (recycling), electric vehicles and components, solar panels, semiconductors, development of 5G and artificial intelligence, agri-food and less environmentally aggressive processing of critical raw materials.
All of this requires money, so the next pillar of the pact is ‘green finance’. […] to mobilize the necessary public and private investments through a coherent package of important reforms and legislative proposals that will most likely come to fruition under the next Spanish Presidency”. Here another of the Spanish priorities reappears: the revision of the budgetary rules, which Brussels wants to have ready this quarter, in order to raise the legislative texts below, ie under the presidency mentioned above. “National budget support could be granted subject to appropriate fiscal rules in a renewed Stability and Growth Pact,” it says. Add another milestone, expected to correspond to the second half of this year, “the mid-term review of the multiannual financial framework 2023-2027” of the European Union.
Here Spain marks one of the red lines in the revision of state aid rules: “Any new financial instrument should not be based on a redistribution of funds from existing instruments such as the Recovery Fund, the Cohesion Fund, etc.” One of the risks in facilitating the granting of Subsidies is that the countries with the largest fiscal space (Germany, the Netherlands) and the countries with the largest (France) grant more subsidies to their companies, thereby putting them in an advantageous position in the internal market.
This risk has prompted the Commission to propose a corrective tool, which it calls “sovereignty funds”, although details are not yet available. There are countries that would like this instrument to be financed by taking on new debt and thus increasing the Community budget. There are others who prefer existing resources to be reallocated, arguing that there is a lot of money to be spent. The Spanish executive is currently in an intermediate position. In Madrid they have to invest almost 180,000 million in community funds by 2026, plus the recovery plan, RepowerEU and the Just Transition Fund. And to that we should add the money from the cohesion funds. Conclusion: Spain wants institutions to invest what it receives, it does not care to give more.
The last part focuses on trade agreements with Latin America, which have become vital with the need for strategic raw materials in the energy transition, as Europe has so far been heavily dependent on China or Russia. The EU has yet to update the trade agreement with Mexico, something already achieved with Chile, and also the revision of the agreement with Mercosur (Argentina, Brazil, Uruguay and Paraguay). This was blocked due to reluctance from France and the European Parliament on the grounds that Bolsonaro’s policy towards the Amazon caused deforestation. Lula’s rise to power in Brasilia opens up an opportunity that Spain and Brussels want to seize.
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