Cleantech firms in Europe must chart a convoluted course to secure government support, but a more efficient system for distributing funds is in the works.

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The passage of America’s Inflation Reduction Act (IRA) in August 2022 set a milestone in climate legislation in the U.S., making the country’s biggest-ever investment in clean energy transition. It also set off alarm bells for leaders in the EU. Many feared the IRA’s incentives would put European companies at a competitive disadvantage and lure cleantech firms away from Europe. Some argued that the EU would have to increase its own green subsidies and loosen rules on state aid. The green subsidy race was on.

By the time the European Summit convened in February, leaders had proposed solutions in hand. The prime ministers and presidents in attendance did not decide to pour billions more into the EU’s already generous green subsidies or roll back restrictions. Instead, they focused on another aspect of the IRA worth emulating: making the system for distributing state aid for energy transition more efficient.

The IRA is streamlined, as it applies evenly to all states nationwide. To benefit from tax credits, grants or soft loans, a company need only meet certain criteria, such as investing in targeted sectors like carbon capture and storage, green hydrogen, and utility-scale solar. This straightforward approach does not exactly transfer to Europe, where taxation is strictly in the hands of member states. National governments can offer tax credits or other subsidies, and these may need approval from the European Commission, but continent-wide tax incentives are not an option.

The EU has added a few bloc-wide grant programmes, such as InvestEU and the Innovation Fund to incentivise cleantech development. Still, at least for the moment, a daunting bureaucracy is in place. Obtaining a grant or other type of funding entails a long and complicated process, which is especially difficult for startups and small companies. “We would need at least four people full-time to figure this out,” says Vaitea Cowan, co-founder of Enapter, which makes electrolysers for green hydrogen production. Often companies must hire a consultancy to help write grant proposals.

And this is only the first step. Once an application is filed, The Economist reports, “it can take months, or years, before a decision is made.” Further, green subsidies are generally not well targeted. Jules Besnainou, Executive Director at Cleantech for Europe, says that most of the money goes to big established firms rather than innovative cleantech startups looking to scale up their projects.

On the first of February the European Commission published a draft Green Deal Industrial Plan. Coming in response to the IRA, it addresses the matter of simplifying EU programmes and approval processes. Clean energy and other cleantech businesses are optimistic, though not entirely convinced. Claudio Spadacini, CEO of EnergyDome, an Italian firm that develops technology for large-scale energy storage, approves of the EU’s moves but still hopes to take advantage of the IRA. Meanwhile, American state governments are “rolling out the red carpet,” says Vaitea Cowan of green hydrogen tech supplier Enapter.

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