The EU is stepping up its green subsidy race with the US through plans to loosen state aid rules on tax credits for renewable energy projects. European policymakers have been under pressure to respond to the US president Joe Biden’s $369bn (£298bn) Inflation Reduction Act, which aims to encourage renewables investment in everything from electric cars to wind turbines. The European Commission plans to loosen state aid rules to enable investment into production facilities in green industries, according to draft plans. EU member states are divided over whether to introduce the new rules and how long for, according to the Financial Times, which first reported the plans. The draft proposals reportedly suggest some of a €800bn (£705bn) Covid-19 recovery fund could be redirected towards tax credits. “The provisions on tax benefits would enable member states to align their national fiscal incentives on a common scheme, and thereby offer greater transparency and predictability to businesses across the EU,” the draft said. Europe’s energy system has been under intense scrutiny since Russia’s invasion of Ukraine and Moscow’s subsequent throttling of gas supplies into Europe. Brussels intends to set new targets for green industrial capacity and simplify the approval process for renewables projects. It plans to increase the level at which deals are scrutinised by the commission under state aid rules. Biden’s new rules, introduced last autumn, have reinvigorated the renewables market in the US, leading to a wave of new projects. The president hailed the legislation as “the biggest step forward on climate ever” on signing the bill last year. It has been estimated that the legislation could reduce US emissions by about 40% by 2030, compared with 2005 levels, bringing Biden close to the goal of cutting US emissions in half by the end of the decade. Companies, investors and politicians have called for Europe and the UK to follow suit, with Jozef Síkela, the Czech minister of industry and trade, equating the US programme with “doping in sport”. In Britain, ministers have been accused of discouraging renewables investment by extending a windfall tax on North Sea oil and gas firms to electricity generators, including wind and solar projects on older contracts. Chris Hewett, the chief executive of the industry body Solar Energy UK, has accused the government of offering more generous tax terms to oil and gas projects and “tilting the playing field against renewables”. Meanwhile, the shadow climate change secretary, Ed Miliband has said a Labour government would form an “anti-Opec” alliance of countries dedicated to renewables, to bring down energy prices and promote clean technology. On Monday, the oil and gas company BP said global carbon emissions were expected to fall quicker than it had previously expected as a result of the war in Ukraine and Biden’s efforts to encourage green investment.