The United States has put its nearly €370 billion subsidy package on the table to boost clean industry, and in response, the European Union is gradually shaping its response. Thus, this Thursday, Brussels took another step towards its plan with the final approval of a new Temporary Crisis and Transition Framework to support vulnerable sectors with a formula that allows, as a novelty, EU countries to provide aid to companies to avoid flight to the other side of the Atlantic.
Basically, what the Commission did was to extend until December 31, 2025 the relaxation of state aid rules. This gives Member States the possibility to implement measures to support zero-emissions industry and especially schemes to accelerate renewable energy, energy storage and decarbonisation of industrial production processes.
It is interesting that right now Brussels is opening the door for countries to put subsidies on the table to offset US subsidies and thus avoid relocating companies.
It will be applied to “exceptional cases” in which there is “a real risk of diversion of investments outside Europe”, as clarified by the Community Executive. Circumstances which, in any case, allow Member States to grant support to companies for an amount similar to what they would receive for the same investment in an alternative location. In addition, Brussels opens the option of granting similar support also to encourage the company to locate investments in the European Economic Area.
If there is one sector in Europe that is in check with the Biden government’s aid package, it is the automotive sector, considering the weight of sector giants such as Volkswagen or Renault in the German and French economies, respectively. Although the focus is also on the renewable energy industry. Thus, Brussels has introduced new measures, also applicable until December 31, 2025, to accelerate investments in key sectors for the manufacture of equipment such as batteries, solar panels, wind turbines, heat pumps, electrolysers, as well as for the production and recycling of other important raw materials.
This measure, however, could only be applied under certain conditions. Among them, that investments be made in areas defined as “assisted”, which are those that receive cohesion funds and that in Spain represent more than 60%. Cross-border investments involving at least three Member States can also benefit from this approach, provided that a significant part of the investment takes place in two assisted areas.
Furthermore, the beneficiary of the funding must allocate it to the production of technology and cannot encourage the relocation of investment between Member States. A condition, the latter, with which it seeks to respond, in a way, to the controversy over whether the flexibility of state aid will promote competition between Member States, due to the fiscal muscle of countries like Germany and France capable of granting its industry more help than other Member States.
If it was on March 23 of last year that Brussels adopted the Temporary Crisis Framework in response to the military invasion of Ukraine and so that Member States could support their economy, the amendment approved this Thursday by the Community Executive represents a extension of that frame.