On 1 February 2023, the European Commission presented the Communication 'A Green Deal Industrial Plan for the Net-Zero Age'. The ‘Communication’ is a package of measures designed to help the EU industry make progress in the transition to climate neutrality and strengthen its position in global competition, since subsidies abroad are distorting the playing field in the single market. The Communication is based on four pillars (cf. chapter 2): (i) a predictable and simplified regulatory environment; (ii) faster access to sufficient funding; (iii) skills; and (iv) open trade for resilient supply chains. In this context, the European Commission decided to expand and accelerate access to finance for net-zero industry (cf. chapter 2.2 of the Communication, pillar (ii)). In addition to measures from the area of EU funding (REPowerEU, InvestEU, Innovation Fund) and private funding, the Communication also addresses national funding. The purpose of this contribution is to show what changes the Commission envisages with regard to national funding and how they are in line with the existing State aid law.

The Envisaged Measures in the Communication

In order to achieve the objectives set out in the Communication, the Commission intends to adapt State aid rules, subject to conditions necessary to limit distortions to the Single Market, to avoid greater regional disparities and to ensure compliance with international obligations. A large part will be implemented through the proposed amendment of the State aid Temporary Crisis Framework (‘TCF'), which will be transformed into a Temporary Crisis and Transition Framework (‘TCTF’).

According to the Commission's press release, the proposed amendments mainly concern:

• First, expanding renewable energy and decarbonising industry. In particular, this will be implemented by (i) supporting the use of all renewable energy sources; (ii) granting support for less mature technologies (such as renewable hydrogen) without competitive tendering, provided that certain safeguards are put in place to ensure the proportionality of public support; and (iii) by incentivising investments that lead to significant emission reductions by providing for higher aid ceilings and simplified aid calculations (e.g., aid would simply be calculated as a share of investment costs).

• Second, supporting investment in the production of strategic equipment necessary to accelerate the transition to a net-zero economy and thus overcome the current energy crisis.

This proposal is currently before the Member States, which are to comment on it, and is expected to come into force in the coming weeks.

According to the Commission’s announcement, public funding, combined with further progress on the European Capital Markets Union, should be able to unlock the huge amounts of private funding needed for the green transition. Thus, since the 2012 Communication on State Aid Modernisation (‚SAM’), the Commission therefore rightly continues to take the approach that State aid must always have an incentive effect on private parties and address an existing market failure. These points also appear in the CEEAG Communication (chapter 3.1.2 and margin note 10) and the IPCEI Communication (margin notes 3, 15 and 37).

Expansion: The TCTF

The transformation is intended to further simplify the granting of aid for the use of renewable energy and for efforts to decarbonise industrial processes. This will be addressed by extending the catalogue of eligible technologies and by dispensing restrictive mandatory requirements.

The Commission also intends to exceptionally allow the granting of higher amounts of aid than would otherwise be the case if this is necessary to compensate for aid received by a third country competitor of a European company in the field of net-zero strategic technologies. This ‘matching mechanism’, which responds to the US Inflation Reduction Act and complements the recent Foreign Subsidies Regulation, is unfamiliar to known State aid law. The Communication now conflates two objectives that were previously considered independently: it (i) addresses the protection of the level-playing field in the single market against (external) foreign subsidies; and (ii) envisages an extension of maximum (internal) Member State aid amounts that have grown up over years of economic practice.

The TCTF would also allow for more targeted subsidies to large new production projects in strategic net-zero value chains. The measures would target sectors where a risk of delocalisation to third countries has been identified. For this purpose, the Commission intends to find appropriate conditions to verify a risk of relocation of investment outside the EEA. If this risk of relocation exists in a certain sector, the TCTF should in the future make it possible to introduce schemes to support new investment in production facilities in those net-zero sectors, including via tax benefits.

As the Commissions’ Impact Assessment Report on the CEEAG shows in Chapter 6.8.2.1, this risk of delocalisation is not unknown. It was frequently raised as an argument in the consultation process on the CEEAG when it came to changes from the list (cf. Annex I of the CEEAG) of sectors eligible for aid under section 4.11 of the CEEAG. In the event of a change, the risk was recognised that the sectors concerned would migrate, so the change would be a push factor out of the single market. In the latter case, the Commission remained intransigent in view of the objective pursued at the time. Now, in contrast, the situation is different. Unlike at the time of the CEEAG guidelines revision, there is an increased risk of migration due to the pull factor of (additional) foreign subsidies, such as the IRA, which has to be decisively counteracted.

Moreover, the allowable aid amounts are modulated with higher aid intensities and higher aid amount ceilings. This is subject to the condition that investments are made in eligible areas to contribute to the objective of convergence between Member States and regions. This is the so-called ‘spillover effect’. Similar to the IPCEI Communication (note 18), the Commission makes State aid more attractive in those areas which ultimately should and will serve the deepening of the single market.

Acceleration: Increasing GBER Thresholds

The Communication envisages an increase in the notification thresholds for State aid in key sectors of the Green Deal (i.e., hydrogen, carbon capture and storage, zero-emission vehicles, and energy performance of buildings) by revising the General Block Exemption Regulation (‘GBER’). The approach is therefore to accelerate the granting of State aid by increasing notification thresholds, thus reducing bureaucracy.

Internal vs. External Competitiveness

Executive Vice-President Margrethe Vestager said in her speech presenting the plan that, “Competitiveness in Europe cannot be built on State aid (…). And with a need to preserve cohesion and competition to safeguard a level playing field in the Single Market”. The European Commission thus seems to align its future State aid control policy with the needs of the single market. Some initiatives, such as the International Procurement Instrument (’IPI’) or the Foreign Subsidies Regulation (‘FSR’), reflect this direction too.

The discussed simplification brought forward by the Communication are not based on a purely market-economy approach but are politically motivated. Relaxing conditions and raising notification thresholds does not lead to less distortion of competition in the single market; rather the opposite, as State aid inherently distorts competition. That is why State aid is generally prohibited (Article 107(1) TFEU) and can only be declared compatible with the single market in ‘exceptional circumstances’, under the public justification grounds set out in Article 107(2) and (3) TFEU. ‘Noble objectives’, such as climate protection, have experienced simplifications in the Commissions’ decisional practice in recent years. As Maria Segura wrote in a recent article in EU Law Live’s Competition Corner, such rules are a step in the right direction towards ensuring sustainability and climate protection in State aid matters. ‘Unwelcome measures’, such as rescue and restructuring State aid, in contrast, are traditionally subject to strict requirements. The increase of notification thresholds does not entail major changes in the basic structure. Thus, such a measure in the area of 'good subsidies’ is the simplest and most flexible means to enable State subsidies in these areas on a larger scale in the short term.

The increased distortion on the internal marked caused by simplification and relaxation of State aid rules seems to be accepted to pursue external competitiveness vis-à-vis the US but also other state capitalistic countries, such as China. Yet, in times of crises and further external threats to the single market, the mandate given to the Commission by the TFEU has not changed. State aid law has neither the task nor the objective of protecting the single market from foreign distortions of competition; that is precisely the role of the Foreign Subsidy Regulation. While State aid operates under the objective of the internal market and we have seen a more-economic-approach in recent years of State aid enforcement underpinning the internal market objective, it may be likely that the internal level-playing filed, including economic analysis, will play a minor role in the future. In light of the Communication, it may be possible that the internal market approach will simply fade away in favour of an EU industrial policy to strengthen external competitiveness. The coming years will show whether the long-promoted approach of granting "as much as necessary, as little as possible" State aid can meet the increasingly strong need for greater state intervention in the single market.

The new rules would apply until 31 December 2025 – at least that is the current roadmap. It remains to be seen whether crisis management and transition will no longer be necessary in 2026 and whether the transitional framework will then have served its purpose – in any case, the interplay between crisis regulation and existing State aid rules is, until then, to be continued.