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Brussels is to extend the EU’s lenient approach to policing state subsidies, as it unveils guidelines this week that will allow member states to keep pouring cash into cleantech investments until the end of the decade.
Designed to avoid continent-wide subsidy races and wasteful grants to uncompetitive companies, the EU’s unique state aid regime empowers the European Commission to monitor state support, with tens of billions of euros recouped from companies in total.
But successive economic crises prompted Brussels to suspend or relax enforcement across key sectors of the economy — an approach that will be extended on so-called clean technologies in the latest guidelines, according to a draft seen by the Financial Times.
The approach has led to growing tensions between the EU’s biggest economies, France and Germany, and smaller member states with less fiscal firepower, which are increasingly concerned that less stringent rules will trigger a subsidy war and undermine the bloc’s single market.
The EU first significantly relaxed the rules that govern state aid during the 2008 financial crisis, allowing governments to intervene to save failing banks. The Covid-19 pandemic and energy crisis sparked by Russia’s full-scale invasion of Ukraine not only delayed a return to Europe’s original stricter rules but increasingly framed the state aid regime as a tool for wider goals.
“This is no longer a temporary tool,” said Carole Maczkovics of the law firm Covington & Burling. “It’s a perpetuation of the relaxed state aid rules introduced in response to the US Inflation Reduction Act for the green transition that Europe wants to accelerate.”
The new state aid framework is a key pillar of the EU’s Clean Industrial Deal, unveiled last week, which attempts to balance the bloc’s climate goals and efforts to improve the bloc’s flagging competitiveness.
To meet those goals, Brussels will allow European countries to fund investments that cut emissions, such as industrial decarbonisation projects and renewable energy products. However, the subsidy limits for cleantech manufacturing are lower than during the pandemic and subsequent energy crisis, according to the draft.
Teresa Ribera, the EU’s competition chief who oversees state aid enforcement, told the Financial Times the rules attempted to follow the “fine line” between “a story of growth and protection of consumers and at the same time a well-functioning, transparent and balanced single market”.
Amid fears of an existential decline of European industry and ascendant US and Chinese markets, the EU has adopted a more interventionist approach to industrial policy, especially when linked to climate targets. “Public support will be necessary to advance decarbonisation efforts,” the draft reads.
“Enough investment is now probably considered as more crucial for the future of the EU,” said Giacomo Biagioni, a professor at Italy’s University of Cagliari.
Biagioni said protecting competition was not at the core of the new rules. Instead, it “pays more attention to pushing member states towards the allocation of funds” required to meet the climate goals.
The commission hopes to adopt the new rules by June. But the draft is expected to spark a fierce debate between member states. While more flexibility was broadly supported, three EU diplomats said much rode on the details. This includes how “clean” sectors are defined to avoid capitals using the new rules to support favoured industries.
“There is a risk that this simply gives a free pass for the two biggest economies in the bloc to strengthen their national industries,” one of the diplomats said.
Climate commissioner Wopke Hoekstra told the Financial Times he was optimistic European capitals would get on board.
“Many are reading the signs of the times,” Hoekstra said. “We are living in a world of almost unprecedented geopolitical turmoil, with huge pressures on our industry and our competitiveness.” Given that context, using some public money to help companies decarbonise “is a fair and good bargain”.
Additional reporting by Andy Bounds and Henry Foy in Brussels
