(Re-)Shaping EU State aid rules for a green transition: The European Commission opens a new public consultation on the IPCEI framework

In her first State of the Union Address 2020 in September, European Commission (Commission) President Ursula von der Leyen recalled that the EU Green Deal is considered the blueprint to the green transformation and thus a top priority for the Commission. Executive Vice-President Margrethe Vestager has reiterated this pledge at the State Aid High Level Forum of the Member States, where she acknowledged that the EU “State aid rules are already green”, especially given the large proportion of State aid granted to support environmental protection and energy savings but commented that there is still room for improvement.

Last week, the Commission published a roadmap on the revision of the Commission’s Communication on “Important projects of common European interest” (IPCEI) which is open for feedback until 21 December 2020 (see here). The IPCEI framework is planned to be revamped by the end of 2021 to support several Commission’s priorities such as the EU Green Deal, the Industrial Strategy and the Digital Strategy.

Overview of revisions of EU State aid rules to meet the EU Green Deal objectives

There are a number of public consultations which the Commission has been, and is currently, conducting with a view to revising its State aid rules to make them fit for EU Green Deal purposes. Namely: (i) a broader call for contributions on Competition Policy and the EU Green Deal on which we have submitted comprehensive observations last week (read more in this blog post); (ii) a public consultation on proposed changes to the Guidelines on State aid for environmental and energy (EEAG) (read more in this blog post); and now (iii) the public consultation on the revision of the IPCEI framework.

Clear need to reshape the current State aid rulebook to allow for public funding to reach real economy in time for EU Green Deal targets

The above listed initiatives show the urgent need to adapt existing State aid rules to allow for State funding to be made available to the real economy to meet the ambitious targets set out under the EU Green Deal, e.g. to achieve i.a. a 90% reduction in transport greenhouse gas emissions by 2050 in support of the shift to sustainable and smart mobility,  to ensure that the supply of energy is largely based on renewable energy sources in the future etc.

The Commission’s call for contributions on Competition Policy and the EU Green Deal is a first step to better understand how sustainability can play a more prominent role in competition analysis moving forward. With a view to State aid, given the long-standing review and approval practice of the Commission in energy and environmental aid cases, the debate on achieving sustainability goals is much less controversial in State aid law than in other areas of competition law. Nonetheless, with the EU Green Deal, there is a clear need for a “green reform” of the State aid framework.

In practice, we consider that changes are necessary to the Communication on IPCEI, the EEAG, as well as the Framework for State aid for research and development and innovation (R&D&I Guidelines) as follows:

• Making more use of IPCEI

An important change required is to increase the use of the IPCEI instrument. Given its flexible nature and design, which enables pan-European collaboration by Member States in specific industries or sectors, we believe this instrument could contribute to mobilising greater public and private funds to better realise the EU Green Deal’s objectives. For example, in the area of hydrogen. Very much along these lines, Germany has recently announced support for a new IPCEI on batteries. We would welcome the extension of the IPCEI to projects covering developments both in the green and digital transition of Europe and for its scope to be broadened to allow for more SMEs to participate in IPCEIs.

• Re-shaping the EEAG to allow for higher aid intensities and extension of scope 

Overall, the EEAG should allow for sufficient investment volumes to be raised to achieve the objectives of the EU Green Deal. The main principle of the rules in the EEAG is currently limiting Member States to compensate companies only for minimum additional costs of the “green element in the investment”. Broadening and simplifying the concept of “eligible costs” should be considered to allow greater volumes to be invested in “green” projects. Such projects could also benefit from a standard maximum aid intensity of 100%.

Likewise, the thresholds triggering an individual notification obligation should be raised to allow for sufficient investment volumes.

In addition, future-proof renewable energy technologies such as Power-to-X and new renewable energy sources such as hydrogen should be considered when revising definitions in the renewables sector under the EEAG. We would also welcome the coverage of new carbon-intensive sectors by the EEAG.

• Revision of the R&D&I Guidelines

Finally, a revised State aid rulebook should also address potential gaps in granting aid for research and development of green technologies in particular in respect of the transition of such technologies to the market. While the current R&D&I Guidelines cover industrial research and experimental development, especially in the renewable energy and fuel sectors, new technologies are not always profitable at the outset. Therefore, additional aid is needed to scale production of such technologies and ensure their effective and quick use for a greener market.

Outlook

With sustainability being a top priority for many businesses, we consider that the easiest way to support more State aid for environmental objectives is to follow a more flexible approach to support projects with a “green objective” in the future, be it in the form of increased use of the IPCEI instrument for specific sectors or a “green bonus” for a project that meets certain environmental criteria. Eventually, in order to achieve a “green” transition, all stakeholders will have to play their part, including competition regulators.