Remarks by Executive Vice-President Vestager on the proposal for a State aid Temporary Crisis and Transition Framework

European Union, 2018European Union, 2018

“Check against delivery”

Today, we launch two initiatives. First, a communication on our Green Deal Industrial Plan for the Net Zero Age. The Plan will set a path for Europe to become climate neutral and speed up industrial transformation to do that.

It is based on four pillars: accommodating regulation, skills, trade and financing to make that all happen. The latter part on financing   includes a proposal for temporary adaptations to our State aid rules. And this is the reason for our second initiative today: a consultation to Member States on a draft proposal to transform our Temporary Crisis Framework that we put in place into a Temporary Crisis and Transition Framework.

This consultation follows a letter I sent to all Member States on 13th of January. The letterhad three main purposes:

Firstly, explain why we need to update our Temporary Crisis Framework – this is of course to respond to the double challenges of the energy crisis and the Inflation Reduction Act of the US.

Secondly, list which changes we propose to introduce – especially, but not only, on State aid rules.

Thirdly, to ask for Member States’ early feedback – do the changes that we are proposing, do they reflect the needs that they see themselves? What else did they wish to see included in today’s proposal?

So far 23 Member States responded to the letter.

Overall, responses converge towards the same four key messages:

First, yes, part of the Inflation Reduction Act is a threat to the competitiveness of specific key sectors for the green transition of the European industry;

Second, our European response should be based on facts, and address only those specific problems triggered by the IRA;

Third, any action we take must preserve the integrity of our Single Market;

And finally – we should nurture rather than damage our relationship with the US.

Today’s proposal builds on those messages.

It enables Member States to support the competitiveness of green sectors of Europe’s industry, while preserving the equality and fairness that is part and parcel of the European Union. Because one thing comes clear in those responses: the Single Market is the key to our competitiveness. Whatever we do, we must avoid a subsidy race. If we compete individually as Member States, we lose as a whole.

That’s why we propose this temporary update of our State aid rules in two different parts.

First, to make the calculation of the aid simpler and the approval faster.

Second, introduce new provisions for green investments in strategic sectors that are at risk of relocation to the US, or other third countries.

I will start with the first point: how we simplify the State aid rules and accelerate the use of those rules? The point is of course to faciltate the deployment of renewable energy and the decarbonization of the industry.

We have listened very carefully to what the Member States were asking. This is why we will soon adopt a revised General Block Exemption Regulation. This revision will further increase the ceilings under which green aid can be granted without notifying to the Commission It will also help to simplify the assessment of new Important Projects of Common European Interest. This also comes with transparency.

In addition, today’s draft goes one step further.

We propose to enlarge the scope of our Temporary Crisis Framework for Member States to support all possible renewable sources of energy.

We address Member States’ request to extend the deadline for project’s delivery. Within the Temporary Crisis Framework, Member States can only support projects that will be implemented within 30 months. Now, we propose to extend this deadline by half a year – make it 36 months. This will help to cover more projects while keeping the incentive to accelerate the deployment of renewable projects.

Last but not least, we propose to considerably simplify the aid calculation. This means Member States will be enabled to provide aid as a fixed percentage of the total investment costs.

The second component of today’s proposal gives Member States the possibility to support new investments. We’re talking about investments to support production capacities, for green technologies that are at risk of relocation.

This is new. And this is a far-reaching, even if temporary, change in State aid policy.

So it comes with a risk. Some countries will be able to deliver far more money than others. That’s why we need to make this possibility temporary, well targeted in size and scope, and pending real benefits for people and the European economy at large.

In terms of sectors, the new provisions should match those sectors affected by the Inflation Reduction Act – and those only. Like batteries for electric vehicles, or wind turbines.

Practically, Member States would be able to put in place simple schemes, with no need to notify each and every project. They would calculate the aid as a percentage of the investment costs, and there will be absolute maximum amounts cap as to how high the aid can be.

To keep it fair for all Member States, we propose higher percentages and caps for less developed regions in Europe. And we go even higher for those Member States that will propose tax breaks instead of grants, or target their aid at small and medium sized businesses.

Today’s proposal includes another very exceptional temporary option – the so-called “matching aid”. To help Member States prevent that investments are unfairly diverted to the highest bidder outside Europe, today’s draft would enable Member States to match the subsidies offered by  third countries.

Put simply, if a company is offered 1 billion dollars by a third country to support, for instance, a new battery plant, a Member Stater could offer the same up to funding gap.

This is of course a serious risk to competition and the integrity of the Single Market. And those risks are not temporary. Because not all countries have the same capacity to match aid. Recent figures you may all have seen -they have travelled quite a lot- by now show that Germany and France together accounted for almost 80% of the state aid notified so far under the Temporary Crisis Framework (so in a very short timeframe). European countries are not equal when it comes to State aid.

This is why we put several conditions to this matching-aid – how is the aid calculated, is the investment indispensable to deliver on the green deal, is the aid in the third country real? And – most importantly – are there benefits to other countries in the EU?

One word on this last point – outside disadvantaged regions, the aid should only be granted if the investment involves cooperation across different Member States. It should not be used to move investments from one Member State to another. The idea is very simple: any public support granted to a rich region should pull other regions along.  Instead of leaving just small crumbs for others, we should just make the cake bigger for everyone.

The Green Deal Industrial Plan focuses on the competitiveness of the European industry. The aim is for Europe to be a leader in the green and digital transitions. That is the aim of the Industrial Policy that we devised after the pandemic. It is based on four pillars – regulation, skills, trade and financing, including private financing. So what we do now is to accelerate the green delivery in Europe, and limit the risk of investments diverted to third countries because that would pause the acceleration that is indeed needed. We do not build competitiveness out of public subsidies. This is why you see the broad scope of the Green Deal Industrial Plan.

This is why I have said the word temporary fourteen times in this speech. So far, those changes should apply until 31 December 2025. The aid should be granted within this period because it shall accelerate.

It is also important to be transparent about the aid which is disbursed. Both by Member States, so that taxpayers know where their money is going, and by third countries.

This is a broad, far-reaching temporary proposal of changes to our current State aid system. But looking at the whole proposal, I would urge Member States to focus on the second component. Because using State aid to establish mass production and to match foreign subsidies is something new. And it is not innocent. It comes with significant risks for the integrity of the Single Market. And for our cohesion. And because of that, also for our unity.

At the end of the day state aid is a transfer of money from taxpayers to shareholders. And it only makes sense if the society as a whole benefits from the aid granted.

So we would need to get the balance right.

I am counting on all Member States to share their views to help us in our work to draft our response to the current challenges together. Because after all, it is their taxpayers’ money that is being used here. And it should be used for the common good.