EU Commission's State Aid plans fail to deliver for cleantech

EU State Aid guidelines do not effectively support EU manufacturing of cleantech products like batteries, a new T&E report finds. To compete globally, Europe needs a revised State Aid framework for cleantech based on ‘Made in EU’ requirements, providing clear and performance-based support to the production of sustainable products, says T&E.

State Aid spending in the EU has surged since the COVID-19 pandemic, doubling from 1% of EU GDP in 2019 to over 2% in 2020 and 2021. This sizable pot of money needs to be re-calibrated, and re-designed, says T&E. 

T&E makes a number of key recommendations:

• End fossil fuel Subsidies: State Aid rules need sharpening to rule out fossil fuel subsidies - especially gas projects - still close to €100 billion a year in the EU. In transport, tax breaks for diesel and petrol company cars - potentially a form of State Aid - should be banned.

• Mandatory "Made in EU" criteria for manufacturing of end products: Aid must be tied to local control, content, and use. Only companies under the ultimate control of EU entities should be eligible. Public support conditioned on local content and control is the most effective way of fostering a local supply chain.

• Support products, not projects: e.g., output-based support of €25/kWh for battery cells, phasing down over time, and a €5/kWh bonus for battery packs. Coupled with tariffs on made-in-China batteries, this could make batteries produced in the EU competitive

• Pool resources and create synergies with EU funding: State Aid is not a silver bullet. EU-level funding should address concerns about deep-pocketed Member States monopolising aid to companies. Member states should allocate a fixed percentage of national state aid to an EU fund. An additional 5% to 15% contribution could generate between €8.5 billion and €51 billion annually, supporting a just transition all across the EU and enhancing EU competitiveness.

The leaked Clean Industry State Aid Framework does not properly address the issues highlighted in T&E’s report. For instance, it does not include clear requirements on local control or “Made-in-EU” requirements which could foster a local supply chain. Nor does it integrate a performance-based approach, says T&E.