EU rules out production aid in blow to battery and cleantech industry

New EU state-aid rules published today are a setback for the European cleantech and battery industry, green group T&E has said. The rules maintain a ban on production aid – subsidies for each unit actually produced – despite the US using similar aid to successfully build a battery industry from scratch and overtake Europe’s.

The new rules (known as CISAF) allow governments to take equity in cleantech companies, ease aid to projects vetted by the EU Innovation Fund, and suggest that aid for foreign investment in the automotive sector will be conditional on IP and skills transfer. But T&E said this is not an adequate solution to the lack of competitiveness of EU cleantech manufacturing. CISAF remains based on complex, project-by-project and opaque aid procedures.

William Todts, executive director at T&E, said: “The EU missed a big opportunity to create a cleantech bazooka, with simple, predictable and bankable aid for manufacturing in Europe. The game changer the EU battery industry needs is IRA style production aid, tied to resilience criteria, as promised by Ursula von der Leyen in the auto action plan.”

T&E said the Commission still has the opportunity to design impactful EU-wide support schemes under the €1.8bn still earmarked for batteries under the Innovation Fund later in 2025, or in the Competitiveness Fund in the next EU budget. But the new funding cycle will only start in 2028, when it’s unclear if there will still be many European cleantech players to support.

The new rules allow state aid for types of hydrogen that are at odds with the EU’s climate ambition, T&E said. Member states will be able to support projects producing hydrogen from fossil gas. This risks prolonging the financing of the fossil fuel industry at the expense of real decarbonisation and hampering the uptake of green hydrogen needed for aviation and shipping fuels.