The European Commission is poised to update its state aid law to help industries go green and corner the global clean tech market. Here’s how the EU's government spending rules work.
One of the cornerstone principles of the European Union’s mighty single market is that nobody selling into it should have an unfair advantage over competitor companies.
That is why the EU keeps a careful watch on mergers and acquisitions, to make sure firms do not get too powerful and prevent consumers from having enough choice.
It is also the reason why national governments are not generally allowed to just pump money with impunity into companies or sectors that they want to help compete. State aid rules prevent this kind of unfettered government aid.
But there are exceptions. If governments can justify that spending is required in order to foster economic development or if there are common European objectives on the line, then state aid can be approved.
During and in the wake of the Covid pandemic, many governments needed to invest in companies in order to save them from bankruptcy. A lot of airlines and other travel-related firms are only still around today because of this action, for example.
When a government wants to spend money that qualifies as state aid, it must notify the Commission. After a thorough investigation, the EU executive branch will either give the green light or approve it with conditions.
In the past, those conditions have varied in scope and severity, from shutting down domestic air travel routes in favour of high-speed rail to time-limited measures and repayment plans.
Unfortunately for Europe, tough state aid laws have their downside. It makes the bloc slow to move and cumbersome in the global marketplace. It also means that some industries are struggling to adhere to the EU’s other objectives, like moving towards a decarbonised economy.
That is why next week the European Commission will publish updated state aid guidelines to better incorporate its Clean Industrial Deal into government spending rules.
Governments have complained a lot recently that they want to help priority industries like steel and chemicals make the shift towards green manufacturing, but that they need extra state aid leeway to get it done.
Top global competitors like China can essentially spend without limit on industries like battery manufacturing and electric vehicle production. Imports have admittedly paid a tariff price but those industries are now firmly established and firing on all cylinders.
Although these new guidelines will not open the taps completely, they will smooth the road out somewhat, allowing governments to spend more on renewable energy, clean tech and green manufacturing.
Ultimately, industrial powerhouses like France, Germany and Spain will be the main beneficiaries of this update as they have the financial clout to actually spend big on clean industrial deal projects.
That is why the Commission will have to make sure that this reform does not create a two-speed Europe of richer countries versus poorer nations. That would go against so many of the policies that the EU has put in place during its existence.
