Brussels split over state aid for clean tech production

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

The European Commission’s powerful competition directorate is blocking a push that would allow governments to subsidise the production costs of clean energy technologies, flaring tensions between EU officials enforcing state-aid rules and those working on industry.

Teresa Ribera, the EU’s competition commissioner, is refusing to exempt the operating costs of solar panel, wind turbine and battery producers from the bloc’s notoriously strict state-aid regime, said four people with knowledge of the talks.

The internal battle highlights the EU’s executive’s struggle to navigate the challenge of supporting Europe’s emerging technologies in a global race with China and the US, while also holding firm to its traditional free market approach to subsidies.

The EU’s rule book on state aid, which is enforced by the commission, is aimed at maintaining a level playing field given that different member states have varying levels of fiscal firepower. Brussels has traditionally banned capitals from subsidising operating expenses of their industries, deeming it an unsustainable form of support.

But faced with the prolonged agony of Europe’s industrial base after it was hit by the Covid-19 pandemic, Russia’s full-scale invasion of Ukraine and increased competition from Chinese rivals, the commission has pledged to outline more lenient state-aid guidance by the end of June.

Relaxing state support for operating expenditure was seen as a critical element of the revised rule book. Stéphane Séjourné, the French commissioner for industry, as well as officials working on climate and energy policy are pushing for its inclusion in order to shore up the EU’s industrial base and meet climate targets, said those with knowledge of the talks.

“The problem is not one company going from one EU state to another EU state, it is [that it will relocate] to China or the US,” one of the officials said.

William Todts, executive director of the non-governmental organisation Transport & Environment, said: “This is Europe’s last chance to build a battery supply chain that isn’t dependent on China. And the only thing we have to do is change the way we give state aid.”

A cross-party group of EU lawmakers also voiced concern in a letter sent to Ribera on Tuesday and seen by the Financial Times. “Member states should be allowed to design transparent, predictable production-based schemes for cleantech manufacturing in sectors of strategic importance and common European interest,” the letter said.

But Ribera and the competition directorate have voiced scepticism about the benefits of such a move arguing that it does not set the right incentives for companies to be competitive.

They are also opposed to efforts to include so-called “resilience criteria” aimed at pushing governments to prioritise European companies — a long-standing French effort critics have labelled as protectionist. Ribera’s team argues it is not possible to force member states to prioritise European goods through state-aid rules.

An official in Ribera’s team said the commission was “working hard” to ensure the objectives of the bloc’s clean industrial policies “are effectively supported” by the revised state-aid rules.

“All options are assessed to ensure . . . full compliance with international and EU laws,” they said.

Some officials specifically accused Séjourné of driving his push to favour European companies too far.

Because of the sensitivity of the discussions, officials are banned from circulating the draft in print or PDF format. Other commissioners are having to read the text via screenshots, two officials said.

Ribera’s stance is supported by several smaller member states, which have indicated they are also opposed to production support.

But industry groups have said more support for production is critical as they try to cope with structurally high energy costs and costs of compliance with EU green rules at the same time as trying to compete with far more generous subsidy regimes in China and the US.

Victor van Hoorn, director at the industry group Cleantech for Europe, said the EU needed to learn why the US Inflation Reduction Act had been “so successful in drawing capital and investments, even more so in the current environment of ever fiercer geopolitical rivalries”.

“If we don’t use our full arsenal of policy tools — including production-based support — the EU is going to struggle to meet its own cleantech manufacturing target of 40 per cent by 2030,” van Hoorn warned.

Additional reporting by Barbara Moens