The European Commission is extending the relaxation of state aid rules to prevent green tech companies from moving abroad and to allow the bloc’s transition to a net-zero economy.

The rules on national subsidies were already in place changed in 2022 in response to Russia’s war against Ukraine, to allow member states to more easily finance struggling businesses and energy production in Europe.

Now, growing concerns about an escalating global subsidy race have prompted the EU to extend further this temporary crisis framework – and even expanding its scope to support domestic cleantech companies fighting climate change.

The move appears to be heavily influenced by the US Inflation Reduction Act (IRA), which offers $369 billion in subsidies for green technologies “made in America”. This has led to fears that EU companies will be tempted to relocate their businesses to the US.

To prevent the bloc’s long-term competitiveness in the green technology industry from taking a potentially catastrophic blow, the Commission has amended state aid rules to streamline the approval of grants for companies developing renewable energy roll-outs, energy storage and decarbonising industrial production processes.

The EU has focused on six main sectors: batteries, solar panels, wind turbines, heat pumps, electrolysers and use and storage of carbon capture. This also includes the production of key components, as well as the production and recycling of related critical raw materials.

“The framework gives Member States the ability to provide assistance in a quick, clear and predictable way.

The amended rules will give Member States more flexibility to inject public funds, allowing for higher aid ceilings and simplified aid calculations.

SMEs and companies in disadvantaged regions are eligible for higher support, while EU countries also have access to larger funds if the aid is provided through tax incentives, loans or guarantees.

To avoid cases where the risk of relocation is high, countries will be given the opportunity to do ‘matching aid’. That is, to match the subsidies of a non-EU government and keep the company within union boundaries. Alternatively, Member States can bridge the funding gap the company expects to bridge.

“Our rules protect the level playing field in the internal market.

To ensure that these options do not create unfair competition in the bloc, the Commission has introduced three safeguards:

1. The aid can be granted to companies in less developed areasor for projects in at least three Member States.
2. Eligible companies must use state-of-the-art production technology from an environmental emissions point of view.
3. The aid cannot lead to the relocation of investments between Member States.

EU countries can use the new rules until 31 December 2025, but payouts can also continue after that.

“The framework we adopted today gives Member States the ability to provide state aid in a quick, clear and predictable way,” said Margrethe Vestager, executive vice president in charge of competition policy, in a statement. rack.

“Our rules enable Member States to accelerate net-zero investment at this critical time, while protecting the level playing field in the internal market and cohesion objectives. The new rules are proportional, targeted and temporary.”