EU scales up green subsidies – Non-EU companies can benefit from these green initiatives
The EU has put in place several new “green” initiatives, has adapted its existing subsidies framework, and has unlocked billions of EU and Member States funding to support the green transition.
There are several ways in which the activities of non-EU companies can benefit from these initiatives. The routes open differ depending on the origin of the funds - some funds are provided by individual EU Member States and some are available under umbrella EU initiatives and are disbursed by the EU.
As a matter of principle, the grant of EU funds and EU initiatives follows the non-discrimination principle, which means that non-EU companies can apply for funds or participate in a procurement procedure if they operate a business or projects that furthers EU interests or contributes to the implementation of an EU programme or policy, and have a business presence in the EU. Accordingly, non-EU companies with a business presence in the EU may be able to access EU funds if their businesses, technologies and processes meet the objectives of relevant EU initiatives.
Funds provided directly by Member States can also be accessed under similar principles. However, given that Member States are supporting the green transition in a large number of ways, non-EU companies with presence in the EU will need to look at the opportunities in the Member States in which they are present.
1. Extended access to funding for net-zero industry, provided by the EU Member States
Funding for net-zero projects that comes from Member States must adhere to the EU State aid rules, and be notified to and approved by the EC before the funding is granted. For example, the EC recently approved a German €550mn direct grant and conditional payment mechanism of up to €1.45 billion to support ThyssenKrupp in decarbonising its steel production and expediting renewable hydrogen uptake, and a €40 million German support measure for the construction and operation of a new land-based liquefied natural gas terminal in Brunsbüttel benefitting RWE and Gasunie.
On June 23, 2023, the European Commission (EC) adopted changes to its State aid framework to extend funding for net-zero projects, supporting its February 2023 “Green Deal Industrial Plan for the Net-Zero Age” (the Net Zero Plan). The Net Zero Plan is part of the broader European Green Deal, which aims to make Europe the world’s first climate-neutral continent by 2050.
The changes to the State aid framework to extend funding for net-zero industry are also, at least in part, a response to the cleantech-related investment incentives created by the U.S. Inflation Reduction Act (IRA) and similar initiatives in other third countries, by offering new opportunities for companies to benefit from funds from Member States and other financial support.
a. Temporary Crisis and Transition Framework
To enhance Member State flexibility in supporting the green transition, the EC has transformed the State aid Temporary Crisis Framework adopted in March 2022 (in the wake of the invasion of Ukraine by Russia) into the Temporary Crisis and Transition Framework (TCTF), which will remain in place until December 31, 2025. The TCTF:
- Simplifies aid for decarbonisation, including hydrogen use, energy efficiency and electrification;
- Allows tax benefits and other measures for new investments in strategic net-zero sectors; and
- Enables Member States to match aid from a non-EU country, subject to certain safeguards.
For example, on 19 July, the EC approved (under the TCTF) a €3bn German scheme for aid (in the form of direct grants; tax advantages; subsidised interest rates and guarantees for new loans) to companies producing solar panels, wind turbines, heat-pumps, electrolysers, equipment for carbon capture usage and storage, as well as key components designed and primarily used as direct inputs in the production of such equipment or related critical raw materials necessary for production of such equipment. The EC also approved (under the TCTF) on 3 April a €450 million Italian aid scheme open to companies of all sizes active in Italy to support investments in the integrated production of renewable hydrogen and renewable electricity in brownfield industrial areas.
The State aid General Block Exemption Regulation (GBER) is aimed at simplifying the whole State aid process and exempts Member States from the obligation to notify State aid to the EC before funding is granted, provided all the GBER criteria are fulfilled. The EC has revised the State aid GBER to raise the State aid notification thresholds, such that Member States can award aid valued at up to the following amounts:
- Investment aid for energy infrastructure: €70 million per undertaking, per investment project.
- Investment aid for publicly accessible recharging or refuelling infrastructure for zero or low emission vehicles: €15 million per undertaking per project and, in the case of schemes, an average annual budget of up to €150 million.
Member States have the discretion to restrict such aid to EU-based undertakings or make it more widely available, generally in connection with activities in their territory.
The following key sectors are likely to benefit from these amendments: (i) energy infrastructure; (ii) hydrogen production; (iii) carbon capture and storage; and (iv) recharging and refuelling infrastructure.
This revised GBER applies until the end of 2026.
2. Existing EU funds being repurposed to provide additional support
In addition to the support that Member States can provide, the EU is repurposing some of the funds at its disposal. The following EU funds will be available for projects under the Net Zero Plan: (i) €250.4bn in loans; (ii) €11.37bn in funds for 2024-2027, with potentially additional funds, for public and private investments in sustainable infrastructure and R&D; and (ii) €45bn by 2027 for clean investments provided by the European Investment Bank. Additionally, a pilot auction will be launched in December 2023 with an initial budget of €800mn for the right to produce renewable hydrogen.
3. New EU regulatory initiatives
In her initial presentation of the Net Zero Plan, EC President Ursula von der Leyen acknowledged the need to increase the EU's manufacturing capacity for net-zero technologies and products. To this end, the EC has proposed the Net-Zero Industry Act (NZIA) and the Critical Raw Materials Act (CRMA). The NZIA proposal, which follows the EU Chips Act model (see our briefing here), and the CRMA, aim to create a predictable and simplified regulatory environment for companies pursuing net zero projects. Both are in the latter stages of the legislative process and could be adopted before the 2024 European Parliament elections, if negotiations proceed as expected.
In March 2023, the EC also published its thinking on the design and operation of the European Hydrogen Bank (EHB), intended to facilitate and support the production, import and uptake of renewable hydrogen in the EU (see our briefing here). Relatedly, on 30 August, the EC published the terms and conditions for its upcoming EU Hydrogen Bank pilot auction.
The proposed NZIA includes provisions to support the manufacture of products that are key to meeting climate neutrality goals in “strategic areas” (including carbon capture) through shortening and simplification of licensing and authorisation procedures, and support for training and technology development, including via net-zero sandboxes. Investors in such strategic areas will also benefit from the introduction of “one-stop-shop” single points of contact.
The proposed NZIA facilitates access to markets, requiring public authorities to consider sustainability and resilience criteria for net-zero technologies in auctions and public procurement procedures.
The CRMA (COM(2023)160) aims to ensure security of supply of raw materials required for EU net-zero technologies. It codifies the existing critical raw materials list and a new list of strategic raw materials (used in strategic sectors such as renewable energy). Strategic projects could face a minimum European ownership requirement if such proposal is adopted in the final text of the CRMA.
The CRMA will provide a regulatory framework to support the development of EU capacity in critical raw materials by enabling access to finance and streamlining permitting. It also includes measures for the sustainability and circularity, and diversification, of the critical raw material supply chains, including by monitoring such chains, improving recycling of these materials and concluding new international partnerships. The CRMA also provides for the establishment of a “European Critical Raw Materials Board”, potentially with sub-groups, composed of Member States and the EC, to discuss such partnerships and advise and coordinate on implementation.
Finally, the EC proposes as well to set up and supervise a joint purchasing system for strategic raw materials, subject to compatibility with EU public procurement and competition rules.