Countries can provide direct grants, loans, guarantees or tax benefits. In the case of the latter, the rate of state aid may increase. Member States have a deadline extension until 31 December 2025.
On the eve of Ursula von der Leyen’s meeting with Joe Biden, as part of her visit to the United States, the European Commission published the new temporary rules on state aid to combat the megaplan launched by the Biden administration to attract companies and revitalizing the economy based on the green transition.
The new rules revealed on Thursday allow, for example, that member states can “in exceptional cases” grant “greater support to individual companies where there is a real risk of investment being diverted from Europe”. In this new regulatory framework, countries can stop the “offset” effort in two ways: either by matching the support offered by the United States – so-called “matching aid”. or ‘the amount necessary to encourage the company to locate the investment in Europe – the ‘funding gap’ – whichever is the lower amount.
This decision by the community executive comes in response to the massive government aid plan launched by US President Joe Biden to restart the economy – the so-called Deflation Act – or the Deflation Act ( IRA). It is a giant aid package worth 390 billion euros aimed at attracting foreign companies to the United States.
But this option, Brussels underlines, is subject to a series of “safeguards”. On the one hand, it can only be used for investments made in economically more disadvantaged areas or for cross-border investments “involving projects located in at least three Member States, with a significant part of the total investment being made in at least two disadvantaged areas (outermost regions or regions whose GDP per capita is less than or equal to 75% of the EU average).
On the other hand, “the beneficiary must use state-of-the-art production technology, in terms of environmental emissions.” Third, “the aid cannot cause investment to relocate between Member States”, the EC statement states.
Supports with limits
The framework approved by Brussels also states that countries can adopt “simple and effective” measures to grant support “limited to a certain percentage of investment costs and nominal amounts, depending on the location of the project and the size of the beneficiary ». That is, small and medium-sized enterprises, as well as those located in economically disadvantaged areas, “are eligible for higher support to ensure that cohesion objectives are taken into account”.
However, in this context, Brussels stipulates that Member States can increase investment support if it is granted through tax advantages, loans or guarantees. But there is also a “guarantee”: “before the aid is granted, the national authorities must verify that there are no risks of relocation within the European single market”, avoiding unfair competition between member states.
This new “temporary framework for state aid measures” corrects and extends the previous framework approved in March last year, which allowed member states to support the economy in response to the Russian invasion of Ukraine.
This regulatory framework now extends until 31 December 2025 the ability of countries to grant state aid to decarbonise industrial production processes, accelerating the transition to clean energy.