Europe state aid law attracts cleantech projects

State aid rules introduced last year by the European Commission (EC) allow national governments within the European Union to match subsidies offered elsewhere in the world to companies seeking to manufacture products considered of strategic importance. Now, a battery plant planned for Germany will be the first beneficiary of the law.

Products that qualify include those relating to sustainability and mobility, such as battery materials, rare earth elements, and semiconductors. Named the Temporary Crisis and Transition Framework, the rule is aimed at encouraging producers of strategically important goods to establish their plants in Europe and not places like the US, where they can benefit from public funding under the Inflation Reduction Act (IRA).

The new law “allows for providing higher amounts of state aid if the investment is at risk of being diverted from Europe due to the availability of foreign subsidies,” Margrethe Vestager, the EC’s executive vice president, said at a press briefing in Brussels this week.

In particular, EC officials hope that the rule will make Europe an attractive location for the production of lithium-ion batteries for electric vehicles. In an indication that the law will hit the mark, the Swedish battery developer Northvolt is set to become the first company to benefit from the new rule. It is on course to receive €902 million (about $988 million) from the German government after agreeing to locate a lithium-ion battery plant with a capacity to supply up to 1 million electric vehicles per year in Schleswig-Holstein, Germany. Total state aid funds for projects in the Schleswig-Holstein region could reach about $2.7 billion.

US officials dangled the IRA to try to get Northvolt to build its plant in the US, but the new European rule means that the plant will be built in Germany, Robert Habeck, Germany’s vice-chancellor and minister for economic affairs and climate action, said at the press briefing. Two local government bodies must give their final approval before Northvolt receives the money. If they decide to block the project, “this would really be a terrible joke,” Habeck said.

Under the new rule, the French government is making available $3.2 billion in state aid for clean technology projects such as battery, solar panel, and wind turbine plants. Governments in Austria, Belgium, Germany, Hungary, Italy, Slovakia, and Spain have already collectively lined up more than $10 billion in state aid for projects of strategic importance.