State Aid : German State Aid to counter the IRA
On 9 January 2024, the European Commission authorised a German State aid worth €902 million (€700 million in direct subsidies and €202 million in guarantees) to finance a battery production plant for electric vehicles by the Swedish company Northvolt in Germany.
This aid is provided in the context of the Temporary Crisis and Transition Framework adopted by the European Commission in March 2023 - amended in November 2023 - which enables Member States to support projects aimed at achieving the objective of transitioning to a net zero emissions economy.[1]
This text provides the possibility for a Member State to align itself with the offer of a non-EU country if there is a serious risk that a company will relocate and invest outside the EU. In the present case, the Commission considered that the measure was necessary to prevent Northvolt from setting up in the United States where Northvolt had already received an offer. This makes it unprecedented in that the Commission explicitly states that it is granting this State aid to counter the effects of the Inflation Reduction Act (IRA).
Inflation Reduction Act
The denomination of the US Inflation Reduction Act could be misleading. In fact, it provides for a number of reforms with the central idea being the climate and not, as one might imagine, measures aimed at fighting inflation itself.
One of the main objectives of this law is to reduce greenhouse gas emissions in the United States by 2030.
However, behind these ecological stimuli lie tax incentives, as well as a binding mechanism that provides for the exclusive production and use of US energy resources.
Impact and challenges of the IRA on the European Union
It is easy to anticipate the IRA’s adverse effects on the European Union itself: companies based in the EU could be tempted to relocate some essential activities to the United States in order to benefit from significant tax advantages.
In 2022, President Ursula von der Leyen said in a speech to the European Parliament: "We have to come up with our own answer, our own European version of the Inflation Reduction Act".
The Temporary Crisis Framework for state aid is part of that answer and materialized in that German authorised state aid for the production of electric batteries by Northvolt.
This decision demonstrates the EU's determination to prevent significant strategic operators from flying out of the EU.
EU companies in the must take account of this regulatory possibility that has now become a reality.
Some would argue that this decision will no doubt reopen the debate on competition between those Member States that have the financial means to support this type of project, and the others. Unfair, in our view, because such subsidies participates to the EU energy and digital sovereignty that will benefit the EU in its entirety.
Moreover, companies should not lose sight of the support they can obtain directly from the European Union for projects concerning, in particular, the energy and digital transition.
[1] Communication from the Commission Temporary crisis and transition framework for State aid measures to support the economy following Russia's aggression against Ukraine 2023/C 101/03
Bruno LEBRUN
Zelia SELAMET