For a comprehensive reform of the European State aid framework

As part of the Clean Industrial Deal, the European Union (EU) plans to revise its rules on subsidies. However, the proposals currently on the table, such as the Clean Industry State Aid Framework (CISAF), will only marginally reform the current European framework. This will not enable European industry to adapt properly to the era of geo-economic competition. A comprehensive review of the EU’s state aid guidelines is therefore needed.

In the EU, state aid is generally prohibited under the competition rules of the single market. However, various exemptions allow the use of subsidies for specific purposes and in specific circumstances. For example, the European Commission may authorise aid to develop regions lagging behind in development, support projects of common European interest, remedy serious economic disturbances and promote economic activities and sectors, provided that this does not cause excessive negative effects on the single market.

On the basis of these exemptions, the EU has developed various regulations, frameworks and guidelines on state aid. Today, subsidies for industrial policy projects can be based on the General Block Exemption Regulation (GBER), the R&D&I Framework, the Guidelines on Regional State Aid, the Communication on Important Projects of Common European Interest (IPCEI), the guidelines on climate, environmental protection and energy (CEEAG), and temporary frameworks.

All these options have their own eligibility and compatibility criteria, different aid ceilings and intensities, and different conditions for obtaining State aid. As a general rule, projects must demonstrate the existence of a funding gap, which requires a complex analysis to show that a project could not be carried out without public subsidies.

It is extremely difficult to navigate this myriad of state aid frameworks and rules, especially given the inconsistencies between them, particularly for small Member States and small businesses. As the various frameworks focus on the exemptions provided for in the Treaty, their design does not sufficiently direct public subsidies towards the strategic objectives of EU industrial policy, such as innovation, decarbonisation and economic resilience.

The European Commission’s current approach to state aid reform, being fragmented, will not be sufficient to support a more effective and assertive industrial policy within the EU. On the contrary, a thorough review of the existing frameworks and rules is necessary. This includes simplifying and harmonising them, placing greater emphasis on outputs and results, encouraging coordination of State aid spending and taking measures to facilitate private financing of industrial policy. To put this new European State aid framework in place, the Commission should immediately launch a comprehensive reform process.