Brussels authorises state aid for the first time to prevent the flight of a company to the US: 900 million German for Sweden's Northvolt

The European Commission on Monday gave the green light to a significant €902 million state aid granted by Germany to support the company Northvolt in the construction of a battery production plant for electric vehicles. The decision is relevant because of the not insignificant amount of money, because of the fact that Northvolt is a Swedish company and not a German one, and because it is the first time that it has used the so-called 'matching aids', an instrument introduced into the Community arsenal within the framework of the Temporary Crisis and Transition Framework of state aid and amended on 20 November. just a few weeks ago, "to support measures in sectors that are key to accelerating the green transition and reducing dependence on fuel."

"This grant will allow Northvolt to invest in a 'gigafactory' to produce battery cells for electric vehicles in Europe instead of the United States. It is the first individual measure to be approved with the exceptional possibility of the Temporary Crisis and Transition Framework, which allows for larger amounts of aid to be provided if the investment is at risk of being diverted from Europe due to the availability of foreign subsidies. Today's decisions show that our State aid rules allow Member States to accelerate net-zero investments at this critical time, while protecting a level playing field in the Single Market and cohesion objectives," said Competition Commissioner Margrethe Vestager, who is fully operational after losing the race to chair the European Investment Bank just a month ago.

There are two key references in his words. The first, the mention of this framework that allows more public aid in the face of the risk of relocation, something that until not so long ago went against the fundamentals of the free market and the line historically maintained by the Commission and the EU, but that since the pandemic, the Chinese boom and the IRA, Joe Biden's gigantic aid package for American companies has been buried. There is a silent but open war and almost anything goes, especially in sectors considered vital in the coming years, from chips and semiconductors to batteries.

The second reference is to the plural, to today's decisions. Vestager is referring to Northvolt's €900 million, but also to a second announcement, that of the approval of a €2.900 billion French plan to support the production of batteries, solar panels, wind turbines and heat pumps, related key components and critical raw materials. Since March 2023, it has allowed Member States to design "simple and effective plans to support net-zero equipment investments, while ensuring that support is proportionate, targeted and temporary", something that has already happened in Austria, Belgium, Germany, Hungary, Italy, Slovakia and Spain, with a total value of €9.100 billion.

However, it is Germany that is attracting attention, because of its scope and specificity. Since 2020, the country has been the country that has given the most state aid, an overwhelming amount, a majority percentage of the EU total, taking advantage of its enormous fiscal muscle. The plant in question, for the production of advanced and high-efficiency batteries for electric vehicles in the city of Heide, will have an annual capacity of 60 GWh, enough for between 800,000 and 1 million electric vehicles per year, depending on the size of the battery. "The plant will start production in 2026 and reach full production capacity in 2029. According to the measure, the aid will consist of a direct grant of €700 million and a grant of €202 million in guarantees."

The EU stresses that on paper the measure has a limited impact on competition and trade within the EU. In particular, "it is necessary and appropriate to ensure the establishment of the battery production plant and this will not lead to overcapacity in the market. The aid is proportionate and limited to the minimum necessary to trigger investment in Europe and does not make investment in Germany more profitable than investment in the United States. Nor will it exceed the amount of the subsidy that Northvolt could demonstrably receive for an equivalent investment in the United States. Finally, the aid will be granted by 31 December 2025 at the latest."

There is no cardboard but it may be a catch, depending on the premium you look at. Without that huge subsidy, Northvolt would have run the plant in the United States, where very similar aid has been offered since the passage of the Inflation Reduction Act. The Commission considered that the German measure, taking into account that the total investment will exceed 2.500 billion euros, is in line with the state aid framework and the Treaties, and Vestager's announcement was made, in a completely unusual way, together with German Vice Chancellor Robert Habecken Brussels.

PARADIGM SHIFT

Until the last parliamentary term, Brussels, and Vestager herself, thought that state aid was dangerous. That under very specific conditions they were justified, but that there was more risk to competition and to the interests of citizens if they were approved indiscriminately than if the opposite happened. The decision to veto the merger of Siemens and Alstom was the paradigmatic one. Now, the spirit is the opposite. You have to defend yourself at all costs, even if you can distort the market or make prices more expensive.

In its decision, the Commission explains that as battery production is an investment of "strategic importance for the transition to a net-zero economy". In addition, the project is being carried out in Heide, a town in a disadvantaged area as defined by German law. "The aid has an incentive effect, because without it the plant would have been established outside the EU. The beneficiary has set itself the goal of building the world's most environmentally friendly battery, producing significantly less CO2 emissions than other companies when measured in terms of output, including end-of-life recycling. The reduction of the carbon footprint is achieved in particular by using fossil-free energy in production and a circular design of the production process, including the recycling of battery cell materials," the statement reads.