Good That the State Aid Rules Are Being Reformed – But the Pitfalls Are Many

The new state aid framework designed to support the Clean Industrial Deal has now been published, abbreviated as CISAF. It is a framework that enables Member States to provide additional state aid for a range of purposes – including supporting the decarbonisation of industry, facilitating the development of new clean electricity production, and aiding the manufacturing of certain clean technology products.

The Confederation of Swedish Enterprise welcomes the European Commission’s review and update of the state aid rules to align them with the Commission’s broader initiatives. The objectives to be supported are important – the addition of new fossil-free electricity production, facilitating industrial transformation, and creating better conditions for production and operations within Europe. However, this should primarily occur under market-based conditions, not through selective state aid. Furthermore, we welcome the Commission’s revision of CISAF following the public consultation, making it more technology-neutral by including fossil-free technologies such as nuclear power in certain parts.

However, it would have been preferable if the Commission had adapted the regular state aid rules, rather than effectively making the temporary crisis and transition framework (TCTF) permanent and expanding it. These new rules are now layered on top of the regular state aid rules, making the regulatory framework difficult to navigate and complex. An increasing number of cases must be notified to the Commission for approval, leading to greater administrative burdens. This also means that the Commission’s resources are being used to assess new state aid, while the ability to review existing aid and detect unlawful aid has been minimal since the outbreak of the pandemic. Certain parts of the new rules are particularly concerning, given the risk of distortion of competition between companies and Member States.

A new chapter on electricity price support for energy-intensive industries was added just before the regulation was adopted. While it is important to address shortcomings in electricity markets and invest in new production to lower electricity prices, this should not primarily be done through state aid. New aid of this kind can be expected to be extensive in some countries, which may significantly impact competition between Member States. The regulation allows for state aid covering up to 50 per cent of the electricity price for half of the consumption.

Differences in electricity prices reflect the varying conditions in different countries and represent an important comparative advantage for countries like Sweden. If the state aid rules allow Member States to compensate for such differences, it distorts competition and may lead companies to base production decisions on where the most aid is available rather than where market conditions are most favourable. In the long run, this will harm certain countries as well as the EU’s overall competitiveness.

Moreover, we are critical of the fact that the framework allows for state aid to mass production of certain so-called clean products. It is important that both new and existing production are given improved opportunities, but state aid is not the right path to build competitiveness in these areas. On the contrary, it may lead to distorted competition and investment decisions based on flawed premises. We are particularly concerned that countries within so called assisted areas are allowed to provide significantly more state aid than would otherwise be permitted. This further distorts competition – the least one should expect is that all Member States are treated equally when it comes to the ability to make use of this type of framework.

We will continue to analyse how the framework functions in practice and monitor how Member States choose to apply it, as it may have a significant impact on the relative competitiveness of companies in Sweden. The trend towards increasing levels of state aid appears to continue under the new framework, which is concerning. We prefer that sound framework conditions for business are promoted broadly and that market forces are allowed to operate without distorting competition.