Today, the European Commission (EC) published its Competitiveness Compass. Following the Draghi Report’s wake-up call, the Compass calls for simplification and better coordination for all policies and describes how the EC plans to turn the “transformational imperatives” into enhanced competitiveness for the EU.

Alongside these calls, there are two changes for competition enforcement. One concerns the future guidelines for merger control, which we discuss in this blog post. The one we are discussing here is a call for a new framework for State aid. Both measures are for the EC to take forward; they do not need Council or Parliament approval. 

This post highlights some implications that the policy proposals in the Compass could have for EU State aid rules (see also our previous blog post on Ribera’s mandate).

Rush hour for the State aid rules?

The Compass takes its cue from the Draghi report’s call for an urgent switch of gears to safeguard the EU’s standing as an “economic powerhouse, an investment destination and a manufacturing centre”. This quest will come with a price tag, and for any public support the EU State aid rules need to be considered. 

The State aid rules have a history of being seen as a brake pad, preventing swift and effective support to key industries. A chorus of complaints point to EU State aid processes being lengthy and bureaucratic. To this end, the Compass includes two main proposals: 

Full speed for supercharging Important Projects of Common European Interest (IPCEIs)

To achieve the ambitions of an economic powerhouse, the State aid rules and in particular IPCEIs are seen as a launching pad that will kick off investments in critical sectors and technologies. IPCEIs are transnational programmes enabling multiple EU Member States to pool resources and support key projects. 

In a drive to cut red tape, the EC aims to streamline IPCEI approval processes, making them “simpler and faster”. The Compass also seeks to foster a broader application of IPCEIs, with a focus on innovative sectors. In terms of likely focus areas, the Compass highlights energy and transport infrastructure, digital infrastructure, AI, biotechnology and key manufacturing capacities. Companies in these sectors should therefore consider how this will impact their business. 

By leveraging a new “Competitiveness Coordination Tool”, the EC will seek to align priorities in these selected key areas. The aim is clear – a strong focus on quickly boosting innovation and investment in these sectors by deepened integration amongst Member States on the back of financial support from the EU budget, national funding and private capital. The Compass signals that funding can be rechannelled from a host of regional projects to where it matters for competitiveness. 

In times of geopolitical tension, IPCEIs are also highlighted as a means to preserve essential EU know-how and manufacturing strengths. IPCEIs will therefore also serve to protect capabilities that the block cannot afford to lose. The initiative aims to not only spark innovation, but to sharpen the EU’s competitive edge.

Following the ‘pilot’ stage of the Competitiveness Coordination Tool, the EC will seek to identify future strategic infrastructure networks, sectors or activities that would make suitable focus candidates. This further highlights the pivotal role of IPCEIs in driving EU’s industrial and competitive strength in the future. For companies active in the EU, the EC’s message is clear: watch this space.

Further routes for clean energy support

To boost the block’s green transition, the Compass suggests further simplification of State aid procedures to support companies’ switch to clean technologies. As part of its upcoming Clean Industrial Deal and New State Aid Framework, the EC intends to set out how “well targeted, simplified aid can further encourage investment for decarbonisation, while avoiding market distortions”. It aims to promote the transition to clean tech and circular business models by supporting energy-intensive industries with a flexible State aid framework. 

This follows previous measures to improve the investment climate for the green transition, including the EC’s 2023 update of the General Block Exemption Regulation and its 2022 update of the climate, environmental protection and energy State aid guidelines, which significantly expanded Member States’ policy space to support the green transition.

Where will this take us? 

The last few years have seen a notable uptick in the use of IPCEIs as a tool to support innovative sectors. The EC has approved support for hydrogen, batteries, microelectronics and communication technologies, cloud infrastructure and services and medical innovation. The roadmap set out by the Compass suggests that IPCEIs will be at the forefront of State aid policy in the future. 

For funding towards the green transition, the direction of travel is clear, and we can expect a continued uptick in the flow of public support. To this end, the EC’s Clean Industrial Deal is earmarked for publication in Q1 2025, and the New State Aid Framework is earmarked for publication in Q2 2025.