Battery production: Germany first EU country to match US subsidies

Germany will provide €902 million to Swedish battery maker Northvolt, as the first country to make use of the European Commission’s new subsidy “matching” scheme that allows EU countries to counter foreign subsidies with their own offers.

In February 2023, the European Commission unveiled new temporary measures to ease strict rules on national subsidies (“state aid”), allowing countries to match offers of third countries if they would otherwise result in production being lured away from Europe.

On Monday (8 January), the Commission announced that this new option was used for the first time, approving subsidies for Swedish battery maker Northvolt to build a production site in Heide, Germany.

“Matching aid is a new feature that we are using,” EU competition chief Margrethe Vestager told journalists.

“We have it in the Temporary Crisis and Transition Framework in order to make sure that if companies are offered aid in other jurisdictions, then if a member state is willing, that they can match the aid in order for the investment to take place in Europe,” she added.

Batteries for electric vehicles are considered to be of strategic importance to reach the EU’s climate targets, which include a de-facto ban on the sale of new diesel and petrol cars as of 2035. 

The decision “paves the way for a strong European production of batteries”, Vestager said.

So far, battery production is dominated by China, and while it is expected to grow substantially over the coming years, the International Energy Agency forecasts Europe to only gain a small share of new production.

The company called the decision “not only trailblazing for Northvolt’s plans to locate in Heide, but for the European battery cell industry as a whole.” However, some building permits by the municipality were still outstanding, a company spokesperson added.

EU's Vestager warns of fragmentation risks, but expands state aid

On Wednesday (1 February), Margrethe Vestager presented a new framework for state aid that will allow member states to subsidise more companies for longer, while also warning that such subsidies were a threat to the integrity of the single market.

Germany praises decision

German Economy Minister Robert Habeck (Greens), who said he was in Brussels by “coincidence” when the announcement was made, called it a “major announcement also for Germany”.

The production site will be located in Heide, in Habeck’s Northern German home state of Schleswig-Holstein.

“If you know the country there, Dithmarschen is not known for battery production so far, but it is known for renewable energy,” Habeck said, referring to the strong production of wind energy near the North Sea coast.

Under EU rules agreed last year, batteries sold in the single market must adhere to green manufacturing criteria, including declaring the amount of carbon expended during production.

Crucially, the region is also considered as relatively weak economically, which is a precondition for making use of the EU’s rules for subsidy matching.

Northvolt previously considered building its production site in the US state of Nebraska instead of Germany, where it would have received subsidies of €850 million, broadcaster ARD reported last year.

Receiving an offer abroad is another precondition for receiving state subsidies above the normally strict limits, which has been criticised as it sees companies pitting countries against each other for the highest subsidies and comes with the additional bureaucratic burden to prove that they could get a deal elsewhere.

Under the deal now approved by the EU, the Swedish company will receive €700 million as a direct grant, as well as a state guarantee of €202 million. Of the direct grants, €564 million is provided by the federal government, and the rest by the region of Schleswig-Holstein, dpa reported.

Germany wins competition with US for multi-billion battery plant

Sweden’s Northvolt said on Friday (12 May) it will invest several billion euros to build an electric vehicle battery plant in Germany, in a win for Europe after speculation that the company could divert planned investment to the United States.

‘New system’ for other countries

Asked about concerns that the relaxed state aid rules would mainly benefit rich countries like Germany, while other countries could not afford to pay similar sums, Habeck said that “European solidarity also means that the ones who can invest, who can be part of a renewed strong economy, are not regarded with mistrust”.

Nevertheless, he called for “new systems, new European solidarity”, so that “smaller countries or countries with a weaker economy or not so much firepower, or maybe a higher debt rate so that they can’t afford that much money, also have their chances”.

A proposal for a “European Sovereignty Fund”, which the Commission proposed to introduce to balance out uneven national subsidies, was effectively blocked last year by Germany’s resistance to taking on additional debt at the EU level or paying higher national contributions to the EU budget.

Vestager said the concern was being taken “very seriously”, highlighting the importance of the EU single market. 

The Commission will soon present fresh numbers for how much state aid has been paid out by different member states under the relaxed EU state aid rules, but “we do see that other member states also have substantial state aid schemes and do pay out some that in a relative terms are comparable to what we see Germany doing”, she said.

Alongside allowing the new “matching” scheme, the 2023 announcement also prolonged state aid rules that had been previously relaxed in order to help companies facing high energy prices, among other things.

On Monday, the Commission also approved a €2.9 billion French subsidy scheme for tax credits for the production of renewable energy components.

2023 in EU economic policy: The year Germany went French – and back

Faced with the fear of deindustrialisation, Germany sought to adopt a French-style industrial policy in 2023, including massive subsidies and protectionist ‘Buy European’ clauses – but was caught up by its constraints sooner than expected.

[Edited by Sean Goulding Carroll / Zoran Radosavljevic]

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