Car-making regions want slice of EU funds to power transition

As the shift towards electric vehicles majorly changes the employment structure of the automotive industry, car regions should be supported with EU money, the economy minister of Germany’s state of Saxony-Anhalt, Sven Schulze, told Euractiv in an interview.

The transition towards a climate-neutral economy means changes for workers in many industries. For the coal phase-out, the EU has therefore set up a specific fund to help affected regions with a “just transition”.

The automotive industry, too, will see drastic changes due to the EU’s climate policies such as the ban on new diesel and petrol cars as of 2035. As such, the Just Transition Fund should be expanded to regions that are big in the automotive sector, according to Sven Schulze (CDU/EPP), Economy Minister in the East German state of Saxony-Anhalt.

In the car industry, “there are transformation processes that have been initiated by political decisions, which then have to be accompanied,” Schulze told Euractiv.

“The EU sets these rules,” Schulze said, referring to policies such as the CO2 standards for cars, which force carmakers to swiftly switch to electric vehicle manufacturing and for many suppliers of parts of the internal combustion engine means they need to look for new products.

“And I would say that, according to the principle of ‘he who orders, pays’, Brussels must also say that it must help some regions, not every region, but some regions in case of doubt, as was the case with the Just Transition Fund,” he added.

A report, drafted by Schulze, was adopted by the Committee of the Regions (CoR), the EU’s assembly of local and regional governments, on Wednesday (11 October), which also calls for support for car regions under the EU’s cohesion policy.

Not only the energy sector would see changes in employment, but “multiple industrial transitions are underway at the same time”, the report stresses. Therefore, a successor of the Just Transition Fund should be “open to other sectors”, such as the automotive one, in the next financing period which starts in 2027, the report adds.

As the EU eyes an enlargement towards multiple new member states, its cohesion funds, the main instruments to help poorer regions compete with richer ones, are expected to come under increasing pressure – with representatives from rich regions fearing risks to their funding.

“We have a successful cohesion policy, but it will also have to take care of other tasks in the future,” Schulze said.

“And that is also the challenge for the future: either we need more money from the member states, that would be one possibility, or we have to distribute the money differently in Brussels,” he added.

Don’t touch my money: Rich regions concerned by perspective of EU enlargement

Wealthier European Union regions are concerned that enlargement could result in a reduction in cohesion funds, but the European Commission said it is still too early to start talking about money. 

Relax rules for national subsidies

Apart from funding coming from the EU level, Schulze would also like to see rules permanently made easier for subsidies coming from the national level, which are subject to the EU’s state aid rules.

“We must also be careful here in the state aid rules that we do not impose restrictions on ourselves that end up playing into the hands of competitors in China or the USA,” Schulze said.

State aid rules have been temporarily relaxed as a reaction to the EU’s energy price shock as well as foreign subsidy programmes like the US Inflation Reduction Act (IRA), which saw an increase in subsidies notably in rich countries such as Germany and France.

Schulze’s state of Saxony-Anhalt has also recently benefitted from the German decision to subsidise a new Chips factory by US-giant Intel in its capital Magdeburg, which was granted under the EU’s “Chips Act”, allowing for more subsidies than what would normally be possible.

“If we look at the chip industry, if we look at the battery industry or the solar industry, for example, it is the case that these products are cheaper to produce in many regions of the world,” Schulze said.

However, this would come with “major challenges, such as political instability, for example, which could become a major problem,” he added, which is why Europe should allow national funding to locate production here.

“Here I also say to the Commission, we must not obstruct each other,” he added, referring to concerns that easier funding for rich regions could come at the expense of poorer ones within Europe.

ANALYSIS: EU subsidy race is on – and Germany is winning it

Germany is the number-one beneficiary of the relaxation of state aid rules, having received almost half of the total state aid approved since February 2022, according to fresh data from the European Commission – deepening concerns over market fragmentation.

More support for rich regions?

However, controversies remain on how much state money is needed for the transformation of the automotive industry.

“I am not a fan of subsidies,” said Josef Frey, Green MP in the German state parliament of Baden-Württemberg, a large automotive location. 

When it comes to the transition towards electric mobility, automotive companies should “first get their own act together and start thinking about it, and not with the expectation that the EU or whoever should subsidise me,” Frey, who also is a member of the Committee of the Regions, added.

He also called for more calm as regards the transition of the automotive sector.

“I believe that time is working in our favour, because at least in our automotive region there is an immense shortage of skilled workers, so I have little fear that people will have to be put out on the street,” Frey said.

While automotive companies should focus on retraining and reskilling, “there are broad initiatives underway that have recognised the problem”, he added.

EU car manufacturing regions to collaborate in move towards electric vehicles

As the automotive industry shifts from combustion engine vehicles to cleaner technology, regional governments warn of increased competition between automotive regions for a decreasing number of jobs. To prevent this, they are calling for greater collaboration.

[Edited by János Allenbach-Ammann/Nathalie Weatherald]

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