As global competition for advanced technology manufacturing intensifies, risks of trade disruptions mount, and energy prices remain persistently high, the European Union (EU) must respond with a robust, clear, and actionable framework that enables rapid and sustained investment in domestic energy and clean tech production.

Executive Summary

State aid rules – overseen by the European Commission across the EU – are no longer fit for purpose, in a landscape of fierce global competition and state intervention and support. Current guidelines obfuscate the clear, non-discretionary and rapid disbursement of aid, sustain perverse incentives, and are failing to support European competitiveness on the global stage. The new Clean Industrial Deal State Aid Framework (CISAF) should depart from the established state aid model and move towards supporting efficient manufacturing, technological innovation and local added value.

CISAF should focus on making the EU more competitive globally and support strategic sectors such as wind power, battery manufacturing and grid technologies.

EIES welcomes the proposal by the European Commission to create a new state aid framework that supports the Clean Industrial Deal (CID), including through boosting domestic energy production and supporting industrial transformation such as in the steel sector. However, several challenges that could weaken the framework’s effectiveness remain and should be adequately addressed.

EU competition policy was designed to preserve the level playing field within the EU. A changed world, however, requires updated policy instruments.

• State aid should support actual clean tech production, not just capacity. The current funding gap-based approach and clawback mechanisms should be abandoned to support clean tech manufacturing.

• “Made in Europe” resilience criteria should be conditions for state aid eligibility. Conditionalities must be clear, achievable and aligned across the EU.

• State aid notifications, rules, and procedures must be standardised and harmonised across Member States.

• Greater clarity of definitions, rules, scope of support measures and links to related legislation such as the Net Zero Industry Act (NZIA) are required.

• Operational costs (OPEX) should be supported in decarbonisation projects, as energy-intensive industries may face OPEX increases when they decarbonise.

• Company-level aid would support scaling production by smaller clean tech producers.

Support for clean production, not capacity

Clean technologies such as batteries are the cornerstone of the EU’s industrial transformation and energy security. However, the European clean tech ecosystem remains fragile in the face of fierce global competition, especially from Asia and an increased risk of Chinese products flooding the European market.

Production support for clean tech manufacturing, especially for batteries, should be treated as a core component of European competitiveness and be eligible under both capital investment and operating support measures​. While the draft CISAF prioritises manufacturing “capacity”, it fails to clearly articulate the provision of direct support for production (“output”). Without this, manufacturers risk losing global competitiveness even if production capacity is built. Production-linked aid could entail per-unit support for EU-based output or subsidies tied to efficiency improvements.

State aid should improve cost competitiveness by lowering marginal costs of manufacturing, which is essential in a market where price pressures from foreign producers are intense. It should also focus on technological innovation by incentivising efficiency improvements in manufacturing processes, not only factory construction.

Scalability and efficiency gains in ongoing projects that have secured investment but now face deteriorating market conditions and reduced demand should be considered. For example, many European battery projects are already underway and support for scaling existing operations would be most critical in the next three to five years.

“Made in Europe” to ensure local added value and improved resilience

Europe’s resilience and competitiveness could be strengthened through a “Made in Europe” focus, embedded in the state aid framework. This is a response to the real and growing risk of single-source dependency on foreign supply chains, particularly in batteries, critical raw materials, grid infrastructure such as cables and other clean technologies.

The CISAF should explore using resilience criteria as conditionalities for receiving state aid for end-products output. State aid should prioritise projects and activities, which establish or expand production within the EU and contribute to EU-based value chains (e.g. EU-based/local sourcing, EU-based/local workforce, recycling). The criteria should achieve reduced dependence on third-country suppliers for critical components or technologies, especially those used in critical energy infrastructure.

By making support conditional on resilience factors - such as contributions to European manufacturing competitiveness, local skills, and job creation - the Commission can ensure that public funding delivers strategic, long-term value rather than just short-term capacity. This approach will also help maintain oversight of disbursed aid, ensuring it serves the public interest.

The strengths of the Single Market should be utilised

Conditionalities and resilience criteria must be clear, measurable, and realistically achievable. Alignment and harmonisation of resilience criteria across the EU is also crucial to prevent the risk of fragmentation. Overly complex or vague resilience requirements risk delaying project approvals and deterring investment altogether. A balanced approach that combines predictable, output-based aid with simple, transparent local content criteria could be the best way forward to achieve harmonisation across the EU.

Additionally, harmonisation and standardisation of notifications, aid rules and procedures across Member States is important and the new state aid framework can address this. For example, differing interpretations or approval timelines currently undermine the EU objective of industrial competitiveness. Existing fragmentation results in a high cost of doing business and disadvantages smaller companies. Namely, it makes it difficult for manufacturers operating in multiple jurisdictions to build sustainable business operations, and only large companies have sufficient legal resources to apply for aid​.

A technology-neutral approach in industrial decarbonisation will support eligibility based on measurable outcomes such as greenhouse gas emission reductions rather than on technology types. This would support both emerging new clean technologies as well as transitional technologies that achieve substantial emissions reductions.

At the same time, considering the need for targeted support and limited capacity to provide across-the-board funding, the scope of activities should be clarified and harmonised with existing legislation. In particular, the scope regarding manufacturing support for clean technologies could align with the NZIA. Clarifying the scope will reduce the risk of case-by-case discretionary interpretation and regulatory fragmentation from different eligibility criteria in different frameworks.  

Enhanced clarity to reduce interpretation risk and complexity

The framework must ensure that it is sufficiently predictable and effective in boosting technology manufacturing in Europe, particularly in, e.g. battery cell production, which is both strategically essential and economically vulnerable. In general, the approach to state aid disbursement needs to be less ambiguous and administratively burdensome.

Ambiguity around definitions, rules, scope of support measures and links to related legislation should be avoided. For example, the way in which CISAF and the Guidelines on State aid for Climate, Environmental Protection and Energy (CEEAG) would work together, and which framework would prevail, should be clarified. In addition, state aid rules should align with resilience goals under the NZIA and Critical Raw Materials Act.

Disbursing state aid to support Europe’s industrial base will strengthen energy security and economic competitiveness. However, CISAF leaves room for interpretation regarding which sectors are eligible for industrial decarbonisation aid. For example, aligning the scope with existing frameworks like the ETS Guidelines would be beneficial. Direct electrification projects should also be eligible for aid to enable faster and administratively simplified industrial transformation. Moreover, energy-intensive industries face significant OPEX increases when they decarbonise. OPEX eligibility criteria should be clarified and refined.

Reduced bureaucracy and quicker timelines are essential

Timing for the provision of state aid should happen as fast and early as possible. Streamlining state aid notification procedures would improve planning certainty. Delays in approval can expose projects to shifting economic conditions, affecting financial assumptions.

An approach based on the concept of a funding gap and clawback mechanism to return “surplus” revenues following the disbursement of aid risks reducing its incentive effect. First, calculating a funding gap while accounting for potential “additional gains” could be challenging in a rapidly changing external environment, volatile market fundamentals and technological innovation. Such calculations also make it harder to have compelling funding proposals to investors and lenders, increasing the likelihood that companies would overlook state aid when seeking other forms of financing. This ultimately reduces the incentive effect of state aid and its ability to decrease risks and costs.  

In energy-intensive sectors, such an approach could favour costlier solutions over riskier but highly efficient process improvement or innovative technologies. As an alternative, the funding gap analysis for decarbonisation projects could include OPEX and associated risks instead of only capital costs and risks.

The concept of a funding gap in clean tech manufacturing should be discarded as it sustains non-competitive, perverse incentives. Namely, it could infringe on the application of production-linked support by incentivising companies to reduce their output to avoid the return of subsidies. It also creates unpredictability and is unsuitable in volatile markets like battery manufacturing.

The simplified funding gap calculations (zero counterfactual) for clean tech manufacturing in the CISAF is welcome as it could ease the process under specific conditions. This is a positive step that could reduce administrative burden. It avoids the need to build a complex counterfactual model and could be useful were the project not to go ahead without support​. However, a conceptual shift towards output-based aid for clean tech would facilitate the disbursement of aid, reduce risks for developers and Member States and substantially accelerate clean tech manufacturing.

It should also be acknowledged that project-based support, as opposed to company-level aid, benefits large companies that are able to file separate project applications. A project approach is time- and resource intensive, which is manageable for established companies but difficult for newcomers. A project-based approach could depend on specific negotiations and may become a bottleneck, particularly for newer or smaller actors who lack administrative capacity to apply for state aid in the first place. Company-level aid would be better suited for start-ups and smaller clean tech producers, as well as for Member States that do not have large administrative resources.

Conclusion

CISAF has the potential to become a strong instrument to support the competitiveness of European strategic sectors such as wind power and battery manufacturing, as well as to increase the energy security of industry through energy transformation. The framework, however, needs to be improved to prevent complex and lengthy procedures that could undermine the aid’s incentive effect. Aid must be disbursed in a timely manner to accelerate production in Europe, creating local value, jobs and boosting technological innovation, crucial for Europe’s long-term manufacturing competitiveness.