Reform of the IPCEI Communication – what businesses should look out for

1. Why are IPCEI projects granted preferential treatment under EU State aid law?

Important projects of common European interest should not be blocked by European State aid law. In principle, under Article 107(1) TFEU, State aid which distorts competition and affects trade between Member States by favouring certain undertakings is prohibited. However, the EU has always taken a positive view of state funding that contributes to one or more of the Union’s objectives.

Such objectives include, in particular, the EU’s competitiveness, sustainable growth, tackling societal challenges and value creation across the Union. In recent years, further social and industrial policy objectives have been added, such as the European Green Deal, the Digital Strategy, the new Industrial Strategy and Next Generation EU.

In the European Commission’s view, these new objectives in particular cannot be achieved by market forces alone. The European Commission therefore recognises that IPCEI projects require significant public involvement. Member States should therefore be permitted to support IPCEI projects through State aid. Furthermore, through the participation of several Member States and a wide range of large and small enterprises and research institutions, knowledge, expertise and financial resources are to be pooled, thereby strengthening the EU as an industrial hub as a whole.

2. What reform proposals is the European Commission putting forward?

The IPCEI Communication sets out the criteria against which the European Commission assesses Member States’ funding projects. The Commission’s so-called “fitness check” of the Communication, carried out in 2019 to 2020, revealed only a minor need for adjustment. The European Commission presented its reform proposal in early 2021. Unsurprisingly, this included expanding the list of the Union’s objectives to incorporate those introduced in recent years (the Green Deal, the Digital Strategy, the European Data Strategy, the Industrial Strategy for Europe, Next Generation EU, the New European Research Area for Research and Innovation, the Action Plan for the Circular Economy, and climate neutrality by 2015). The emphasis on the involvement of SMEs and clarifications regarding previously contentious definitions (e.g. the definition of “first industrial deployment”) were also to be expected. Furthermore, an IPCEI must now involve at least four Member States, unless a smaller number is justified (Recital 17, proposal), and all Member States must be offered a genuine opportunity to participate in the project (Recital 18, proposal).

More surprising, however – as this did not necessarily follow from the Fitness Check – was the alleviation of the compatibility criteria. In the previous version of the IPCEI Communication (para. 27, old version), the “presence of a market failure or other important systemic failures, as well as the contribution to a common European interest” was still required. The reform proposal (para. 30, as amended), by contrast, refers to “the presence of important market or systemic failures or societal challenges, as well as the contribution to a common European interest, can be presumed for the individual components of an integrated project”. Furthermore, in the proportionality test, it is no longer required that the positive effects ‘outweigh’ (paragraph 26, previous version) the negative effects; rather, it will suffice for the distortions of competition and the impairment of trade between Member States to be “counterbalanced” (paragraph 45, new version).

These two amendments are not merely linguistic in nature; they substantially lower the requirements and will make it easier in future to demonstrate the necessity of the funding. The European Commission appears to be seeking to increase the attractiveness of IPCEI and thereby ensure that flagship projects can be launched.

3. What happens after the public consultation ends?

Once the public consultation closes on 20 April 2021, the European Commission will evaluate the feedback and make final amendments. As the current IPCEI Communication expires at the end of the year, the new version is likely to be published in the Official Journal of the European Union before 31 December 2021.

As before, the IPCEI requirements are set out ‘merely’ in the form of a Communication from the European Commission, in which it provides guidance for its assessment of IPCEI projects under State aid law. It therefore constitutes a voluntary commitment regarding its administrative practice. No approval from the European Parliament or the Council is required for this.

As the Communication – unlike the General Block Exemption Regulation (GBER) – does not provide for an exemption for ‘compliant’ State aid, authorisation from the Commission is required in each individual case. Given the typically high volumes of aid involved, this case-by-case assessment is also appropriate.

4. In which sectors is the IPCEI likely to be considered in future?

To date, only three IPCEI projects in the field of research and development have been approved by the European Commission: Microelectronics (end of 2018, aid volume € 1.75 billion), the European Battery Alliance (end of 2019, aid volume € 3.2 billion) and European Battery Innovation (early 2021, aid volume € 2.9 billion). In the field of infrastructure, the IPCEI exemption was applied only to the Fehmarn Belt crossing between Germany and Denmark.

In its 2019 report, the IPCEI Strategic Forum recommended six sectors in which Member States should pool their financial resources and encourage companies to collaborate along the value chains. These are:

• Clean, connected and autonomous vehicles
• Smart health
• Low CO_₂ emissions industry
• Hydrogen technologies and systems
• Industrial Internet of Things
• Cybersecurity

In the field of hydrogen, project planning is already at an advanced stage. On 17 December 2020, 22 EU Member States and Norway signed a memorandum of understanding on European projects and investments in this sector (press release). The German Federal Ministry for Economic Affairs expects that – once the European Commission has approved funding in accordance with the IPCEI criteria – the first funding decisions could be issued as early as 2022 (report here).

IPCEI projects in other sectors, however, are likely still in the exploratory phase at ministerial level and between Member States.

5. What should companies, research institutions and public authorities look out for in future?

• Companies operating in the sectors listed below should keep an eye on the opportunity to become involved in IPCEI projects. With support from Member States, promising business areas could be developed which, until now, have not been pursued due to the substantial investment volumes and significant market risks involved.
• IPCEI projects are primarily managed by the Member States’ ministries of economic affairs, but they depend on input and initiative from companies. Establishing contact with the authorities at an early stage and the active involvement of companies in project design can ensure that the projects are structured in such a way that the companies’ innovative contributions and objectives can be taken into account.

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