Revised version of the IPCEI Communication published

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

Important projects of common European interest should not be blocked by European State aid law. Although Article 107(1) TFEU generally prohibits State aid which, by favouring certain undertakings, distorts competition and affects trade between Member States, Article 107(3)(b) TFEU permits the approval of State aid for projects of common European interest.

According to the expiring IPCEI Communication, this includes, in particular, projects aimed at enhancing the EU’s competitiveness, fostering sustainable growth, addressing societal challenges and creating value 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 Digital Decade, the New Industrial Strategy, the European Data Strategy and Next Generation EU. These also include the European Health Union, the new European Research Area for Research and Innovation, the Action Plan for the Circular Economy and the Union’s goal of becoming climate-neutral by 2050. These specific objectives have been explicitly incorporated into the new IPCEI Communication.

In the European Commission’s view, these new targets in particular cannot be achieved by market forces alone, but only through substantial funding from Member States for IPCEI. Furthermore, the involvement of several Member States and a large number of companies and research institutions, both large and small, is intended to pool knowledge, expertise and financial resources and to strengthen the EU as an industrial location as a whole.

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

In its 2019 report, the IPCEI Strategic Forum recommended six sectors in which Member States should jointly support companies in their collaborations 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

An IPCEI for hydrogen technologies is already in the starting blocks: on 17 December 2020, 22 EU Member States and Norway signed a “Manifesto for the development of a European 

“Hydrogen Technologies and Systems” value chain” (press release here). A matchmaking process is currently underway to develop an overarching concept from the more than 400 registered projects across 18 countries. This will then be notified to the European Commission.

3. What assessment criteria does the European Commission apply?

Below, we outline the key features of the European Commission’s assessment criteria:

3.1 Scope

The IPCEI Communication applies, in principle, to all economic sectors. The only exceptions as regards aid recipients are:

• undertakings in difficulty within the meaning of the Rescue and Restructuring Guidelines (special COVID-19 rule: this does not apply to undertakings that were not in difficulty on 31 December 2019 but became undertakings in difficulty during the period from 1 January 2020 until the end of the application of the Temporary Framework);
• undertakings that have not yet complied with an aid recovery order.

Furthermore, the implementation of the project must not infringe EU law. For example, it is not permitted to make the granting of aid conditional on the aid recipient using domestic goods or utilising domestic services.

3.2 Eligibility criteria: common European interest and quantitative and qualitative significance

The European Commission sets out general criteria which must be met cumulatively. Depending on the nature and scope of the project, further specific provisions must be observed.

The European Commission requires that the project pursue a common European interest. The project must:

• make a concrete, clear and recognisable significant contribution to the Union’s objectives or strategies (see point 1 above);
• have a significant impact on sustainable growth;
• comply with the principle of avoiding significant adverse effects on environmental objectives within the meaning of Article 17 of Regulation (EU) 2020/852 (available here) or comparable methods; and
• demonstrably be aimed either at remedying a serious market or systemic failure that prevents the project from being carried out to the same extent or in the same manner, or at addressing societal challenges that would otherwise not be adequately tackled or resolved.

The requirements for EU-wide cooperation have been tightened in the new IPCEI Communication: whilst under the old IPCEI Communication it was sufficient for “as a rule, more than one Member State” to be involved in the project, the new IPCEI Communication generally requires the participation of “at least four Member States”. The project must benefit not only the Member States providing the funding, but also other parts of the Union. Furthermore, the new IPCEI Communication stipulates that all Member States must be offered a “genuine opportunity” to participate in the project.

The financial contribution required of aid recipients has also been tightened: they are no longer required to make merely an unspecified co-financing contribution, but must, as a rule, make a “substantial” co-financing contribution from 1 January 2022. However, when assessing the extent of co-financing, the specific characteristics of certain economic sectors and of SMEs must be taken into account.

The requirement that the benefits of the project must not be limited to the undertakings or the economic sector concerned, but must have a wider impact on the European economy and society through positive spill-over to deliver broader benefits to the European economy and society (e.g. systemic impacts at several levels of the value chain or in upstream and downstream markets, alternative uses in other economic sectors, or a shift in transport modes).

In addition to these ‘hard’ general criteria, the IPCEI Communication also lists indicators that may have a positive impact on the project’s assessment. These include, for example, a high degree of cooperation in terms of the number of partners, the involvement of organisations from different economic sectors, or the participation of companies of varying sizes. A new development here is that the European Commission explicitly highlights cooperation between large enterprises and SMEs, including start-ups, as a positive aspect. This underscores its aim of making the IPCEI scheme more attractive to SMEs.

Finally, the project must be significant in both quantitative and qualitative terms. In the European Commission’s view, it should be of a particularly large scale or have a particularly broad scope and/or involve a high level of technological or financial risk.

3.3 Compatibility criteria

Article 107(3)(b) TFEU does not itself set out any compatibility criteria. However, the European Commission has developed its own criteria based on general legal principles:

• Necessity of the aid: without the aid, the realisation of the project should be impossible, or should only be possible on a smaller scale, with a more narrow scope, or not with sufficient speed, or in a different manner that would significantly restrict its expected benefit.
• Proportionality of the aid: The same result could not be achieved with less aid.
• Avoidance of disproportionate distortions of competition: aid measure will not be considered appropriate if other less distortive policy instruments or other less distortive types of aid instruments make it possible to achieve the same result.

Overall assessment: The adverse effects of the aid measure, in the form of distortions of competition and impacts on trade between Member States, must be limited and offset by the positive effects. This represents a notable difference from the expiring IPCEI Communication, which, rather than requiring the positive effects to be “balanced”, demanded that they “outweigh” the negative effects. This has significantly lowered the requirements for the balancing test within the proportionality assessment, making it easier to reach a positive outcome.

4. Is an IPCEI boom on the horizon?

The new IPCEI Communication draws on experience gained in recent years and can provide legal clarity on certain aspects. Nevertheless, the criticism is likely to persist that the requirements for IPCEI projects are too rigid and too cumbersome, and that it is therefore not possible to respond quickly enough to current needs. The increased requirements for EU-wide cooperation threaten to further delay the process.

Two practical challenges, which the Commission cannot control, also remain:

Firstly, the Member States must find political common ground and develop IPCEI projects jointly. However desirable this may be, the practical challenges involved in project planning are obvious, and without the guiding hand of certain Member States, even the generation of ideas already appears difficult.

Secondly, the necessary funding must be made available. This will be easier for some Member States than for others. The response to the COVID-19 pandemic threatens to widen this gap. It remains to be seen whether the increased demands on EU-wide cooperation (see 3.2 above) can remedy this situation.

5. What should companies, research institutions and public authorities bear in mind in future?

• Companies operating in the sectors mentioned in section 2 should keep an eye on the possibility of participating 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.
• As the Communication – unlike the General Block Exemption Regulation (GBER) – does not provide for an exemption for ‘compliant’ aid, authorisation from the European Commission is required in each individual case. The notification procedure is administered by the Member States.
• IPCEI projects are primarily managed by the Member States’ ministries of economic affairs, but depend on input and initiative from businesses. Establishing contact with the authorities at an early stage and the active involvement of businesses in project design can ensure that projects are structured in such a way that the businesses’ innovative contributions and objectives can be taken into account.

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We advise companies, associations and public institutions on all aspects of EU State aid law – both preventively and in proceedings before the European Commission and the EU Courts. Find out more here.

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