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April 25, 2025

FEAD position on the new State aid Framework accompanying the Clean Industrial Deal Communication

FEAD welcomes the intention of simplifying State aid rules and aligning them with the Clean Industrial Deal objectives. However, one of the CID priorities is not sufficiently addressed in this new State aid framework: circularity. FEAD strongly encourages correcting this in particular by covering in the new CISAF also recycling capacities and not only manufacturing activities that incorporate recycled content.

The Commission has acknowledged in its CID communication that ‘by placing circularity at the core of our decarbonisation strategy, the EU not only improves the affordability and accessibility of essential materials but also reduces our dependencies as materials are reused, remanufactured, recycled, and kept within the economy for longer’. The weight given to circularity can be found across the communication, including in the section dedicated to the Clean Industrial Deal State Aid Framework (section 4.3 in the communication), which starts by noting that ´national level support, including State aid support and tax incentives, plays a crucial role in decarbonisation and circularity efforts by providing financial backing and reducing barriers to investment´. The CID communication stresses the importance of ‘a clear link between incentives for decarbonisation and circularity efforts by industry’ and concludes by stating that ‘putting decarbonisation and circularity at the heart of our economic policy is the only way for the EU to keep up with resource rich competitors’.

FEAD already stressed in relation to the EU competitiveness compass and competitiveness fund, that the circular economy is a crucial part of the EU’s competitiveness agenda to achieve decarbonisation and material autonomy, and this must be backed by actions, including a dedicated budget line from the future European Competitiveness Fund but also coverage from the new Clean Industrial Deal State Aid Framework. Against this background, FEAD puts the following suggestions forward to incorporate circularity in the new State Aid Framework:

I. Introduce aid schemes to create and maintain recycling capacities

The draft State aid framework does not provide for any aid scheme for establishing and maintaining recycling capacities nor to promote the use of recyclates.

Under point 6 (paragraph 122), the Commission can consider compatible with the internal market aid granted to incentivise investment projects that create additional manufacturing capacity, including when the necessary equipment, component or materials contain/come from secondary raw materials. This seems obvious as the opposite would be discriminatory towards recycled materials. However, this does not include aid for the creation or maintenance of capacity to produce recyclates and aid to promote the use of recyclates (i.e. to promote demand). FEAD would like to see in the State aid framework the following aspects, to ensure it is aligned with the CID ambitions on circularity summarised above:

  • Aid to support investments in European recycling capacities for any materials (not only critical raw materials). It is of paramount importance that aid is directed towards such projects to develop circular economy in Europe, which is a true lever for competitiveness and decarbonisation for the economy. For this, a level of aid of up to 40% of the project’s cost (as it is the case in GERB) should be established.
  • Aid to support existing recycling capacities by bridging the price gap between virgin/new and recycled materials. Virgin raw materials are today cheaper than recycled raw materials because the negative externalities of the production and use of virgin materials are not fully incorporated into their price. This gives virgin raw materials an advantage on the market in relation to recycled ones, at the cost of the environment and climate. Member States should be able to support existing recyclers by providing temporary exploitation subsidies until EU recycle content targets kick in and/or the market for recyclates has become a sustainable business model. This must be organised short term to save the current recycling infrastructure in Europe.
  • Conditions linked to aid under the new framework must ensure that the most environmentally sustainable technologies and projects are prioritised. We suggest introducing general and binding sustainability criteria based on the carbon footprint to determine a ranking/prioritisation of use for materials in products and the use of technologies, including among the different recycling technologies.
  • The document (section 5) should explicitly recognise the opportunity for industrial decarbonisation through the use of recyclates.

II. Align energy and CCUS related measures in section 5 with the circular economy

  • In paragraph 72 consider the reduction of indirect GHG emissions in addition to direct GHG emissions reductions. This enables to incorporate in the framework saved emissions from aligning with circular economy objectives (e.g. saved emissions from the use of recyclates and solid recovered fuel (SRF) in the case on non-recyclable waste).
  • In paragraph 73:
    • Allocate dedicated room for district and industrial heating networks as a decarbonisation lever that should be allocated direct support through state aid regarding their contribution to housing and industry decarbonisation.
    • Correct the very restrictive approach for renewable heat. The concept must be extended to incorporate biomass-based renewable heat from the biodegradable fraction of waste, including industrial and municipal waste of biological origin.
  • In paragraph 75(c)(i), the threshold of 80% for self-consumption of the energy produced is far too high. We suggest a more flexible and less demanding approach to take into account the non-continuous (intermittent) needs of heat in the industry. 80% of self-consumption (be it open for heat or electricity) is too high as a general principle.
  • In paragraph 75(c)(ii), do not oblige the beneficiary to fully use the heat produced and leave the door open for the connection to heating network; the uptake of heat should not be penalised. Still leave the door open for injection of electricity to the grid.
  • In paragraph 79(a), the 36 months deadline for commissioning after obtaining aid is too short as permitting deadlines are too long to comply. We suggest a 5 year deadline instead.
  • Paragraph 83 is too restrictive. The framework should take into account CCU projects that capture and use CO2 in products even if it is then emitted to the atmosphere at a later stage, as such use effectively substitutes fossil CO2 produced on purpose and should be incentivised. Support to ‘non-permanent CCU’ applications should be incentivised also because the industry is facing a true challenge of increasing carbon capture capacity and skills and develop its industrial know-how for CC. Such a laxer approach would also trigger the establishment of a true market for biogenic CO2 and develop its uptake in products other than SAFs.
  • In paragraph 90(b), the aid intensity is insufficient for carbon capture equipment (30%) given the high CAPEX levels that are associated to such projects. It will not trigger any further investments. We suggest increasing the aid intensity to 50%, as for the use of hydrogen.
  • The CISAF framework should take account of specific categories of CCU such as recycled carbon fuels (RCF) or low carbon fuels (LCF). Under the current EU regulatory framework, embodied fossil carbon is not priced, whereas captured fossil carbon is. In these circumstances, there is a need for specific rules to be put in place to support LCF projects that provide alternative carbon feedstocks to produce alternatives to fossil products, and for these projects to be supported by state aid where necessary.

III. Additional important elements relating to State aid policies

  • Make recycling eligible for aid under the Climate, Energy and Environmental Aid Guidelines (CEEAG). The acknowledgements above must also be reflected by amending the 2022 CEEAG to include recycling activities there as well. Manufacturing industries included in the CEEAG can benefit from reduced energy levies while they are in direct competition with the recycling industry for the production of raw materials.
  • Reduce bureaucracy. The rules under which State aid can be granted are very complex and difficult to fully grasp by the vast majority of private actors, especially Small and Medium sized Entreprises (SMEs). Operators should not be required to seek legal advice in order to find out whether they are at all eligible for State aid. State aid control must be made less formalistic, administratively lighter, and more focused on substantive criteria of well-designed public intervention.  Time limits are important but must also be flexible, especially if a project is crucial for strengthening EU objectives.
  • Guarantee low-threshold access to state aid. It is imperative that SMEs are given sufficient consideration. In order to create a level playing field, EU State aid law must always be designed in such a way that low-threshold access to aid is established.
  • State aid should include not only CapEx but also OpEx expenditure. This is the only way that aid can have its optimum effect in terms of promoting investment and innovation.
  • Exemptions for the requirement of authorisation of state aid by the European Commission must be handled restrictively. The risks of possible distortions of competition in the internal market are immanent. Another problem is that in practice, there is often uncertainty as to whether exemptions should actually be invoked. In terms of planning security, a granted authorisation is far more advantageous than relying on an exemption from the authorisation requirement.
  • Improving the handling of complaints. Issuing complaints by a competitor is a crucial aspect of State aid control, and indispensable for ensuring a level-playing field. In this regard, the Commission should play a stronger role in investigating the facts in State aid complaint proceedings and enforce its right to information vis-à-vis public authorities of the Member States instead of requiring the complainant to provide evidence. In general, complainants usually do not have the means to uncover internal administrative processes or administrative agreements with beneficiary companies, or to provide evidence. The credible and plausible description of facts and indications that give rise to the suspicion of the granting of State aid should be sufficient for an ‘ex officio’-investigation by the Commission.
  • The principles of the Single Market must be maintained, also in relation to public undertakings. This means that State-owned enterprises must not have easier access to finance and State aid than private entities. More effective supervision of the activities of state-owned companies that receive State aid is needed, since internal awards and horizontal cooperation between authorities or state-owned companies can constitute State aid which, as such, is in principle prohibited under Art. 107 TFEU. Therefore, these intra-state practices need to be strictly supervised and prohibited whenever the requirements for the exceptional permission of State aid are not fulfilled.
  • Establish a specialised working group on competition with a mandate for both advisory and supervisory functions. State aid plays a crucial role as an instrument for the state’s flexible response to social, environmental, and economic challenges. However, its provision inevitably involves interference with market mechanisms, which creates the need for a particularly careful balance between public interest and the protection of competition principles. The specialised working group should therefore develop guidelines for the design and implementation of aid measures in compliance with competition principles and the broader EU state aid law. These guidelines should take into account the existing EU legal framework, as well as refer to international standards, in particular the OECD guidelines[1]. This body should be equipped with the authority to systematically monitor the implementation practices of aid measures by member states, as well as to evaluate them in terms of their impact on the functioning of the single market. Particular attention should be paid to analysing cases in which there may be disproportionate favouritism of certain actors. Such disparities, even if they result from formally neutral support criteria, can in practice lead to a significant distortion of the purpose of the CISAF instrument. The creation of a working group with such a profile will help ensure greater transparency and systemic consistency, which is a prerequisite for maintaining the confidence of market participants in the legal framework for granting state aid. At the same time, it will make it possible to reconcile the – sometimes contradictory – objectives of industrial and environmental policy with the fundamental principle of EU law, which remains the protection of competition.
  • Align the transparency threshold in the CIFAS (paragraph 156) with the threshold currently applied under the GBER State Aid rules (€500,000).

[1] OECD, Bridging the Clean Energy Investment Gap: Cost of Capital in the Transition to Net-Zero Emissions (2024) and Policy Guidance for Investment in Clean Energy Infrastructure (2015).