The European Commission has approved a €460 million Spanish measure under EU state aid rules to help ArcelorMittal España (“ArcelorMittal”) to partially decarbonise its steel production. The support will help achieve the objectives of the EU Hydrogen Strategy and the European Green Pact and reduce dependence on Russian fossil fuels and accelerate the green transition under the REPowerEU programme.
The Spanish aid
Spain notified the Commission of a ¤460 million aid measure to support ArcelorMittal’s project to partially decarbonise steel production in Gijón, where the company operates two blast furnaces that use a mixture of iron, coke and limestone to produce liquid metal.
The support will include direct subsidies for the construction of a direct iron reduction plant using renewable hydrogen. This new plant will replace the existing blast furnace together with a new electric arc furnace. The natural gas currently used in the mix will be phased out of the steelmaking process. Ultimately, the plant will run on renewable hydrogen as well as synthesis gas derived from metallurgical gases and waste.
The plant is scheduled to be operational by the end of 2025 and is expected to produce 2.3 million tonnes of low carbon pre-reduced iron per year. After completion of the project, it is expected to reduce carbon dioxide emissions by 70.9 million tonnes. ArcelorMittal is committed to sharing the experience of the project with other European steel producers.
The Commission’s assessment
The Commission assessed the measure under EU State aid rules, in particular Article 107(3)(c) of the Treaty on the Functioning of the European Union (‘TFEU’), which enables Member States to support the development of certain economic activities subject to certain conditions, and the Guidelines on State aid for climate, environmental protection and energy 2022 (‘CEEAG’).
Spain selected ArcelorMittal’s project in the context of an open call in 2021 to form part of an IPCEI on hydrogen technologies and systems. ArcelorMittal’s project intends to reduce greenhouse gas emissions in the energy-intensive steel sector. As aid for the reduction of greenhouse gas emissions, including through support of decarbonisation projects, is one of the main categories of aid allowed by the CEEAG, the measure was best suited for assessment under these guidelines.
The Commission found that:
- The measure facilitates the development of an economic activity, in particular the production of green steel. At the same time, it supports the objectives of key EU policy initiatives such as the European Green Deal, the EU Hydrogen Strategy and the REPowerEU Plan.
- The aid has an ‘incentive effect’, as the beneficiary would not carry out the investments in green steel production without the public support.
- The measure has a limited impact on competition and trade within the EU. In particular, it is necessary and appropriate to promote the production of green steel. In addition, it is proportionate, as the level of the aid corresponds to the effective financing needs.
- The measure has sufficient safeguards to ensure that undue distortions of competition are limited. In particular, if the project turns out to be very successful, generating extra net revenues, the beneficiary will return part of the aid received to Spain (claw-back mechanism). Furthermore, the beneficiary will share the technical know-how gained through the project with other European steel producers. Finally, the project is subject to monitoring to verify its progress towards the objectives of CO2 emission savings, phasing out of natural gas and phasing in the renewable hydrogen.
- The aid brings about positive effects that outweigh any potential distortion of competition and trade in the EU.
On this basis, the Commission approved the Spanish measure under EU State aid rules.
The 2022 Guidelines on State aid for climate, environmental protection and energy (‘CEEAG’) provide guidance on how the Commission will assess the compatibility of aid measures for environmental protection, including climate protection, and energy which are subject to the notification requirement under Article 107(3)(c) TFEU.
The new guidelines, applicable as from January 2022, create a flexible, fit-for-purpose enabling framework to help Member States provide the necessary support to reach the Green Deal objectives in a targeted and cost-effective manner. The rules involve an alignment with the important EU’s objectives and targets set out in the European Green Deal and with other recent regulatory changes in the energy and environmental areas and cater for the increased importance of climate protection. They include sections on aid for reduction of greenhouse gas emissions including through support for renewable energy, energy efficiency measures, aid for clean mobility, infrastructure, circular economy, pollution reduction, protection and restoration of biodiversity, as well as measures to ensure security of energy supply, subject to certain conditions.
The 2022 CEEAG aim to help Member States meet the EU’s ambitious energy and climate targets at the least possible cost for taxpayers and without undue distortions of competition in the Single Market.
With the European Green Deal Communication in 2019, the Commission reinforced its climate ambitions, setting an objective of net zero emissions of greenhouse gases in 2050. The European Climate Law in force since July 2021, which enshrines the 2050 climate neutrality objective and introduces the intermediate target of reducing net greenhouse gas emissions by at least 55% by 2030, sets the ground for the ‘Fit for 55‘ legislative proposals presented by the Commission on 14 July 2021. Among these proposals, the Commission has presented amendments of the Renewable Energy Directive and the Energy Efficiency Directive with more ambitious binding annual targets to increase the production of energy from renewable sources and reduce energy use at EU level.
In July 2020, the Commission published its EU Hydrogen Strategy, setting ambitious goals for clean hydrogen production and use, and launched the European Clean Hydrogen Alliance, bringing together the European hydrogen community (industry, civil society, public authorities).
In February 2023, the Commission published the Green Deal Industrial Plan to enhance the competitiveness of Europe’s net-zero industry and support the fast transition to climate neutrality.
The non-confidential version of the decision will be made available under the case number SA.104904 in the State aid register on the Commission’s competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the Competition Weekly e-News.