Sustainability and state aid – a delicate balance when decarbonising Europe’s steel sector

Sustainability and state aid – a delicate balance when decarbonising Europe’s steel sector

— 28 February 2023

For all of us here at #SustainablePublicAffairs, it is of great importance that our work furthers sustainability – but when is this helped by state aid, and when not?

That is one of the clarifications we hope to provide in a new Berenschot-report to which we have had the pleasure to contribute. It evaluates support schemes for decarbonizing the steel market in Europe – and if, how, and when EU member states can play a stimulating role in this.

Hate it or love it, but state aid can be necessary in the event of market failure. And “free” markets unfortunately fail constantly in the case of pollution, since environmental externalities are insufficiently priced into costs. That makes that sustainable innovations often seem to produce at “a green premium”, which hampers their competitiveness.

Of course, such market failures need to be repaired through regulation, be it taxation on pollution and / or regulatory norms, set at the level of the performance of sustainable frontrunners. Only then can we get to true costs and stimulate market-driven sustainability. 

However, where that is not yet the case, state aid can help to (temporarily) level playing fields – and support business models of sustainable frontrunners to hit the market and gain market share. 

We had the pleasure to help Berenschot make an EU market evaluation for the Dutch Ministry of Economic Affairs and Climate about the way in which the European Commission and other EU Member States support (or not) the decarbonisation of the steel sector – and are proud that today, this report has been officially presented to the Dutch Parliament!

From our market research it has become clear that almost all stakeholders see the future of primary steel production as based on fossil-free / renewable hydrogen [not blue 😀], using clean technologies such as direct reduced iron (DRI).

As also set out in the Concurrences handbook on competition law, climate change and environmental sustainability, to which #SustainablePublicAffairs contributed – societies need to be careful with support to individual companies, especially if it is done with taxpayer’s money, and we do not think state aid should therefore be granted only to support incremental improvements.

We believe the evaluation contributes to that vision and makes it clear that it is the breakthrough innovations that should be supported by state aid. 

This is the only way in which the EU can achieve the Fit-for-55 goals and other ambitions from the European Green Deal in a cost-effective manner and on a well-functioning internal market. Important issues, also / especially for the Netherlands!

We lobby for climate positive impacts and we also operate climate positively.

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