State aid: Commission approves €850 million French measure to support ArcelorMittal decarbonise its steel production

The European Commission has approved, under EU State aid rules, a €850 million French measure to support ArcelorMittal France (‘ArcelorMittal') in partially decarbonising its steel production processes. The measure will contribute to the achievement of the EU Hydrogen Strategy, the European Green Deal and the Green Deal Industrial Plan targets, while helping to end dependence on Russian fossil fuels and fast forward the green transition in line with the REPowerEU Plan.

The French measure

France notified to the Commission a €850 million measure to support ArcelorMittal's project aimed to partially decarbonise its steel production in Dunkirk, where it operates three blast furnaces producing liquid hot metal from a mixture of iron ore, pellets, coke, coal and preheated air. It also operates three basic oxygen furnaces which convert the liquid hot metal into liquid steel.

The aid will support the construction of a direct reduction plant (‘DRP') and two electric arc furnaces (‘EAF'). The combined DRP/EAF installation will substitute two of the three existing blast furnaces and two of the three basic oxygen furnaces. Natural gas, initially used in the DRP, will gradually be phased out of the steel production processes. Ultimately, the new installation will operate using exclusively renewable or low-carbon hydrogen, biogas and electricity as energy inputs.

Under the scheme, the aid will take the form of a direct grant paid out in four instalments during the construction period of the DRP/EAF installation planned between 2023 and 2026. The combined DRP/EAF installation is envisioned to start operating in 2026 and it is expected to produce 4 million tonnes of low-carbon liquid steel per year. Once completed, the project is expected to avoid the release of around 70 million tonnes of carbon dioxide over the 15-year lifetime of the project. ArcelorMittal has committed to actively share the experience and technical know-how gained through the project with industry and academia.

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').

France selected ArcelorMittal's project in the context of an open call in 2020 to form part of an IPCEI on hydrogen. 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, the Green Deal Industrial Plan 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 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 France (claw-back mechanism). Furthermore, the beneficiary will disseminate the experience and technical know-how gained through the project. 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 renewable and low-carbon 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 French measure under EU State aid rules.

Background

The 2022 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 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.

Today's decision follows two Commission's approvals: (i) on 17 February 2023, of a €460 million Spanish measure to support ArcelorMittal decarbonise its steel production in Gijón, and (ii) on 22 June 2023, of a €280 million Belgian measure to support ArcelorMittal decarbonise its steel production in Ghent.

The non-confidential version of the decision will be made available under the case number SA.104903 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.