Commission approves €1.3 billion German State aid measure funded under Recovery and Resilience Facility to support ArcelorMittal decarbonise its steel production

€1.3 billion German State aid

The European Commission has approved, under EU State aid rules, a €1.3 billion German measure made available in part through the Recovery and Resilience Facility (‘RRF') to support ArcelorMittal Bremen and ArcelorMittal Eisenhüttenstadt (‘ArcelorMittal') in decarbonising part of their 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 German measure

The measure notified by Germany, with a budget of around €1.3 billion, will be partially funded through the RRF, following the Commission's positive assessment of the German Recovery and Resilience Plan and its adoption by the Council.

The measure will support ArcelorMittal's project aimed to decarbonise part of its steel production processes in Bremen and Eisenhüttenstadt, where the company currently operates three coal-based blast furnaces and four basic oxygen furnaces producing crude steel.

The aid will take the form of a direct grant and will support the construction of a direct reduction plant and three new electric arc furnaces. The new installations will replace two of the three existing blast furnaces and two of the four existing oxygen furnaces. The new direct reduction plant will initially operate with natural gas. Natural gas will be gradually phased out of the steel production processes to be replaced by low-carbon and renewable hydrogen. Ultimately, the new installation will operate using exclusively renewable hydrogen.

The new installations are envisioned to start operating in 2026. They are expected to produce 3.8 million tonnes of green crude steel per year, which will substitute an equal quantity of crude steel currently produced through the conventional and more polluting blast furnace process. Once completed, the project is expected to avoid the release of more than 70 million tonnes of carbon dioxide (CO₂) over the 16-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, 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').

Germany selected ArcelorMittal's project in the context of an open call in 2021 to form part of an Important Projects of Common European Interest (‘IPCEI') on hydrogen technologies and systems. This call resulted in the three IPCEIs approved on 15 July 2022 (‘Hy2Tech'), on 21 September 2022 (‘Hy2Use'), and on 15 February 2024 (‘Hy2Infra'). However, given its characteristics and objectives, ArcelorMittal's project was better suited for assessment under the CEEAG.

The Commission found that:

• The measure facilitates the development of an economic activity, in particular the production of steel through low greenhouse gas emissions processes. 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 to Germany part of the aid received (claw-back mechanism). Moreover, 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 of low-carbon and renewable hydrogen. Finally, the beneficiary will disseminate the technical know-how gained through the project.
• 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 German measure under EU State aid rules.

Background

All investments and reforms entailing State aid included in the national recovery plans presented in the context of the RRF must be notified to the Commission for prior approval, unless covered by one of the State aid block-exemption rules.

The Commission assesses measures entailing State aid contained in the national recovery plans presented in the context of the RRF as a matter of priority and has provided guidance and support to Member States in the preparatory phases of the national plans, to facilitate the rapid deployment of the RRF. At the same time, the Commission makes sure in its decision that the applicable State aid rules are complied with, in order to preserve the level playing field in the Single Market and ensure that the RRF funds are used in a way that minimises competition distortions and do not crowd out private investment.

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 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.

With the European Green Deal Communication in 2019, the Commission set an objective of net zero emissions of greenhouse gases in 2050 that is enshrined in the European Climate Law. In force since July 2021, the law also introduced the intermediate target of reducing net greenhouse gas emissions by at least 55% by 2030. Through the adoption of the ‘Fit for 55' legislative proposals, the EU has in place legally binding climate targets covering all key sectors in the economy.

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.104898 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.

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