EU Commission Approves €520m Luxembourg State Aid Schemes for Net-Zero Economy Transition

On Friday 11 October 2024, the European Commission announced it had approved two Luxembourgish schemes with a total budget of €520 million to help manufacturing companies decarbonise their production processes and to support investments in strategic sectors to foster the transition to a net-zero economy.

The Luxembourgish schemes were approved under the State aid Temporary Crisis and Transition Framework (TCTF) adopted by the Commission on 9 March 2023 and amended on 20 November 2023 and 2 May 2024.

Under both schemes, the aid will take the form of direct grants.

The decarbonisation scheme is open to companies in the manufacturing sector that currently relying on fossil fuels. To be eligible, projects must reduce greenhouse gas emissions of the industrial installations concerned by at least 40% compared to before the aid was granted by means of electrification of their production processes.

Projects financed under the decarbonisation scheme will be selected through a competitive bidding process. Applications will be ranked on the basis of the amount of aid requested per tonne of greenhouse gas emissions avoided. Projects requesting the lowest aid amount will be ranked higher, thus ensuring that aid is granted to the most efficient projects, noted the Commission. The budget for this scheme is €500 million.

The scheme for investments in strategic sectors will support investments for the production of batteries, solar panels, wind turbines, heat pumps, electrolysers, equipment for carbon capture, usage and storage, as well as key components designed and primarily used as direct input for the production of such equipment or related critical raw materials necessary for their production. The budget of this scheme is €20 million.

The Commission said it found that the Luxembourgish schemes were in line with the conditions set out in the TCTF. In particular, the aid under the decarbonisation scheme will not exceed €200 million per beneficiary and will be granted under the condition that the project is completed within 36 months. In addition, aid under the strategic investment scheme will incentivise the production of relevant equipment for the transition towards a net-zero economy, will respect the maximum aid ceilings and will be granted no later than 31 December 2025.

The Commission concluded that the Luxembourgish schemes were "necessary, appropriate and proportionate" to accelerate the green transition and facilitate the development of certain economic activities which are important for the implementation of the REPowerEU plan and the Green Deal Industrial Plan, in line with Article 107(3)(c) of the Treaty on the Functioning of the European Union and the conditions set out in the TCTF.

On this basis, the Commission approved the aid measures under EU State aid rules.