4 minute read 20 Jul 2023

European Commission proposes more funding for strategic technologies

Steven Claes
By Steven Claes

EY Belgium Tax & Law Leader and Talent Leader

Trying to make a difference every day.

4 minute read 20 Jul 2023
Related topics Global trade Technology European institutions Sustainability Tax
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The European Commission actively pleads for more support for tech in the twin transition.

In brief

  • EC proposes more funding for strategic tech in response to vast US tax breaks and subsidy package
  • Even state support aid rules would possibly become more flexible
  • Member States boast different opinions on the subject

Never before has the green and digital transformation of the European economy been so much at the top of the agenda of policymakers. This is at a point in time when - without any exceptions - each Member State in the Union is confronted with various challenges: inflation, labor market challenges, geopolitical energy, supply chain complexities, rising interest rates, and an ongoing war at the border of the Union.

In an effort to help Member States mitigate the situation, last year, the Commission proposed an ambitious addition to the current funding strategy and this in particular for strategic technologies.

The Strategic Technologies for Europe Platform (STEP) would, via existing funding programs, reinforce and leverage business investments in these domains and thus provide a more structural answer to the investment needs of its industries.

STEP will provide € 10 billion in additional funding via InvestEU, Innovation Fund, Horizon Europe, EU4Health, Digital Europe, the European Defense Fund, the post-pandemic Recovery and Resilience Facility, and various cohesion policy funds.

Additionally, the Member States would be encouraged to increase co-financing for initiatives via the Just Transition Fund to the cohesion policy funds European Regional Development Fund (ERDF) and the European Social Fund Plus (ESF+).
 

Investment fields

STEP is meant to follow up on successful initiatives in the Important Projects of Common European Interest (IPCEI), for example on hydrogen or micro-electronics, and would support the further development and/or increased manufacturing in the Union of critical technologies in the following fields:

  • Digital: microelectronics, high-performance computing, quantum computing, cloud computing, edge computing, artificial intelligence, cybersecurity, robotics, 5G and advanced connectivity, and virtual realities, including actions related to deep and digital technologies for the development of defense and aerospace applications;
  • Clean: renewable energy; electricity and heat storage; heat pumps; electricity grid; renewable fuels of non-biological origin; sustainable alternative fuels; electrolyzers and fuel cells; carbon capture, utilization, and storage; energy efficiency; hydrogen; smart energy solutions; technologies vital to sustainability such as water purification and desalination; advanced materials such as nanomaterials, composites, and future clean construction materials; and technologies for the sustainable extraction and processing of critical raw materials;
  • Bio: biomolecules and their applications, pharmaceuticals, medical technologies, crop biotechnology, and biomanufacturing.

The STEP would also help safeguard and strengthen the respective value chains, steer investments in related critical raw materials, and address shortages of labor, and skills in those sectors.
 

European Sovereignty Fund?

Although some important formal steps still have to be taken before the additional funding via STEP can be allocated to concrete projects, EU observers regard the creation of STEP as an important action with regard to the creation of a European Sovereignty Fund (ESF). Announced by European Commission chief Ursula von der Leyen and Commissioner for the Internal Market Thierry Breton in September of 2022 and supposedly becoming operational in the summer of 2023, the ESF is the Commission’s answer to the US Inflation Reduction Act (IRA). The ‘Buy American’ logic of the IRA, the tax breaks, as well as production subsidies, could negatively impact investments that would shift to the U.S. and threaten the European economy. Via the Sovereignty Fund, this would be countered with extensive new funding for strategic multi-country projects.

Negotiations on the ESF are still ongoing, however. With multiple Member States having different opinions on whether and how to organize the ESF and parallel discussions taking place on possibly loosening state aid rules (as was the case for the IPCEI funding), it’s possible that effectively launching this new and extensive Fund in the upcoming summer might be somewhat ambitious or might not even take place at all in the end.

In view of the aforementioned global challenges, the need for a global level playing field, specifically vis-à-vis the aforementioned U.S. policy, and the necessity to move forward with the green and digital transformation, one can expect initiatives on multiple fronts to be launched. The exact timing and form, however, is unclear at this point. A strong signal on the matter seems to be needed on the part of the European Commission. A € 400 billion powered instrument combined with a clear funding strategy and protocol would definitely do the trick.
 

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Summary

Reacting to vast US tax breaks and production subsidies for foreign investors, the European Commission proposes more funding for tech but opinions differ in various Member States. Will the European Sovereignty Fund and the STEP program be put in place and new funding become available?

About this article

Steven Claes
By Steven Claes

EY Belgium Tax & Law Leader and Talent Leader

Trying to make a difference every day.

Related topics Global trade Technology European institutions Sustainability Tax
Upvote