“Green Deal” leads to radical changes: Commission’s new draft guidelines on State aid for environmental protection and energy
The draft revised guidelines on State aid for environmental protection and energy have been eagerly awaited. On 7 June 2021, the European Commission published the draft of the so-called “Guidelines on State aid for climate, environmental protection and energy 2022”, or CEEAG for short (hereinafter the “draft CEEAG”). Together with the publication of the draft, the Commission also invited interested parties to take part in a public consultation, setting a deadline of 2 August 2021 for responses.
Although this is only a draft of the new guidelines, it is already worth taking a look at the key changes and possible implications for State aid in the future.
CEEAG vs EEAG
The draft CEEAG contains numerous changes as compared to the current Guidelines on State aid for environmental protection and energy 2014-2020 (“EEAG”). At almost 100 pages, the main part of the draft CEEAG exceeds its predecessor by far. For example, the Commission has integrated several new categories of aid in the draft CEEAG, including aid for the reduction or removal of greenhouse gas emissions (4.1), aid for the acquisition or leasing of clean transport vehicles and the deployment of recharging or refuelling infrastructure (4.3), as well as aid for resource efficiency and for supporting the transition towards a circular economy (4.4). In addition, special provisions for energy-intensive users (4.11) and aid for the closure of power plants that burn coal, peat or oil shale (4.12) have also been created.
Structurally, the draft CEEAG is still similar to the EEAG at least insofar as the individual categories of aid are preceded by a general section. This general section applies to all categories of aid, unless the general criteria are clarified, amended or rendered inapplicable in the more category-specific sections. Categories of aid that are to be assessed solely on the basis of the general criteria are no longer included in the draft CEEAG. In this respect, the structural approach differs from the current EEAG, which, for example, make aid to undertakings that go beyond Union standards or that increase the level of environmental protection in the absence of such standards subject only to the general criteria. In the draft CEEAG, aid to undertakings that go beyond Union standards or that increase the level of environmental protection in the absence of such standards is still taken into account, but is now reflected in the new section 4.5. Overall, therefore, the categories of aid in the draft CEEAG appear at first glance to be more comprehensive. This is also made clear in the new section 4.1.
The general section already shows an increasing trend towards granting aid on the basis of a competitive bidding process (see para. 48 et seq.). Only in the event that this was not done does the Commission refer to determining the extra costs on the basis of a counterfactual analysis (para. 50 et seq.). In certain cases where a competitive bidding process was not carried out, the Commission now also explicitly refers to the possibility of compensation models, which may consist of a mix of ex ante and ex post features or even a claw-back mechanism (para. 53).
In addition, it is noticeable that the strict thresholds for individual notifications to the Commission – as laid down in para. 20 EEAG and which, in the absence of a competitive bidding process, can lead to an individual notification obligation despite an approved aid scheme – are no longer to be found in the draft CEEAG. However, the draft CEEAG contain a general provision allowing the Commission to require individual notification in certain cases. In this respect, the Commission does refer to “further factors” which it will take into account when weighing up certain aid schemes, however, whether it will make a difference remains to be seen. In addition to such an individual notification obligation, para. 72 also provides for the possibility of limiting the duration of aid measures.
Aid schemes may be subject to an ex post evaluation even if they have already been approved by the Commission (para. 399 et seq.). The Commission refers in particular to schemes with large aid budgets (more than EUR 150 million per year or EUR 750 million over the total duration of the scheme). However, an ex post evaluation is also conceivable in other cases (e.g. aid schemes with new features). Member States must also submit an evaluation plan to the Commission.
Another new aspect is the explicit reference to the fact that measures must not entail a violation of Union law (see para. 32). This is the product of recent case law.
The categories of aid in the draft CEEAG – in particular aid for the reduction or removal of greenhouse gas emissions
Section 4.1 (Aid for the reduction and removal of greenhouse gas emissions including through support for renewable energy) represents a significant change. In addition to already known instruments such as carbon capture and storage, this section also includes the reduction or removal of emissions resulting from industrial processes. The Commission explicitly points out that aid can in principle be an appropriate means of decarbonisation and that a variety of different instruments can therefore be used. In addition to the possibility of grants, it explicitly refers to so-called contracts for difference, which can also be structured as “carbon contracts for difference”. Aid linked to operation is now explicitly mentioned as well (para. 103).
The Commission seems to be interested in the measures being technology-neutral. Member States should therefore at least give reasons if the measures do not take into account all technologies or projects that are in competition (see para. 82).
At first glance, the newly introduced requirement that the Member State must carry out a public consultation prior to notification seems surprising (see para. 85). This may take a minimum of four weeks or a minimum of eight weeks, depending on the amount of annual aid. The results of such a consultation process must also be published. This is – at least with this broad scope – a new aspect that many Member State authorities could find difficult to implement. It could even slow down the whole process of granting aid. However, exceptions to the obligation to carry out a public consultation appear to be possible under certain (stringent) conditions (see in particular para. 86).
Furthermore, the Commission seems to assume that aid on the basis of section 4.1 should generally be granted through a competitive bidding process (para. 89). The exceptions to this rule concern specific smaller projects or cases where there is insufficient supply to ensure competition. This means that aid must in future be applied for in an open, transparent, non-discriminatory and “clear” process involving competition with other undertakings. It is presumably the Commission’s view that this move towards the general use of competitive bidding processes should lead to a needs-based and more proportionate aid level that is limited to the minimum needed. As far as aid for the reduction and removal of greenhouse gas emissions is concerned, this goes hand in hand with a move away from the predefined maximum aid rates (aid intensities), which still largely appear and are used in the current EEAG. According to the new provision, it would appear that it is the outcome of the competitive bidding process that plays the main role in the aid amount.
As already explained above, it appears that the draft CEEAG no longer provides for an individual notification obligation as from a specific amount of aid despite an approved underlying aid scheme. Section 4.1 adds the provision that an individual notification obligation or a time limitation for the aid measures is only to be ordered in cases where measures are particularly novel or complex or the Commission identifies risks of additional competition distortions (para. 111).
Brief overview of other categories of aid covered by the draft CEEAG
Section 4 of the draft CEEAG provides for further categories of aid. These are summarised briefly below:
- Aid for the improvement of the energy and environmental performance of buildings (4.2): This relates particularly to aid for improving energy efficiency,
- Aid for clean mobility (4.3): This covers aid for the acquisition and leasing of clean transport vehicles and clean service equipment and for the retrofitting of vehicles and aid for the deployment of recharging or refuelling infrastructure,
- Aid for resource efficiency and for supporting the transition towards a circular economy (4.4): This includes, among other things, aid for investments improving resource efficiency through a reduction in the resources consumed in the production of the same quantity of output or through the replacement of primary raw materials with re-used or recycled materials,
- Aid for the prevention or the reduction of pollution other than from greenhouse gases (4.5): This section covers aid for undertakings which go beyond Union standards or comply with Union standards that are not yet in force or which increase the level of environmental protection in the absence of such standards,
- Aid for the remediation of contaminated sites, for the rehabilitation of natural habitats and ecosystems and for biodiversity and nature-based solutions (4.6),
- Aid in the form of reductions in taxes or parafiscal levies (4.7),
- Aid for the security of electricity supply (4.8): This covers, for example, capacity mechanisms, and provides for a public consultation,
- Aid for energy infrastructure (4.9),
- Aid for district heating or cooling (4.10): This category relates to support for the construction or upgrade of energy efficient district heating and cooling systems,
- Aid in the form of reductions from electricity levies for energy-intensive users (4.11): Section 4.11 now explicitly refers to energy-intensive users and covers aid in the form of reductions from electricity levies. The current EEAG already provide for a similar category of aid in section 3.7 (aid in the form of reductions in or exemptions from environmental taxes and in the form of reductions in funding support for electricity from renewable sources), but some of the details have changed:
- Section 4.11 includes levies financing support to renewable sources and combined heat and power as well as financing social tariffs or energy prices in isolated regions.
- Levies which reflect part of the cost of providing electricity (such as exemptions from network charges or financing of capacity mechanisms) are not covered, however. The section does not cover levies on the consumption of other forms of energy, such as natural gas, either (para. 354).
- Reductions may only be granted if the overall cumulative level of these levies, before any reductions, exceeds a certain amount (para. 356). The Commission has not proposed a specific figure for this as yet. Such an upper limit is new, however.
- Aid based on section 4.11 is to be limited to sectors that are particularly exposed. These are characterised by two factors, a trade intensity of at least 20% and an electro-intensity of at least 10% at Union level. In addition, the Commission considers that a similar risk exists in the case of undertakings with an electro-intensity of at least 7% and a trade intensity of at least 80%. The Commission has listed these sectors in Annex I to the draft CEEAG.
- The Commission generally considers the aid to be proportionate if the beneficiary pays at least 25% of the levies covered by the aid scheme (see para. 359 et seq. for details). This is higher than in the current EEAG, under which 15% is sufficient in the context of aid in the form of reductions in the funding of support for energy from renewable sources (para. 188).
- In addition, section 4.11 now also provides that undertakings that conduct an energy audit must meet additional requirements. According to this, undertakings must, for example, reduce their carbon footprint so as to cover 30% of their electricity consumption from carbon-free sources, or must invest a significant share of at least 50% of the aid amount in projects that lead to substantial reductions of their installation’s greenhouse gas emissions. The current EEAG provide for such conditions for example in the context of aid in the form of reductions in or exemptions from environmental taxes and in that case also only as an alternative to the 20% threshold (see para. 178 EEAG).
- Aid for coal, peat and oil shale closure (4.12): This covers two different measures, namely aid for early closure and aid for exceptional costs resulting from closure.
The almost 100 pages of the draft CEEAG contain a large number of changes as compared to the current EEAG. Section 4.1 seems to be the most striking change and at the same time shows where the Commission’s focus lies, namely on the decarbonisation of industrial production processes. It is not yet possible to say whether the draft CEEAG will ultimately come into force in this form. There are likely to be a great number of submissions as part of the public consultation process that is currently underway. The additional administrative hurdles could pose challenges for some Member States, in particular, and jeopardise the swift implementation of potential aid measures.
The strong focus on competitive bidding processes could reinforce this tendency. This is all the more so because projects submitted as part of such a competitive bidding process may differ in terms of objective, sector, technology, content and funding level, which could pose further challenges for Member States. It remains to be seen whether this will ultimately be a merely theoretical problem, which the Commission will solve by way of a flexible and practicable interpretation of the exceptions. The outcome of the public consultation, as well as any resulting changes to the current draft of the CEEAG, should therefore be awaited with great anticipation.