European Commission revises EU State aid rules – will energy-intensive companies face radical cuts in support?
Once again, the European Commission’s Directorate General for Competition is putting several State aid rules through a revision. This will focus on rules relating to energy and environmental aid. It may lead to painful cuts for energy-intensive companies.
I. Background: “Fitness check”
A large number of State aid regulations and guidelines are due to expire as of 31 December 2020. The European Commission has now announced that these rules will continue to apply for a further two years until 31 December 2022. In doing so, the Commission wishes to facilitate a “fitness check” on the rules. Provisions this affects include:
- General Block Exemption Regulation (“GBER”)
- Regulation on De-minimis State aid (“De minimis Regulation”);
- Guidelines on regional State aid for 2014-2020 (or Regional Aid Guidelines, “RAG”)
- Guidelines on State aid to promote risk finance investments;
- Communication on State aid to promote the execution of important projects of common European interest (“IPCEI Communication”);
- Guidelines on State aid for environmental protection and energy 2014-2020 (or Environmental Protection and Energy Aid Guidelines, “EEAG Guidelines”);
- Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty (“R&R Guidelines”).
In terms of scheduling, the European Commission’s concept is evident from the three roadmaps on the Commission’s website. A formal consultation process is envisaged in which undertakings affected and other stakeholders will be asked to provide their experience and views.
The background to the extension being sought is the European Commission’s intention to subject the State aid rules listed above to a comprehensive review, or “fitness check”. The rules concerned also include the “Framework for State aid for research and development and innovation”, the “Guidelines on State aid to airports and airlines”, the “Community guidelines on State aid for railway undertakings” and “Communication of the Commission on short-term export-credit insurance”. This fitness check will examine how each of these State aid rules contributes to achieving the “EU 2020 Targets”, which aim to cut CO2 emissions within the European economy. Each rule will be checked for its relevance, efficacy, efficiency, coherence and added value in achieving this goal. The fitness check will therefore form the basis for possible amendments.
In addition to performing internal analyses and external studies, the European Commission is planning a twelve-week formal consultation procedure. It is expected that the Commission will already be providing the stakeholders affected with the first detailed questionnaires in April 2019, as stated in the roadmaps that have been published.
Undertakings affected should take part in this procedure in order to help shape the results of the review of State aid rules in their interest.
II. In particular: Planned revision of the EEAG Guidelines
The EEAG Guidelines likewise fall under the fitness check the European Commission has announced. For undertakings in the energy-intensive sector, they represent one of the most important legal instruments in State aid. The EEAG Guidelines form the framework for EU State aid law that the provisions of national surcharge systems (and exemptions thereto) must be measured against. Just how important this framework is became clear in 2014, for example, when the European Commission issued its decision on the surcharge system under Germany’s Renewable Energy Sources Act (“EEG 2012”). The Commission concluded that certain privileges for energy-intensive companies were incompatible with the EEAG Guidelines, and ordered that some of the reductions approved under the EEG surcharge system for 2013 and 2014 be recovered. The new EEG surcharge system (“EEG 2014”) was also approved under the EEAG Guidelines now in force.
The EEAG Guidelines therefore restrict Member States’ leeway in energy policy considerably. Above all, they place strict limits on possible reductions for energy-intensive companies. As part of the imminent fitness check, these rules are to be thoroughly tested as to whether their existence and scope are fundamentally justified, especially as regards which sectors are privileged and how intensive the State aid is.
So a great deal is at stake. Accordingly, we strongly recommend that energy-intensive companies take part in the upcoming formal consultation procedure.
III. Formal consultation procedure on ETS State aid rules has been opened
As of 31 December 2020, the “Guidelines on certain State aid measures in the context of the greenhouse gas emission allowance trading scheme post-2012” (“ETS State Aid Guidelines”) are due to expire. The review of these guidelines is at a more advanced stage, as the formal consultation procedure is already underway.
This review centres around an evaluation of whether a risk exists that CO2 emissions will be shifted by undertakings moving their production to third states (termed “carbon leakage risk”), and if so in what scope, as a reaction to the high electricity costs resulting from changes in the EU emissions trading system. To counter this carbon leakage risk, energy-intensive companies can currently be granted compensation for indirect emission costs under the ETS State Aid Guidelines. This enables the EU targets on cutting CO2 emission in the European economy to be pursued and equal conditions of competition in the internal market to be maintained. The ETS State Aid Guidelines, as well as the EEAG Guidelines, therefore represent instruments of enormous importance to energy-intensive companies.
However, the European Commission appears to have quite substantial concerns regarding the existence of a carbon leakage risk for undertakings and competition on the internal market, and consequently whether ETS State Aid Guidelines need to be retained in their current scope. Accordingly, it has launched two consultation procedures in parallel, requesting completion of a questionnaire in both. The “targeted consultation” is directed primarily at undertakings and stakeholders in the sectors concerned, and aims to obtain specific data and facts (e.g. the level of electricity price compensation received, share of indirect emission costs etc.). “Public consultation”, on the other hand, is directed at the general public. Its approach is less data-related, aiming instead to obtain a general picture of public opinion regarding whether it is necessary to retain the existing ETS State Aid Guidelines, and if so in what scope, as well as possible amendments thereto.
Targeted Consultation: Please return the completed questionnaire by e-mail to email@example.com by 9 April 2019.
Public Consultation: Please complete the questionnaire online by 16 Mai 2019.
The wording of these two questionnaires and some of the statements made by the European Commission not only express their doubts regarding the carbon leakage risk but also the Commission’s intention to take a critical look at the privileged sectors and the intensity of State aid in this regard. It seems that the continued existence of the ETS State Aid Guidelines themselves is not guaranteed, and the pack is being (or might be) reshuffled with regard to the sectors privileged and the intensity of State aid. For this reason, we advise undertakings and stakeholders in the sectors affected to take part in this consultation procedure.