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European Commission Starts Process to Revise State Aid Guidelines on Environmental Protection and Energy and Launches Consultation    

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Introduction

The European Commission (Commission) recently announced a further step towards its forthcoming review of the State Aid Guidelines for Environmental Protection and Energy (EEAG) i. These guidelines, that were first adopted in 2014, are a major tool for the Commission to manage how its 27 Member States will finance their energy transition towards a decarbonised energy system by 2050, while still guaranteeing security of supply. The forthcoming review of the EEAG is particularly vital given the flagship European Green Dealii has significantly stepped up the EU’s environmental ambition. A clear understanding of the process, its scope and eventual consequences is key to determine whether and how stakeholders should participate in this important review. 
 
The Commission plans to launch a further public consultation on the draft text of the revised Guidelines in 2021 (probably in Spring 2021), but companies and other interested parties may already consider it opportune to secure input into the revision process. 
 
The first steps in the review process
  • The current consultation, published on 12 November, in the form of a detailed questionnaire, covers different aspects of the future review, in particular the interplay of the EEAG with the implementation of the European Green Deal.  Interested parties can provide feedback by completing the online questionnaire on the Commission’s portal by 7 January 2021.
  • The Commission’s ‘Inception Impact Assessment(IIA), outlining its initial ideas for the revision, was also published on 12 November.   The focus of this first step is on revising the criteria for assessing the compatibility of State support with the EU State aid rules and on assessing how the EU State aid rules should address support to energy intensive users.  Interested parties can provide feedback on the IIA on the Commission's Better Regulation Portal by 10 December 2020.
  • The final impact assessment will support the preparation of the revised EEAG in 2021 and inform the Commission's decisions on how to take that revision forward.  Feedback is now invited on these initial ideas.
  • This exercise builds on the Commission’s 2019  comprehensive policy evaluation in the area of State aid (“Fitness Check” exercise) that included a general public consultation on the Fitness Check of EU State aid rules, and a targeted consultation to gather stakeholders’ views on the implementation of the EEAG, and the provisions applicable to aid for environmental protection (and energy) in Section 7 of the General Block Exemption Regulation (GBER).
  • The IIA and the current consultation can be found here.
 
History of the EEAG 

The Commission uses guidelines to inform Member States and interested stakeholders, including potential aid beneficiaries, of the conditions which must be met and the processes which must be followed for the Commission to declare planned state support to be compatible with EU State aid rules – the so-called compatibility criteria.  The EEAG of 2014 have enabled Member States to finance projects to enhance environmental protection and energy generation adequacy, subject to certain conditions.  The guidelines ensure that state support measures contribute to the achievement of objectives of common European interest such as decarbonisation, while avoiding undue distortions of competition in the internal energy market.  
 
At least prior to the COVID-19 crisis, energy and environmental aid spending by the Member States had become the most significant area of government spending under the EU State aid regime.  The latest available Commission State aid Scoreboard (2019) indicates that Member States spent EUR 120.9 billion (0.76% of GDP) on State aid at the EU level, excluding aid to agriculture, fisheries and railways.  More than half of the total amount spent (EUR 66.5 billion) was allocated to environmental protection and energy savings iii
 
The EEAG were originally scheduled to expire at the end of 2020, but the validity of the current guidelines have been extended until the end of 2021. 
 
The Commission’s inception impact assessment (IIA)

This first step in the recently launched review process will focus on the available policy options to make the current EEAG better ‘fit for purpose’.  The IIA outlines the Commission’s initial ideas on what it sees as the two main building blocks and sub-objectives of its fitness check, namely: 
 
(i) a review of the compatibility criteria for environmental protection (‘Block 1’); and
(ii) an assessment of State aid to energy intensive users (‘Block 2’).

Block 1: Review of compatibility criteria for environmental protection to promote the green transition

The Commission considers that the scope of the EEAG 2014 should be widened so that compatibility of planned aid is assessed against broader policy objectives, including environmental protection (which will embrace climate neutrality and other ‘Green Deal’ objectives), security of supply and the prevention of relocation risk due to energy related charges (so-called “carbon leakage” whereby companies would transfer production to countries outside the EU with less ambitious climate policies) as well as increasing the scope for further technological and market innovations.  

 
In the light of the Green Deal, a revised EEAG should also cover aid to alleviate negative social consequences, facilitating a fast energy and industrial transformation and economic recovery and creating green jobs, but also limiting job losses within the EU due to carbon leakage.  In other words, support for a ‘just transition’ with ‘nobody left behind’ is expected to increase.
 
The quid pro quo for a more generous compatibility test will be the introduction of stricter safeguards to ensure that the aid: 

(i) is effectively directed where it is needed (no crowding out of private investment, no greenwashing), and 

(ii) is limited to what is needed to achieve the environmental goals in order to be cost-effective, minimise the cost to the taxpayer, and improve acceptability. 
 
A stricter set of safeguards could include:
  • a review of the distinction between operating and investment aid: if and to what extent a distinction between operating and investment aid is still justified and to what extent rules should be aligned; 
  • a greater emphasis on transparency: to what extent Member States should be required to identify the contribution to environmental protection and make transparent the environmental protection cost in their aid schemes in a harmonised manner;
  • a possible extension of the current competitive bidding requirement;
  • an extension of the scope of support schemes to allow participation from direct competitors, various (related) industrial sectors and other areas of the economy; and
  • the opening up of support measures across Member States. 

These safeguards may be combined in coherent packages to form options. 

Block 2: Energy-intensive users (EIUs) 

The Commission’s earlier Fitness Check on the EEAG has shown that it is unclear, whether various forms of environmental tax reductions or reductions in other forms of ‘green levies’ for the benefit of EIUs has led to the introduction of more ambitious renewables policies in all Member States.  The recently revised Emission Trading System (ETS) Guidelinesiv also aim at reducing the risk associated with “carbon leakage”, enabling Member States to compensate EIUs in at-risk sectors for part of the higher electricity prices resulting from the carbon price signals created by the EU ETS (so-called “indirect emission costs”). 

Given the findings from the earlier Fitness Check, EIUs must be alert to further reforms. 

The options now on the table range from: 

(i) the simple update of the list of eligible sectors based on the most recent data and the existing case practice; to 
(ii) an increase of consistency with the recently adopted State aid rules for indirect emission costs compensation for the fourth trading period of the EU ETS (including some form of environmental conditionality), while taking into account possible negative EU geographic distribution effects. 

Summary of planned consultation activities for this review are:

  • Parallel four week consultation to provide feedback on the Inception Impact Assessment and eight week public consultation to any interested stakeholders on the related questionnaire.

Stakeholders are invited to submit their responses directly to the questionnaire by completing the online questionnaire on the Commission’s portal or by submitting it by email to the functional mailbox.  Feedback on the IIA can be provided via the Commission's Better Regulation Portal. 

  • Eight week public consultation to any interested stakeholder on the draft revised EEAG (expected to be published in Spring next year)

Stakeholders will be informed of the consultation on the official public consultations pages of the European Commission and the DG Competition website. 

 
Conclusion

This stage of the review process is another important step towards what might well prove to be a major overhaul of the EEAG in 2021.  There are a wide range of options on the table and the Commission is keen to have targeted input for the process of narrowing down the range.  

 
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Baker Botts has a proven track record in advising clients on the complexities of EU State aid control, especially in the area of energy and environmental protection. Baker Botts lawyers have extensive experience of advising and shaping the development of EU State aid law and have assisted firms and organisations in submitting input into major consultation exercises.  
 
Our team is available to assist companies, trade association, public authorities and other interested stakeholders to input into the revision process. 
 

Commission Guidelines on State aid for environmental protection and energy 2014-2020, available at: https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX%3A52014XC0628%2801%29  

ii The European Green Deal was adopted in December 2019 and provides an action plan to (i) boost the efficient use of resources by moving to a clean, circular economy and (ii) restore biodiversity and cut pollution.  The Commission Communication is available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1588580774040&uri=CELEX:52019DC0640   

iii See Commission State aid Scoreboard 2019, available at: https://ec.europa.eu/competition/state_aid/scoreboard/index_en.html 

iv The revised Commission ETS Guidelines target aid at sectors with strong exposure to international trade.  Ten sectors and 20 sub-sectors are eligible (compared to 13 sectors and 7 sub-sectors under the previous guidelines). The Guidelines on certain State aid measures in the context of the system for greenhouse gas emission allowance trading post 2021 were adopted on 21 September 2020 and are available at https://ec.europa.eu/competition/state_aid/what_is_new/news.html. See section on State aid legislation.

 
 
 

 

 

 

 

 

 

 

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