State aid is one of the key instruments in the fight against climate change and the loss of biodiversity but is it possible to combine these goals with the secure and sufficient energy production at affordable price for consumers and industry? As a part of the European Green deal and green transition, the new Guidelines published on 27 January 2022 (the “Guidelines”) combine the rules on State aid to energy production and environmental protection and aim at finding the balance between these two essential issues.
As all policy measures involving national subsidies / economic advantage to companies must be cleared under the State aid rules, these Guidelines provide a framework according to which even trillion euros of public funding will be used in Europe by 2030. (In 2019, the Member States allocated almost 70 billion euros State aid to environmental protection and energy savings).
Content of Guidelines
The basic structure of the Guidelines remains very much the same as in the previous Guidelines adopted in 2014. The Guidelines include numerous ways to grant aid to different purposes. In each aid measure, eligible costs are defined, and the Guidelines set forth, how many percentages of these costs can be covered by public aid.
Depending on the size of undertakings and amount of aid, further conditions apply, the purpose of which is to ensure that the aid is an appropriate instrument to achieve the target and that the aid is necessary and proportionate and does not unduly distort competition.
The categories of aid in the new Guidelines are listed below. The “traditional” form of environmental aid is the category 5), which allows Member States to grant 40 % of aid (with extra bonus to SMEs and eco-innovations) to investments which aim at improving the state of environment beyond the mandatory requirements set forth in the legislation.
- Aid for the reduction and removal of greenhouse gas emissions including through support for renewable energy and energy efficiency
- Aid for the improvement of the energy and environmental performance of
- Aid for clean mobility
- Aid for resource efficiency and for supporting the transition towards a circular
- Aid for the prevention or the reduction of pollution other than from greenhouse gases
- Aid for the remediation of environmental damage, the rehabilitation of natural
habitats and ecosystems, the protection or restoration of biodiversity and the
implementation of nature-based solutions for climate change adaptation and
- Aid in the form of reductions in taxes or parafiscal levies
- Aid for the security of electricity supply
- Aid for energy infrastructure
- Aid for district heating and cooling
- Aid in the form of reductions from electricity levies for energy-intensive users
- Aid for the closure of power plants using coal, peat or oil shale and of mining
operations relating to coal, peat or oil shale extraction
- Aid for studies or consultancy services on matters relating to climate, environmental protection and energy
The Guidelines are a rather massive package with 112 pages including 470 paragraphs which is almost double compared to 2014 Guidelines with 254 paragraphs.
What is new
The first aid category is formulated in a new manner which focuses on the objective of an aid scheme (reduction of greenhouse gas emissions) instead of defining specific aid measures. The idea is that the regulation should be technologically neutral and leave room for future innovations. As pointed out in paragraph 83, “All technologies that contribute to the reduction of greenhouse gas emissions are in principle eligible.” It is thus up to Member States to decide, what kind of measures they will support as long as they can prove that the measure really contributes to the reduction of greenhouse gas emissions.
For this aid category, no exact maximum aid intensities have been defined but the burden of proof lies on the Member state to show that the aid is limited to what is necessary to achieve the target of the measure. Furthermore, prior to the notification of an aid scheme to the Commission, the Member State must consult publicly on the competition impacts and proportionality of the measures to be notified.
This increased flexibility is reflected in other aid categories, too. Moreover, new aid categories have been introduced, such as green mobility, resource efficiency, biodiversity and security of supply. The revised rules generally allow for higher aid intensities and even aid amounts covering up to 100% of the funding gap where aid awards are based on competitive bidding.
It must be stressed that the focus of the State aid rules is to prevent distortion of competition, but the Commission has now (even) more than before aimed at ensuring the coherence of the Guidelines with the EU’s other policy objectives, such as Green Deal and fit for 55 package.
In the field of energy production, the objective of the Guidelines is, in the medium and long term, to reduce the EU’s dependence on fossil fuels and to promote the transition towards renewable energy. The natural gas is eligible for aid under strict conditions. For example, investments for natural gas infrastructure shall be convertible to hydrogen or renewable gases at a later stage. The Commission has also stated that investment aid in natural gas is allowed only if it can be clearly demonstrated that the investments are compatible with the Union’s 2030 and 2050 climate targets. Nuclear energy is not covered by the Guidelines, but State aid can, in principle, be approved directly under the Treaty on the Functioning of the European Union and the EURATOM Treaty.