New Guidelines on State Aid for Climate, Environmental Protection, and Energy in the European Union
On January 27, 2022, the European Commission ("Commission") adopted the Guidelines on State Aid for Climate, Environmental Protection, and Energy 2022 ("CEEAG"). They replace the Guidelines on State Aid for Environmental Protection and Energy 2014-2020 ("EEAG").
The European Green Deal has set ambitious climate and energy targets (including cutting greenhouse gas emissions by 55% by 2030). The Commission estimated that these priorities will require 350 million euros of additional annual investment and will impact all sectors of the economy. This investment challenge will require both private and public funding. As a result, there will be increased opportunity for businesses to receive State aid.
The CEEAG set out the conditions the Commission applies to assess the compatibility of notifiable aid for climate, environmental protection, and energy (i.e., aid that requires pre-approval from the Commission). The General Block Exemption Regulation, or GBER (in the process of being revised), applies to projects that do not have a notification obligation.
A Broadened Scope
- Categories of aid: Thirteen categories are covered by the CEEAG, compared to nine in the EEAG. New categories include (i) aid for the reduction and removal of greenhouse gas emissions including through support for renewable energy and energy efficiency ("Decarbonisation aid"), (ii) aid for clean mobility, (iii) aid for resource efficiency and for supporting the transition toward a circular economy, (iv) 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 mitigation, and (v) 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 in the form of reductions from electricity levies for energy-intensive users is now a separate category, covering more types of levies but less sectors. Nevertheless, should sector-specific rules contain provisions on environmental protection and energy, these shall prevail over the CEEAG. However, certain categories of aid, such as State aid for research, development, and innovation (dealt with under the Framework for R&D&I—in the process of being revised), or State aid for nuclear energy are outside the scope of the CEEAG.
- Aid instruments: A wider variety of aid instruments can be used. These now include Decarbonisation aid in the form of contracts for difference, which may entail a payback by the beneficiary to the State if the reference price (e.g., market price) exceeds the strike price set in the contract.
- Cost coverage: As a general rule, the aid will cover 100% of the funding gap (i.e., the net extra cost compared to the counterfactual scenario where no aid is granted).
The compatibility assessment is a three-step exercise:
- Step 1: The aid must facilitate the development of an economic activity (positive condition). In particular, the aid must have an incentive effect, inducing the beneficiary to engage in additional or more environmentally friendly activity than in the counterfactual scenario. To increase transparency, a public consultation will be required prior to the notification of Decarbonisation aid measures that exceed certain thresholds, as of July 1, 2023 (some exceptions apply).
- Step 2: The aid must not adversely affect trading conditions to an extent contrary to common interest (negative condition). The aid must address residual market failures for which no alternative policy measure or aid instrument would be less distortive of competition. Its amount must be limited to the minimum necessary. The Commission will carry out a detailed assessment of the net extra cost where the aid is not granted under a competitive bidding process. Measures are approved for 10 years maximum, after which a re-notification is required to prolong the measure.
- Step 3: The positive effects of the aid on competition and trade are weighed against its negative effects (balancing test), applying the "do no significant harm" principle. With a view to phasing out fossil fuels, measures that involve support to the latter are unlikely to be deemed compatible. The same applies for new investments in natural gas, unless the Member State establishes that it will contribute to achieving the 2030 climate target and 2050 climate neutrality target.
In addition, the CEEAG lay down specific rules for each of the 13 aid categories.
Aid schemes with a high distortion potential, large budgets, or novel characteristics, as well
as schemes that are to apply in markets where significant technology, regulatory, or market changes are expected, may be subject to an ex post evaluation by an independent expert, shorter time limitation, and/or in the absence of a competitive bidding process, individual notification of certain projects may be required.
Member States have until December 31, 2023, to align existing aid schemes with the CEEAG, where necessary. To this end, the Commission proposes appropriate measures to the Member States concerned, pursuant to Article 108(1) of the Treaty on the Functioning of the European Union. If they accept these measures within two months from the publication of the CEEAG in the Official Journal of the European Union ("OJEU"), a summary notice of the decision of the Commission recording that finding is published in the OJEU, while the full text of the Commission decision is available on the website of the Commission. Businesses wishing to benefit from existing aid schemes that fall within the scope of the CEEAG should closely monitor changes that may be made to these schemes. More generally, as the CEEAG is complex and brings about important changes, businesses should make sure to anticipate and tailor their future projects and funding requests so as to be consistent with the CEEAG's text. For more on the CEEAG, please see our recent Commentary.
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