Thoughts on the new Guidelines on State aid for climate, environmental protection and energy

In January 2022, the new Guidelines on state aid for climate, environmental protection and energy 2022 (’CEEAG’) will replace the Guidelines on State aid regarding environmental protection and energy 2014-2020 (’EEAG’). The Commission intends to align the new guidelines with the EU's objectives and targets set out in the European Green Agreement and with regulatory reforms in the fields of energy and the environmental protection, while extending the scope of soft law to climate protection.

Main elements of the guidelines

The guidelines extend the range of investments and technologies that Member States can support. The Commission aims to support all technologies that contribute to the implementation of the European Green Deal. The guidelines therefore make it possible to provide aid in numerous areas relevant for the Green Deal. This includes new or updated sections on aid for the prevention or reduction of pollution other than due to greenhouse gases, including noise pollution, aid for resource efficiency and circular economy, aid for biodiversity and for the remediation of environmental damage. Moreover, the CEEAG features dedicated sections for aid incentivising investments in flagship areas such as energy performance of buildings and clean mobility, covering all transport modes.

The Commission has reformed the previous rules on reductions on certain electricity levies for energy intensive users. The rules aim at limiting the risk that, due to these levies, activities in certain sectors move to locations where environmental disciplines are absent or less in line with the EU requirements. In order to cater for the enhanced decarbonisation efforts required to meet the EU climate targets, the CEEAG cover the reductions in all levies financing decarbonisation and social policies.

The new guidelines have streamlined the number of eligible sectors with objective indicators at sectoral level so that Member States can ensure a level playing field. According to the Commission, the revision of the previous rules was also necessary to provide more incentives for the progressive decarbonisation of the companies concerned, inter alia by linking the reduction in levies and the beneficiaries' commitments to reduce their carbon footprint.

The guidelines seek to ensure, through various safeguards, that aid is actually granted where it is needed to improve climate and environmental protection and that it does not go beyond what is necessary to achieve environmental goals and does not distort competition or the integrity of the Single Market. In this context, the guidelines enhance, for example, the involvement of stakeholders in the design of large aid measures by requiring Member States to consult stakeholders on the main points of the planned intervention.

The new guidelines approximate the relevant EU legislation and policies in the environment and energy fields, by, among others, ending subsidies for the most polluting fossil fuels. The Commission anticipates that measures involving new investments in natural gas are unlikely to be approved unless it is demonstrated that the investments are compatible with the Union's 2030 and 2050 climate targets, facilitating the transition from more polluting fuels without locking-in technologies that may hamper the wider development of cleaner solutions. The new guidelines have been supplemented with the possibility of aid for the closure of coal, peat and oil shale plants to facilitate decarbonisation in the power sector.

According to the Commission, in the future, the more flexible and simpler rules of the new guidelines will help Member States to achieve the objectives of the Green Deal and provide the necessary aids.

Changes in compatibility conditions

The guidelines set out the Commission's assessment criteria and the conditions under which State aid in the fields of climate, environmental protection and energy is compatible with the internal market. While the 2014 guidelines listed the compatibility criteria in seven points, the new provisions have become much more detailed and set up three major categories. The guidelines distinguish between positive and negative conditions and set out in a separate section the requirement that the overall balance of the aid be positive.[1]

Positive conditions: the aid must facilitate the development of an economic activity. This requires the identification of the economic activity which is being facilitated by the measure, its positive effects for society at large and, where applicable, its relevance for specific policies of the Union. It is required that the aid have an incentive effect and be in compliance with the relevant provisions of EU law.

The negative conditions are essentially intended to ensure that the aid measure does not unduly affect trading conditions to an extent contrary to the common interest. The guidelines distinguish between conditions that help to minimize distortions of competition and trade and to avoid undue negative effects on competition and trade. The former includes the requirements of necessity, appropriateness, proportionality and transparency.

The Commission takes a close look at the positive and negative effects of the aid on competition and trade and considers only aid measures whose positive effects outweigh their negative effects to be compatible with the internal market. This means that the overall balance of the aid is positive.

The Commission will continue to approve measures under the guidelines for a maximum period of 10 years, although this may be further limited in some cases (to four years or less).[2] If a Member State wishes to extend the duration of the measure beyond that maximum period, it can re-notify the measure.

Aid in the form of reductions in taxes or parafiscal levies

Like the 2014 guidelines, the 2022 guidelines mention the possibility of aid in the form of reductions in taxes or parafiscal levies. [3] Section 4.7 covers aid in the area of environmental protection in the form of reduction in taxes or parafiscal levies. It is structured in two sub-sections, each of them having a distinct logic. Section 4.7.1 tackles taxes or levies which sanction environmentally harmful behaviour and therefore aim to direct undertakings and consumers towards more environmentally-friendly choices. Under Section 4.7.2, Member States may choose to encourage, by means of targeted reductions in taxes or levies, undertakings to change or adapt their behaviour by engaging in more environmentally-friendly projects or activities.

Possible problematic issues

According to the Commission, the guidelines provide a flexible framework and help Member States provide the aid needed to achieve the objectives of the European Green Deal in a targeted and cost-effective way. The Commission aims at helping Member States meet EU energy and climate targets, at the least possible cost for taxpayers and without undue distortions of competition in the Single Market.

In some respects, the Commission is indeed increasing flexibility and simplifying some of the previous rules (including by removing the requirement for individual notifications of large green projects within aid schemes previously approved by the Commission). The guidelines will apply to any decision taken by the Commission after their adoption. Member States will be required to align existing schemes to the new rules as of 2024. The statement „will be required to align” is problematic in terms of the role and legal status of the soft law and could further deepen the debate on the role of the Commission and the soft law.

The new guidelines retain both the minimum standard of 20% for tax reductions – which is criticized in the legal literature[4] – and the vague, overly general concepts of the previous guidelines (for example "substantial increase in production costs" or "important sales reductions", "cost that cannot be passed to the consumers", "significant competitive disadvantage") remain unclear.[5]

The process

The Commission, in its Communication of 21 December 2021, stressed that the new Guidelines on State aid for climate, environmental protection and energy are based on an evaluation of the existing rules, the Energy and Environmental State aid guidelines and a study carried out by external consultants. The Commission emphasized that it also carried out an extensive consultation of all interested parties on the proposed revised rules which yielded more than 700 contributions. The process has involved Member States, business associations, interest groups, individual companies, NGOs and citizens. In the autumn of 2020, the Commission also launched a European debate on how to ensure that competition rules and sustainability policies work together in the best possible way. The contributions received have also fed into the new Guidelines. The review also reflects the Commission's experience stemming from its case practice in recent years.

While it is true that the Commission has consulted Member States on several occasions during the phase of elaboration of the new guidelines, this process still does not remove the tension between the non-binding legal nature and the real effect of non-binding EU documents.

Concluding thought

The Commission's latest efforts on legal certainty and environmental protection objectives are to be welcomed, but the rise of soft law and the question of its legal status may give rise to concerns about the division of competences.

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Author: Krisztina Széles, PhD Student, University of Debrecen, Marton Géza Doctoral School of Legal Studies

References:

European Commission: State aid: Commission endorses the new Guidelines on State aid for Climate, Environmental protection and Energy. Press release, 21 December 2021, Brussels. Available: https://ec.europa.eu/commission/presscorner/detail/en/ip_21_6982

Communication to the Commission: Approval of the content of a draft for a Communication from the Commission on the Guidelines on State aid for climate, environmental protection and energy 2022. Brussels, 21.12.2021 C(2021) 9817 final. Available: https://ec.europa.eu/commission/presscorner/detail/en/ip_21_6982

Daniel Pérez Rodríguez (2016): Electricity Generation and State Aid: Compatibility Is The Question. European State Aid Law Quarterly, Vol. 15, No. 2, 207 - 227, 215-221

Jerónimo Maillo (2017): Balancing Environmental Protection, Competitiveness and Competition: A Critical Assessment of the GBER and the EEAG. European State Aid Law Quarterly : EStAL; Berlin Vol. 16, No. 1, 4-10.