Introduction
The European Commission (the ‘Commission’) formally adopted on 27 January 2022 its new Guidelines on State aid for climate, environmental protection and energy (‘CEEAG’). The CEEAG replace the guidelines which were in force since 2014 (EEAG) and integrate the new objectives of the EU Green Deal of a reduction of 55% net greenhouse gas emissions compared to the 1990 levels by 2030 and of carbon neutrality by 2050. The Commission has estimated that achieving the new 2030 target would require EUR 390 billion of additional annual investment compared to the levels in 2011-2020, an investment that cannot be borne by the private sector alone, and would therefore require public investments.
Application
The CEEAG apply from 27 January 2022 to aid for environmental protection, including climate protection, and energy that is awarded or intended to be awarded as of that date. Member States must also adapt their existing support schemes to comply with the CEEAG by 2024. The CEEAG set out the criteria under which the Commission will assess whether aid may be authorised. These assessment criteria relate to a positive condition, i.e. whether the aid facilitates the development of certain economic activities within the Union, and a negative condition, i.e. whether such aid does not adversely affect trading conditions to an extent contrary to the common interest.
The Commission will only assess the aid under the CEEAG in the situations where the aid does not already fall under the exemptions of the General Block Exemption Regulation (GBER). The GBER allows aid under certain ceilings without the need for Commission’s scrutiny. It is noteworthy that the GBER is currently under revision to align with the European Green Deal objectives and to complement the CEEAG.
Assessment criteria
Under the positive condition, the Commission will analyse (i) the identification of the economic activity which is being facilitated by the measure, to support the green economy or to increase its sustainability and the expected benefits of the aid for environmental protection, including climate change mitigation, or the efficient functioning of the internal energy market; (ii) the incentive effect of the aid, i.e. whether the aid induces the beneficiary to change its behaviour to engage in more environmentally-friendly economic activity; and (iii) that there is no breach of any relevant provision of Union law, such as for instance, clauses conditioning the aid directly or indirectly on the origin of products or equipment.
Under the negative condition, the Commission will examine (i) the need for State intervention, i.e. whether the aid remedies market failures preventing the achievement of a sufficient level of environmental protection or an efficient internal energy market; (ii) the appropriateness of the aid, i.e. whether the objective cannot be (sufficiently) achieved by alternative measure (e.g. market-based instruments such as the emission trading scheme) or less distortive aid instrument (e.g. repayable advance vs direct grant); (iii) the proportionality of the aid, i.e. whether the aid is limited to the minimum necessary, that is the net extra cost (‘funding gap’) necessary to meet the objective of the aid measure; (iv) the transparency of the aid, i.e. whether it is well publicised; (v) the avoidance of undue negative effects of the aid on competition and trade, considering the distortive effects on competitors that likewise operate on an environmentally-friendly basis, and it will (vi) weigh up the positive and negative effects of the aid, paying attention to the sustainability of the activity and in particular that it ‘does no significant harm’ to environmental objectives.
These assessment criteria are further elaborated for each specific category of aid.
Categories of aid that can be assessed under the CEEAG
Most of the categories of environmental protection and energy measures falling in the scope of the previous EEAG are covered by the CEEAG in a much larger fashion. These categories relate to support:
- for the reduction and removal of greenhouse gas emissions including through support for renewable energy and energy efficiency;
- for the improvement of the energy and environmental performance of buildings;
- for resource efficiency in respect of which the CEEAG also cover the transition to a circular economy, beyond the mere waste management foreseen in the EEAG;
- reductions in taxes or parafiscal levies where these taxes or levies aim at sanctioning environmentally harmful behaviour but create such a competitive disadvantage that it would not have been feasible to introduce them in the first place without having foreseen reductions for certain companies;
- for district heating and cooling, including highly-efficient cogeneration;
- for the security of electricity supply, extending to storage or demand response, interconnection, as well as network congestion measures, the possibilities initially offered under the EEAG to support generation adequacy;
- reductions for energy-intensive users from electricity levies. Under the previous EEAG, reductions were possible for levies aimed at funding support for energy from renewable sources. With the CEEAG, possible reduction can apply to levies aimed at the broader goal of funding decarbonisation;
- for studies or consultancy services on matters relating to climate, environmental protection and energy, whereas the EEAG only covered environmental studies;
- for the remediation of environmental damage, which constitutes a larger possibility than the aid for the remediation of contaminated sites under the EEAG.
The CEEAG further extends the list of measures that can be aided to support:
- for clean mobility:
- for the acquisition and leasing of clean vehicles (used for air, road, rail, inland waterway and maritime transport) and clean mobile service equipment and for the retrofitting of vehicles and mobile service equipment;
- for the deployment of recharging or refuelling infrastructure for clean vehicles;
- for the prevention or the reduction of pollution other than from greenhouse gases;
- for 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;
- reductions in taxes or parafiscal levies, to encourage undertakings to change or adapt their behaviour by engaging in more environmentally-friendly activities;
- for the closure of power plants using coal, peat or oil shale and of mining operations relating to coal, peat or oil shale extraction.
Whereas previously investment aid for large airports (more than 5 million passengers per year) could only be authorised in exceptional circumstances, such as relocation of an existing airport, aid for large airports would now be authorised also where the purpose of the aid is to improve environment protection.
Nuclear energy remains outside the scope of the CEEAG, because it relates to limited but very large projects, subject to the EURATOM Treaty. Aid to nuclear energy would therefore be assessed directly under the Treaty provisions.
Conclusion
By aligning the State aid rules to the objectives of decarbonising the economy, the CEEAG will allow more public investments to address the climate change, to foster the environment protection and to support the green energy sector. Compared to the EEAG, the CEEAG allow for more categories of measures and higher amount of aid. This aid can cover the net extra cost (funding gap) necessary to meet the objective of the aid measure, compared to the counterfactual scenario in the absence of aid. The CEEAG also recognise natural (fossil) gas as a source of energy that might be needed to transition to a net zero carbon economy. Therefore, gas could benefit from public support, but only under strict conditions, to avoid lock-in effects and displacing investments into cleaner alternative sources of energy. Other fossil fuels would in principle no longer be aided, as the negative effects of the aid would unlikely be offset, except to facilitate their phasing out.
The Covington team will continue monitoring the developments and will keep you updated.