Climate, Environmental protection and Energy State Aid: New Commission Guidelines

On 21 December 2021 the European Commission (Commission) published the new Climate, Environmental protection and Energy State Aid Guidelines (CEEAG) and formally adopted them on 27 January 2022. These guidelines shall replace the Energy and Environmental State Aid Guidelines (EEAG), which had been in place since 2014 (press release). The guidelines support the development of Member States aid programmes, that conveniently and efficiently promote the goals set by the European Green Deal, without competition being significantly distorted.

In accordance with Article 107 (1) TFEU, State aid is in principle prohibited. However, the Commission may declare state aid compatible with the internal market and, thus, authorise it under Article 107 (3) (c) TFEU if the aid facilitates the development of an economic activity without adversely affecting trading conditions to an extent contrary to the common interest. In the new CEEAG, the Commission sets out the revised assessment criteria that it will apply in future as a basis for considering State aid in the areas of climate, environmental protection and energy to be compatible with the internal market outside the scope of the General Block Exemption Regulation (GBER). State aid falling within the scope of the GBER can be implemented by Member States without prior notification to the Commission. The GBER is also currently being revised for the areas of climate, environmental protection and energy.

The granting of subsidies by Member States in these areas, both by the GBER and by the requirements in the CEEAG, has a simple reason: To realize the goals of the European Green Deal as quickly as possible, Europe needs state support from EU Member States in addition to private investment.

As the draft from 7 June 2021, the final version of the CEEAG also contains new sections that provide a better overview and also include new aid categories and provisions. For instance, the Commission expands the scope of the Guidelines to include all technologies that support the European Green Deal. The new sections are preceded by a general section that stipulates common criteria (such as that a detailed assessment of the extra cost on the basis of a contrafactual analysis will only be required for aid that is not granted following a competitive bidding process). In this context, the guidelines now explicitly stipulate that the aid measure must not infringe relevant EU environmental and energy legislation and policies.

The new sections deal i.a. with State aid for the improvement of the energy and environmental performance of buildings (4.2), aid for clean mobility (4.3), aid for resource efficiency and for supporting the transition towards a circular economy (4.4), aid for the prevention or the reduction of pollution other than from greenhouse gases (4.5), aid for the remediation of environmental damage, for natural habitats and ecosystems, biodiversity and the implementation of nature-based solutions for climate change adaption and mitigation (4.6) as well as 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 (4.12). The common assessment criteria are specifically complemented for the sectors captured by the respective sections, e.g., by setting specific targets that must be reached. The section for aid for the reduction and removal of greenhouse gas emissions including through support for renewable energy and energy efficiency (4.1) not only facilitates the assessment of measures taken by different sectors of the economy, but also extends to new instruments such as Carbon Contracts for Difference.

Further, the Commission revised the provisions on State aid in the form of reductions from electricity levies for energy-intensive users (4.11). Member States reduce those levies – that fund decarbonisation or social measures – to prevent certain energy-intensive industries from moving to third countries where environmental regulations are less stringent than in the EU. Thus, these rules are intended to create a balance between the competitiveness of the European economy on the one hand and the goals of the Green Deal on the other. For companies that do not (yet) meet the newly stipulated requirements, a transitional plan may be established to avoid disruptive changes. At the sectoral level, the Commission has also significantly minimized the economic sectors eligible for State aid, although not as drastically as in the previous CEEAG draft. In this regard, the guidelines differentiate between sectors subject to risk and sectors subject to significant risk.

To ensure that aid is used in a way that improves climate and environmental protection, various safeguards (such as stakeholder participation in the design of large aid measures) have been stipulated. As usual, aid within the scope of the CEEAG must be used only to achieve the stated objectives and must be limited to what is necessary for that purpose. Finally, the Commission requires the Member States to adapt their existing aid schemes to the new requirements as of 2024.

According to the Commission, measures that meet the requirements of the Regulation (EU) 2020/852 (Taxonomy Regulation) will profit from a simplified assessment under State aid law. In that regard, the Commission presented a Delegated Act on 2 February 2022 (press release), according to which, under certain conditions, private investments in nuclear power plants and gas-fired power plants are to be considered sustainable under the Taxonomy Regulation.

However, there may also be State aid law restrictions for the public funding of measures that are assessed as sustainable by the taxonomy. For example, subsidies for renewable energies must in general be granted through competitive tenders. Also, the Commission has indeed extended the scope of the guidelines to all technologies that support the European Green Deal, yet, nuclear energy is explicitly excluded. Nevertheless, the guidelines may be applicable in cases where, e.g., hydrogen is produced through electrolysis powered by nuclear energy. For natural gas, the guidelines permit State aid under certain conditions as a transitional solution on the way to more renewable energies. Projects including natural gas must prevent a lock in effect for polluting energy, for example, by showing a clear path to decarbonisation. At the same time, projects can be supported in accordance with the CEEAG that do not comply with the taxonomy provided that certain conditions are met. Even the most environmentally damaging fossil fuels are not generally excluded; however, according to the Commission, a positive assessment under State aid law in these cases is rather unlikely.

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The EU/COMP team of Chatham Partners has longstanding expertise in complex State aid matters and proceedings and proven practical experience in the sectors and areas covered by the CEEAG. Please do not hesitate to contact us to find out how we can support your company.