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Compensating national expenses for energy-intensive companies (within the state-aid rules) for higher electricity prices resulting from indirect emission costs is allowed under the EU Emission Trading System. The rules also prevent these companies from relocating their production to countries outside the EU with less ambitious climate policies. The EU measures will facilitate a cost-effective decarbonisation of the member states’ economies in line with the “green deal” objectives, while limiting possible distortions of competition.
In order to prevent EU state aid from distorting competition in the internal market and affecting trade between the member states in a way which is contrary to the common interest, the EU Treaties lay down the principle that the “state aid” is generally prohibited (with some exceptions) unless the Commission decides that such aid is compatible with the internal market.
The EU Treaties also provide for conditions under which the state aid is or may be considered compatible with the internal market. The Commission may consider that state aid could facilitate the development of certain economic activities compatible with the internal market, where such aid does not adversely affect trading conditions.
The European “green deal”, which exists from the end of 2019, is aimed at making the EU states climate-neutral economies by 2050. In this ambitious and noble “deal with the states”, the Commission established the emission-trade-system (EU ETS) as a cornerstone of the EU’s policy to combat climate change and a key tool for curbing greenhouse gas emissions in a most cost-effective way.
In September 2020, the Commission adopted revised ETS State Aid Guidelines specifically for greenhouse gas emission allowance trading post-2021, as part of the modernisation of all carbon leakage prevention tools related to the EU ETS, such as free allocation of CO2 emission allowances. The revised ETS State Aid Guidelines entered into force in January 2021 with the start of the new EU ETS trading period; the guidelines will apply until 2030, with a mid-term update of certain elements foreseen for 2025.
Besides, at the end of June 2021, the European Parliament and the Council adopted the European climate legislation with the binding target to cut emissions by at least 55% by 2030, compared to 1990 levels; the so-called “fit-for-55” proposal.
Covering indirect emission costs
The EU funds will cover part of the higher electricity prices arising from the impact of carbon prices on electricity generation costs (so-called ‘indirect emission costs’) incurred between 2021 and 2030. The support measure is aimed at reducing the risk of ‘carbon leakage’, where companies relocate their production to countries outside the EU with less ambitious climate policies, resulting increased greenhouse gas emissions globally. The measure will benefit companies active in sectors at risk of carbon leakage (they are listed in the Guidelines on certain State aid measures in the context of the greenhouse gas emission allowance trading scheme post-2021 (‘ETS State aid Guidelines’). Those sectors could face significant electricity costs and particularly exposed to international competition.
More in Communication on guidance in: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52020XC0925%2801%29
The compensation is granted to eligible companies through a partial refund of the indirect emission costs incurred in the previous year, with the final payment to be made during 2026-31. The maximum aid amount is generally equal to 25-75 % of the indirect emission costs incurred. However, in some instances, the maximum aid amount can be higher to limit the remaining indirect emission costs incurred to 1.5 % of the company’s gross value added. The aid amount is calculated based on electricity consumption efficiency benchmarks, which ensure that the beneficiaries are encouraged to save energy. The beneficiaries bear a certain share of their indirect emission costs, corresponding to 1 GWh of electricity consumption per year, for which no aid will be granted.
Moreover, no aid will be granted for the consumption of self-generated electricity from installations put into operation before 1 January 2021, for which the beneficiary is entitled to remuneration under the national renewable energy legislation.
Qualification for compensation
Depending on the country, in order to qualify for compensation, companies (e.g. in Germany) will have to either: a) implement certain measures identified in their ‘energy management system’ (i.e. the companies’ plan setting energy efficiency objectives and a strategy to achieve them), or b) cover at least 30% of their electricity consumption with renewable sources (through on-site renewable energy generation facilities, power purchase agreements or guarantees of origin). Furthermore, as of 2023, companies must make additional investments so that totally they invest at least 50 % of the aid amount to implement economically feasible measures identified in the energy management system or decarbonize their production process.
Finish companies, in order to qualify for compensation, will have to either: a) demonstrate that their installations’ greenhouse gas emissions are below the applicable benchmark used for free allocation in the EU ETS, or b) cover at least 30% of their electricity consumption with carbon-free sources (through on-site or near-site renewable energy generation facilities, carbon-free power purchase agreements or guarantees of origin). Moreover, all companies must make additional investments so that, in total, they invest at least 50 % of the aid amount in measures promoting carbon neutrality, and thus companies that were below the applicable benchmark will reduce further the emissions to a level well below the applicable benchmark.
German example
The scheme notified by Germany, with a total estimated budget of €27.5 billion, will cover part of the higher electricity prices arising from the impact of carbon prices on electricity generation costs (so-called ‘indirect emission costs’) incurred since 2021. The support measure is aimed at reducing the risk of ‘carbon leakage’, where companies relocate their production to countries outside the EU with less ambitious climate policies, resulting increased greenhouse gas emissions globally.
Reference to: https://ec.europa.eu/commission/presscorner/detail/en/IP_22_4925
The Finnish measure
The scheme notified by Finland, with a total estimated budget of €687 million, cover part of the higher electricity prices arising from the so-called ‘indirect emission costs’ from 2021 and 2025. The compensation will be granted to eligible companies through a partial refund of the indirect emission costs incurred in the previous year, with the final payment to be made in 2026. The maximum aid amount per beneficiary will be equal to 25 % of the indirect emission costs incurred. The total aid amount granted under the scheme cannot exceed €150 million per year. The EU aid is calculated based on electricity consumption efficiency benchmarks, which ensure that the beneficiaries are encouraged to save energy.
Source: https://ec.europa.eu/commission/presscorner/detail/en/IP_22_4926
The Dutch measure
The scheme notified by the Netherlands, with a total estimated maximum budget of €834.6 million, will cover part of the higher electricity prices arising from the impact of so-called ‘indirect emission costs’ incurred during 2021-25. The support measure is aimed at reducing the risk of ‘carbon leakage’, where companies might relocate their production to countries outside the EU with less ambitious climate policies.
The compensation will be granted to eligible Dutch companies through a partial refund of the indirect emission costs incurred in the previous year, with the final payment to be made in 2026. The maximum aid amount will be equal to 75 % of the indirect emission costs incurred. The aid amount is calculated based on electricity consumption efficiency benchmarks, which ensure that the beneficiaries are encouraged to save energy. The beneficiaries will have to bear a certain share of their indirect emission costs, corresponding to 1 GWh of electricity consumption per year, for which no aid will be granted.
As in the previous examples, in order to qualify for compensation, Dutch beneficiaries have to reduce their greenhouse gas emissions by 3 % per year compared to 2020 level. In addition, beneficiaries have to demonstrate that they either: a) cover at least 30 % of their electricity consumption with carbon-free sources (through on-site or near-site renewable energy generation facilities or carbon-free power purchase agreements), or b) invest at least 50 % of the aid amount in projects that lead to substantial reductions of their installation’s greenhouse gas emissions well below the applicable benchmark for free allocation in the EU ETS.
Source: https://ec.europa.eu/commission/presscorner/detail/en/IP_22_4928