EU endorses new climate, environmental protection and energy guidelines for state aid

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The European Commission’s College of Commissioners endorsed on December 21 the new Guidelines on State aid for climate, environmental protection and energy (CEEAG). The CEEAG will be formally adopted in January 2022 and will be applicable from that moment.

“Europe will need a considerable amount of sustainable investments to support its green transition,” EU Commission Executive Vice-President Margrethe Vestager, in charge of competition policy, said. “Although a significant share will come from the private sector, public support will play a role in ensuring that the green transition happens fast. The new Guidelines endorsed today will increase everything we do to decarbonize our society. Among others, they will facilitate investments by Member States, including in renewables, to accelerate the achievement of our Green Deal, in a cost-effective way. This is a major step to ensuring that our State aid rules play their full role in supporting the European Green Deal,” she added.

According to the Commission, the new rules involve an alignment with the important EU objectives and targets set out in the European Green Deal and with other recent regulatory changes in the energy and environmental areas and cater for the increased importance of climate protection. The new rules create a flexible, fit-for-purpose enabling framework to help Member States provide the necessary support to reach the European Green Deal objectives in a targeted and cost-effective manner.

The State aid rules endorsed on December 21 support projects for environmental protection, including climate protection and green energy generation. They include sections to support the decarbonization of the economy in a broad and flexible manner open to all technologies that can contribute to the European Green Deal, including renewables, energy efficiency measures, aid for clean mobility, infrastructure, circular economy, pollution reduction, protection and restoration of biodiversity as well as measures to ensure security of energy supply. The rules aim at helping Member States meet their ambitious EU energy and climate targets, at the least possible cost for taxpayers and without undue distortions of competition in the Single Market. The Guidelines also aim at facilitating the participation of renewable energy communities and SMEs, as important drivers for the green transition.

The revised Guidelines include important adjustments to align the rules with the Commission’s strategic priorities, in particular those set out in the European Green Deal, and with other recent regulatory changes and Commission proposals in the energy and environmental areas, including the Fit for 55 package.

In particular, the new guidelines broaden the categories of investments and technologies that Member States can support to cover all technologies that can deliver the European Green Deal. A new single section covers the reduction or avoidance of greenhouse gas emissions, facilitating the assessment of measures supporting the decarbonization of different sectors of the economy, including through investments in renewable energy, energy efficiency in production processes and industrial decarbonization, in line with the European Climate Law. The revised rules generally allow for aid amounts up to 100% of the funding gap, especially where aid is granted following a competitive bidding process, and introduce new aid instruments, such as Carbon Contracts for Difference to help Member States respond to the greening needs of industry.

The new guidelines also cover aid for 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 feature dedicated sections for aid incentivising investments in flagship areas such as energy performance of buildings, and clean mobility, covering all transport modes.

The new Guidelines on State aid for climate, environmental protection and energy introduce changes to the current 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 ambitious than in the EU. In order to cater for the enhanced decarbonization efforts required to meet the EU climate targets, the CEEAG cover the reductions in all levies financing decarbonization and social policies. Furthermore, with a view to enable Member States to maintain a level playing field, and based on objective indicators at sector level, the CEEAG have streamlined the number of eligible sectors. The rules have also been reviewed to better sustain the progressive decarbonization of these companies by, among others, linking levy reductions to commitments by the beneficiaries to reduce their carbon footprint.

The CEEAG introduce safeguards to ensure that the aid is effectively directed where it is necessary to improve climate and environmental protection, is limited to what is needed to achieve the environmental goals and does not distort competition or the integrity of the Single Market. In this respect, the CEEAG will for example enhance stakeholder participation in the design of large aid measures requiring Member States to consult stakeholders on their main features.

Moreover, they ensure coherence with the relevant EU legislation and policies in the environmental and energy fields, by, among others, ending subsidies for the most polluting fossil fuels, for which a positive assessment by the Commission under State aid rules is unlikely in light of their important negative environmental effects. 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 CEEAG also include a new section on aid for the closure of coal, peat and oil shale plants to facilitate decarbonization in the power sector.

Also, the new guidelines increase flexibility and streamline the previous rules, also by eliminating the requirement for individual notifications of large green projects within aid schemes previously approved by the Commission.

The Guidelines specifically mention revenue stabilisation mechanisms in the form of two-sided Contracts for Difference (CfD) as a good model to support the further expansion of renewables.

“National Governments can continue with technology-specific auctions: good. They’re critical to the visibility of the industry and preserving and expanding the European wind supply chain” WindEurope Chief Policy Officer Pierre Tardieu said.

Price will continue to be the lead criterion for allocating public support to wind energy projects, but not the only one. The European Commission decided to allow for up to 30% of non-price-based criteria to be introduced to national auctions.

“The European Commission allows for qualitative criteria in competitive wind energy auctions. That’s good. It will continue to ensure that the energy transition is delivered at the lowest cost for society,” Tardieu said, adding, “At the same time, it allows National Governments to consider whether they want to factor in sustainability, system integration or activation of the economy in their auctions”.

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