The Guidelines on State Aid for Climate, Environmental Protection, and Energy 2022 were adopted by the European Commission (“Commission”) on January 27, 2022.CEEAG“). They replace the Guidelines for State Aid for Environmental Protection and Energy 2014-202020 (“EEAG“).
The European Green Deal has established ambitious climate and energy targets, including reducing greenhouse gases emissions by 55% by 2030. These priorities, according to the Commission, will require 350 million euro more annually in additional investment. This will have an impact on all sectors of society. This investment challenge will require both public and private funding. Businesses will have greater opportunities to receive State aid.
The CEEAG outlines the conditions that the Commission uses to evaluate the compatibility of notifiable assistance for climate, environment protection and energy (i.e. aid that requires pre-approval by the Commission). Projects that are not subject to a notification obligation are exempted from the General Block Exemption Regulation (GBER), which is currently being revised.
A Broadened Scope
- There are several types of aid:The CEEAG covers thirteen categories, compared with nine in the EEAG. The CEEAG covers 13 new categories. This is in addition to the nine that are covered by the EEAG. Aid in the form a reduction in electricity levies to energy-intensive users is now an independent category. This covers more types of levies but fewer sectors. However, the CEEAG will not apply to sector-specific rules that contain provisions about energy and environmental protection. However, certain categories of aid, such as State aid for research, development, and innovation (dealt with under the Framework for R&D&I—in the process of being revised), or State aid for nuclear energy are outside the scope of the CEEAG.
- Instruments of aidYou can now use a wider range of aid instruments. These include Decarbonisation aid in contracts for difference. If the reference price (e.g. market price) exceeds that set in the contract, the beneficiary may have to pay back the State.
- Cost coverage:As a rule of thumb, the aid will cover 100% the funding gap (i.e. net extra cost compared against the counterfactual scenario where no aid was granted).
Compatibility Assessment
The compatibility assessment is a 3-step process:
- Step 1The aid must be used to promote an economic activityPositive condition). The aid must induce the beneficiary to engage more environmentally-friendly activities than in the counterfactual scenario. A public consultation is required before notification of Decarbonisation aid measures exceeding certain thresholds as of July 1, 2023 (some exceptions).
- Step 2: The aid should not adversely affect trading conditions in a way that is contrary to the common interest.negative condition). The aid must address market failures that remain. It cannot be used to replace existing policy measures or aid instruments. Its amount must not exceed what is necessary. The Commission will perform a detailed evaluation of the additional cost to the recipient if the aid was not granted through a competitive bidding procedure. The maximum duration of approved measures is 10 years. A re-notification is required in order to extend the measure.
- Step 3: The positive effects on competition and trade of the aid are weighed against their negative effects (Balance test), applying the “do no significant harm” principle. In order to phase out fossil fuels, it is unlikely that measures that support them will be considered compatible. This is true for any new investments in natural gaz, unless the Member state establishes that it will contribute toward achieving the 2030 and 2050 climate targets.
The CEEAG also established specific rules for each of 13 aid categories.
Aid schemes that have a high potential for distortion, large budgets or other novel characteristics may also be considered.
Schemes that will be applied in markets where significant technological, regulatory, or market change is expected may be subject to an advisory. Ex postEvaluation by an independent expert may be required. In the absence of competitive bidding, individual notification may be required.
The CEEAG allows member states to align existing aid programs with the CEEAG until December 31, 2023. The Commission proposes appropriate measures to the Member States affected, in accordance to Article 108(1) of the Treaty on the Functioning of the European Union. These measures are accepted by the Member states within two months of the publication of the CEEAG (“OJEU”) in the Official Journal of the European Union (“OJEU”) and a summary notice of the Commission decision confirming that finding is published in the OJEU. However, the full text of the Commission decision can be found on the Commission website. Businesses who wish to take advantage of existing aid programs that fall under the CEEAG’s purview should be aware of any changes to these programs. Businesses should be aware that the CEEAG is complex, and can bring about significant changes. Therefore, it is important for businesses to plan ahead and adapt their funding requests to ensure compliance with the CEEAG text. See our recent CEEAG update for more information. Commentary.