The European Commission is set to unveil new guidelines on State Aid for climate, environmental protection and energy before the end of the year.
These guidelines are part of the instruments to help the European Union achieve climate neutrality by 2050 and reduce its greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels, both of which became legally binding with the European Climate Law (see EUROPE 12750/27).
Effective from 1 January 2022, these revised guidelines on State Aid in these areas will aim to support, among other things, the production of renewable and low-carbon energy and industry’s efforts towards decarbonisation, circularity and biodiversity, reveals the draft guidelines obtained by EUROPE.
The draft supports the phasing out of fossil fuels, claiming that state support for projects involving these fuels, especially the most polluting ones such as oil, coal and lignite, is unlikely to be found compatible with State Aid rules. More generally, the Commission may, where appropriate, take negative externalities into account when assessing the negative effects of the aid on competition and trade.
According to the draft document, the Commission believes that decarbonisation aid can unduly distort competition “where it displaces investments into cleaner alternatives that are already available on the market, or where it locks in certain technologies, thereby impeding the wider development of a market for cleaner technologies and their use”. The Commission will therefore verify that the aid measure does not stimulate or prolong the consumption of fossil fuels and energy, thus hindering the development of cleaner alternatives.
“Member States should explain how they intend to avoid that risk, including by way of binding commitments to use mainly renewable or low-carbon fuels or phase out fossil fuel sources”, the draft states.
The Commission considers that some aid measures have negative effects on competition and trade that cannot be offset. In particular, some aid measures can exacerbate market failures, creating inefficiencies to the detriment of consumers and social welfare. For example, “measures that incentivise new investments in energy or industrial production based on the most polluting fossil fuels, such as coal, diesel, lignite, oil, peat and oil shale, increase the negative environmental externalities in the market”, according to the draft guidelines. These measures will not be considered to have positive environmental effects, given the incompatibility of these fuels with the EU’s climate objectives.
Similarly, measures that encourage new investments in fossil gas-based energy or industrial production may reduce emissions of greenhouse gases and other pollutants in the short term, but worsen negative environmental externalities in the longer term, compared to alternative investments.
For fossil gas investments to be considered environmentally positive, Member States will have to explain how they will ensure that the investment contributes to the 2030 climate target and the EU’s climate neutrality objective. In particular, Member States should explain how a lock-in of such gas-fired power generation or generation equipment will be avoided. This may include, for example, a national decarbonisation plan with binding targets and/or binding commitments by the beneficiary to implement decarbonisation technologies such as carbon capture, utilisation and storage (CCUS), to replace fossil gas with renewable or low-carbon gas, or to close the plant within a timeframe compatible with the EU’s climate objectives.
The commitment should include one or more credible emission reduction steps towards climate neutrality by 2050.
Biomass
The production of biofuels from food and feed crops can create additional demand for land and lead to the expansion of agricultural land into areas with high carbon stocks, such as forests, wetlands and peatlands, resulting in additional greenhouse gas emissions.
According to the draft text, support for biofuels, bioliquids, biogas and biomass fuels can only be approved “to the extent that the aided fuels are compliant with the sustainability and greenhouse gases emissions saving criteria in Directive (EU) 2018/2001 (Renewable Energy Directive - RED II)”.
The Commission also considers that some aid measures may aggravate indirect negative externalities. It will therefore consider, in principle, that support for biofuels, bioliquids, biogas and biomass fuels exceeding the ceiling defining their eligibility for the calculation of gross final consumption of energy from renewable sources in the Member State concerned is not likely to produce positive effects which could offset the negative effects of the measure.
The draft guidelines also foresee maintaining exceptions to the obligation to allocate aid through tenders, in particular for electricity generation or storage projects with an installed capacity of 1 MW or less.
Grants can be given for energy efficiency improvements in buildings. This support can be combined with support for any or all of the measures (integrated on-site renewable energy installations, installation of energy storage equipment, recharging infrastructure, on-site digitisation of the building...).
Link to the draft guidelines: https://bit.ly/313uPgA (Original version in French by Lionel Changeur and Damien Génicot)