Guidelines on certain State aid measures in the context of the system for greenhouse gas emission allowance trading post 2021
- Category: European Union Carbon Market Glossary
Guidelines on certain State aid measures in the context of the system for greenhouse gas emission allowance trading post 2021 cover the following aid measures:
1. aid to compensate for increases in electricity prices resulting from the inclusion of the costs of greenhouse gas emissions due to the EU ETS (commonly referred to as ‘indirect emission costs’),
2. aid involved in the optional transitional free allocation for the modernisation of the energy sector.
Aid to compensate for increases in electricity prices resulting from the inclusion of the costs of greenhouse gas emissions due to the EU ETS (commonly referred to as ‘indirect emission costs’)
Under Article 10a(6) of Directive 2003/87/EC, Member States should adopt financial measures in favour of sectors or subsectors which are exposed to a genuine risk of carbon leakage due to significant indirect costs that are actually incurred from greenhouse gas emission costs passed on in electricity prices, provided that such financial measures are in accordance with State aid rules, and in particular do not cause undue distortions of competition in the internal market.
Read more on Carbon Leakage - EU ETS State Aid Rules
Aid involved in the optional transitional free allocation for the modernisation of the energy sector
Under Article10c of the ETS Directive, Member States fulfilling certain conditions relating to the level of GDP per capita in comparison to the Union average, may derogate from the principle set out in the second subparagraph of Article 10a(1) of Directive 2003/87/EC that no free allocation is to be made in respect of any electricity production. Those Member States may give a transitional free allocation to installations for electricity generation for the modernisation, diversification and sustainable transformation of the energy sector. As already established in a number of Commission decisions, the granting of transitional free allowances to the energy sector involves State aid within the meaning of Article 107(1) of the Treaty, because Member States forego revenues by granting free allowances and give a selective advantage to energy actors. Those actors may compete with energy actors in other Member States, which may, as a result, distort or threaten to distort competition and affect trade in the internal market.
Sectors deemed to be exposed to a genuine risk of carbon leakage due to indirect emission costs according to the European Commission’s draft of 14 January 2020 (NACE codes in brackets):
- Manufacture of leather clothes (14.11),
- Aluminium production (24.42),
- Manufacture of other inorganic basic chemicals (20.13),
- Lead, zinc and tin production (24.43),
- Manufacture of pulp (17.11),
- Manufacture of paper and paperboard (17.12),
- Manufacture of basic iron and steel and ferro-alloys (24.10),
- Manufacture of refined petroleum products (19.20).
The methodology used to establish the list of eligible sectors relies on the carbon leakage indicator as defined in Article 10b of the revised ETS Directive, calculated based on indirect cost only, as a starting point. The indirect carbon leakage indicator required for eligibility is 0.2. In addition, eligible sectors need to have a trade intensity of at least 20% and an indirect emission intensity of at least 1 kgCO2/EUR. These values are calculated at NACE code 4 level using the dataset also used for establishing the Carbon Leakage List used for the allocation of free ETS allowances.