Carbon Leakage - State Aid Rules Print

 

Core assumptions in brief

 

The core assumptions of the new framework for state aid rules regarding undertakings in sectors and subsectors deemed to be exposed to a significant risk of carbon leakage due to EU ETS allowance costs passed on in electricity prices (aid for indirect emission costs) are:

 

1. rules apply only to the specific aid measures provided for in the context of implementation of the ETS Directive (2003/87/EC),

 

2. only sectors explicitly stated are eligible for aid,

 

3. full compensation isn’t provided for (compensation is degressive, starting at 85% of eligible costs for 2013-2015, 80% for 2016-2018 and 75% for 2019-2020),

 

4. compensation is based on efficiency benchmarks,

 

5. decision to implement concrete State aid measures is left to the discretion of each Member State (which can decide freely whether to put in place specific measures or not, and to what extent).

 

Objective of the Aid

 

The objective of the aid is to prevent a significant risk of carbon leakage due to EUA costs passed on in electricity prices supported by the beneficiary, if its competitors from third countries do not face similar CO2 costs in their electricity prices and the beneficiary is unable to pass on those costs to product prices without losing significant market share.

 

General Requirements

 

State aid may be declared compatible with the internal market within the meaning of Article 107(3)(c) of the Treaty on the Functioning of the European Union (Treaty) if it leads to increased environmental protection (reduction of greenhouse gas emissions) without adversely affecting trading conditions to an extent contrary to the common interest.

In assessing the compatibility of an aid measure, the European Commission is obliged to balance the positive impact of the aid measure in reaching an objective in the common interest against its potentially negative side effects, such as distortion of trade and competition.

 

Period of Application

 

The European Commission will apply the Guidelines from 6 July 2012. The rules in question will be applicable until 31 December 2020 (if not amended before that date). The European Commission will apply Guidelines to all notified aid measures in respect of which it is called upon to take a decision after 5 June 2012, even where the projects were notified prior to their publication. Duration of aid schemes must not be longer than the duration of Guidelines.

The Commission will apply the rules set out in the Commission Notice on the determination of the applicable rules for the assessment of unlawful State aid to all unlawful aid.


Sectoral Coverage

 

Aid is available for sectors and subsectors listed in Annex II do the Guidelines (download the list of sectors and subsectors eligible for aid).

 

Significant risk of carbon leakage is considered to exist only if the beneficiary is active in a sector or subsector listed in the above-mentioned Annex II.

 

Formula for the Calculation of the Aid

 

The maximum aid payable per installation for the manufacture of products must be calculated according to the following formula and for year t equals:


Aid intensity at year t, expressed as a fraction (e.g. 0,8)

times

CO2 emission factor (tCO2/MWh) (at year t)

times

EUA forward price at year t-1 (EUR/tCO2)

times

Product-specific electricity consumption efficiency benchmark (MWh/tonne) listed in Annex III to the Guidelines

times

Baseline output

 

Where Product-specific electricity consumption efficiency benchmark listed in Annex III to the Guidelines is not applicable to the products manufactured by the beneficiary, in the above formula the parameter for:

 

- Product-specific electricity consumption efficiency benchmark defined in Annex III to the Guidelines is replaced by fall-back electricity consumption benchmark (if, however, an installation manufactures products for which an electricity consumption efficiency benchmark listed in Annex III is applicable and products for which the fall back electricity consumption efficiency benchmark is applicable, the electricity consumption for each product must be apportioned according to the respective tonnage of production of each product), and

 

- Baseline output is replaced by Baseline electricity consumption.

 

Maximum Aid Intensity

 

Aid intensity must not exceed 85 % of the eligible costs in 2013, 2014 and 2015, 80 % of the eligible costs in 2016, 2017 and 2018 and 75 % of the eligible costs in 2019 and 2020.

 

Such assumption implies inherently that not all costs of undertakings in sectors deemed to be exposed to a significant risk of carbon leakage due to EU ETS allowance costs passed on in electricity prices will be reimbursed through the aid. The scale for this risk corresponds to the remaining fraction of these costs (respectively 15%, 20% and 25% in the timelines as above).

 

Member State must demonstrate that the aid amount to the beneficiary is limited to the minimum necessary.

 

The aid ceilings set out must not be exceeded regardless of whether the support is financed entirely from State resources or is partly financed by the Union.

 

Aid deemed to be compatible under the Guidelines may not be combined with other State aid within the meaning of Article 107(1) of the Treaty or with other forms of financing from the Union if such overlapping results in aid intensity higher than that laid down  above. However, where the expenditure eligible for aid for measures covered by the Guidelines is eligible in whole or in part for aid for other purposes, the common portion will be subject to the most favourable aid ceiling under the applicable rules.

 

If an installation manufactures products that are eligible for aid and products that are not eligible for aid, the maximum aid payable shall be calculated only for the products that are eligible for aid.

 

Other Issues

 

Aid may be paid to the beneficiary in the year in which the costs are incurred or in the following year. If aid is paid in the year in which the costs are incurred, an ex-post payment adjustment mechanism must be in place to ensure that any overpayment of aid will be repaid before 1 July in the following year.

 

 

See also:

 

Commission Decision determining a list of sectors and subsectors which are deemed to be exposed to a significant risk of carbon leakage

 

Final report 'Support to the Commission for the determination of the list of sectors and subsectors deemed to be exposed to a significant risk of carbon leakage for the years 2015-2019 (EU Emission Trading System)' dated January 2013.

 

 

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Last Updated on Friday, 17 July 2015 11:27
 

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