State aid for energy-intensive users: between an industrial policy measure and an environmental enhancing measure
Dr. Valentina Sansonetti, European Commission
The Renewable Energy Directive has set ambitious renewable energy sources (RES) targets and in order to reach these binding targets most Member States grant support to RES generation. This might qualify as State aid to the producers of renewable energy sources. Such support is often financed through a levy on the electricity bills, meaning that the cost of the levies to finance such support is ultimately borne by the energy users (“final consumers”). Some of these final consumers can however be partially exempted from these levies. Also this can be qualified as State aid if the waiving of charges is in favour of consumer-undertakings and the other conditions set out in Article 107 TFEU are fulfilled. However, this aid can be qualified as compatible with the internal market. In fact under the 2014 Energy and Environment State Aid Guidelines (EEAG), the Commission can authorise Member States to partially compensate energy-intensive users (EIUs) for the cost they bear to finance RES support that are passed on in the electricity price. The present contribution will only deal with the second aid measure.
EIUs may be particularly affected by the costs borne because of the levy to finance RES support, due to their high electricity consumption and exposure to competition from non-EU undertakings which are not subject to these costs. The EEAG accordingly allows Member States to partially compensate for these costs to avoid that they are put at a significant competitive disadvantage and that the financing of renewable support may be unsustainable.
On the one hand, the major environmental concern seems to rest on the fact that a possible relocation of such EIUs outside the concerned Member State would entail a transfer of emissions to countries where there are no environmental protection standards, or where these standards are less stringent then in the EU, thus contributing to growing emissions and increased overall environmental pollution. On the other hand, the other underlying reason for allowing this type of aid is based on economic grounds. It is argued that, in the absence of such support, the affected undertakings are likely to become less competitive and will be forced to cease trading with adverse effects especially in terms of reduction in output and environmental charges, which finance environmental and climate change policies in the concerned Member States.
Against this framework, the Commission has already approved, under the new EEAG, the partial compensation schemes laid down by several Member States, including Germany, Romania, Denmark and the UK. The planned compensation schemes in other Member States are currently under assessment. As we will describe in the next chapter, in the past the Commission adopted a different approach when assessing similar, albeit non-identical, support measures.
2. Past case practice: is 2011 the dividing line?
The reduction of the charges levied by Member States in order to finance RES support schemes normally constitute operating aid for large energy-intensive companies. According to the case-law, operating aid does not fall within the scope of art 107(3) TFEU, as the effect of such aid is in principle to distort competition in the sector in which it is granted, whilst nevertheless being unable to achieve any of the objectives listed in article 107(3) TFEU..
In the past the Commission authorised operating aid only in very specific situations, where the particular distortive effect of operating aid was balanced by particularly important benefits for the common interest.
Since the Alcan decision in 1986 the Commission has taken the view that operating aid for energy-intensive companies cannot be declared compatible with the internal market. Along the same lines, the Commission decided that operating aid in the form of reduced electricity tariffs for aluminium production in Italy (Sardinia) and Greece were not compatible with the internal market. In policy terms, these cases (confirmed by the case-law) are important because they regard the Commission’s refusal to authorize operating aid given under the form of electricity price subsidies in favour of certain energy-intensive industries based on the alleged “imperfect state of liberalization” of the EU electricity market or the threat of relocation outside the European Union. State aid control aims generally at preventing this type of aid liable to generate subsidy races between Member States.
With reference to reductions of parafiscal levies having the specific purpose of financing support for RES, in 2011 the Commission decided that a partial exemption from the obligation to purchase green electricity for energy-intensive businesses given by Austria constituted operating aid and resulted in the imposition of a higher burden on other electricity consumers without providing any environmental benefit. According to the Commission, such forms of exemption “may even harm the environment by lowering the incentives for energy saving”. Therefore, at that time, Austria was forbidden to go ahead with the implementation of such measure under the 2008 Environmental State Aid Guidelines.
3. The EEAG and new case practice
In 2013/2014, in view of reviewing the 2008 Environmental State Aid Guidelines, the Commission conducted an extensive open consultation. In this context it was raised that mechanisms to support national industries against the increasing costs linked to electricity were needed. EIUs in fact play a major role in terms of national employment and GDP and their relocation might affect greatly the economy of a Member State. Indeed, some Member States adopted some kind of supporting measures already before the adoption of the revised EEAG.
The Commission in April 2014 released the new EEAG which includes a chapter on State aid to partially relieve certain undertakings from financing RES support schemes. The Commission in setting out on which conditions financial compensation for EIUs can be granted aims at ensuring that State aid rules are correctly applied and respected by all Member States. By doing so the Commission provides a framework within which Member States can grant compensation while at the same time maintaining a level playing field in the European Union. The Commission has therefore formally recognised that those companies are generally put at a competitive disadvantage globally and deserve a special treatment when it comes to surcharge to fund RES support schemes which became too costly as of 2011.
The EEAG entered into force on 1 July 2014, however the rules for EIUs apply retroactively to all ongoing and past cases even to the ones that have not been notified before implementation and which normally under State aid discipline, should be assessed according to the rules applicable at the time of granting the aid.
Those aid measures granted in the past without a legal basis for compatibility will have to progressively comply with the requirements set forth in the EEAG from the granting moment (which could well be prior to the entry into force of EEAG) until the end of 2018.
The EEAG indicates that “all aid granted in the form of reductions in funding support for electricity from renewable sources prior to 1/1/2011 can be declared compatible with the internal market”. In this context the Commission substitutes its case-by-case assessment working under the assumption that “by 5 December 2010, the Member States had to bring into force the laws, regulations and administrative provisions necessary to comply with the RED, which introduces legally binding targets for consumption of renewable energy. On the other hand, the total costs for the support of the production of electricity from renewable sources remained rather limited until the year 2010, so that the level of charges remained relatively low. Therefore, the amount of aid granted to undertakings in the form of reductions in funding support for electricity from renewable sources remained limited at the level of the individual beneficiary”.
The EEAG defines ex ante quite a tight framework for the compatibility of such aid measures in terms of qualifying conditions for the eligible beneficiaries. First of all according to those rules, undertakings can benefit from reductions only on the charges financing RES support. Therefore even in case the surcharge happens to cover the financing of other measures such as research and development, transmission charges, nuclear decommissioning, islands interconnection, the Member State should be able to allocate a certain amount to the RES funding. Secondly, only electro-intensive users can benefit from such reductions in the RES charges. Thirdly, with the aim to reach a level playing field, the EEAG pre-selected the business sectors which qualify ex ante as eligible to this form of aid. The list of these sectors has been annexed to the EEAG. These are sectors which are exposed to a risk to their competitive position due to the costs resulting from the funding of support to energy from renewable sources as a function of their electro-intensity and their exposure to international trade. That is why the EEAG talks about intensity of their electricity costs and their trade intensity.
However, the EEAG also include the possibility for the Member States to add more sectors provided that the trade intensity of these sectors is at least 4% and aid is limited to undertakings with an electro-intensity of at least 20% as required by paragraph (186) of the EEAG (with electro-intensity calculated according to Annex 4 EEAG or in line with paragraph (195) EEAG).
As a consequence once those sectors are authorised by the Commission, they could then also be included by all other Member States wishing to enlarge the list of eligible sectors.
In order to cater for some specificities of each Member States, the EEAG leaves to the Member States the possibility to reduce the number of potential beneficiaries imposing additional eligibility criteria provided that within the eligible sectors the choice of beneficiaries is made on the basis of objective, non-discriminatory and transparent criteria and that the aid is granted in the same way for all competitors in the same sector if they are in a similar factual situation. This is often a possibility retained by Member States which do not intend to include all companies or all sectors listed in the Annexes to the EEAG, probably as this would imply enlarging too much the number of beneficiaries and not fitting into the envisaged national budget earmarked to this measure. However, this possibility does not grant Member States an unlimited right to identify the eligible companies as the Commission is entitled to verify whether this selection complies with the mentioned criteria of transparency, objectivity and non-discrimination. In this context the Commission already carefully assessed whether the conditions imposed by Denmark and Romania were de facto discriminatory. Denmark granted aid, inter alia, only (1) to companies which commit to certain energy-efficiency improvements, (2) if the aid amount exceeds approximately 2680 Euro. Romania imposed different conditions on which the Commission raised some observations as to their compatibility with the general principles of objectivity, non-discrimination (and the freedom of establishment) set out in the EEAG. In fact, amongst other limitations, the beneficiaries had to maintain their activities in Romania during the aid scheme and could not lay off more than 25% of the number of the employees at the time of qualification for the measure. After negotiation with the Commission, as reported in the decision, the condition was changed by Romania into an obligation not to relocate outside the EEA.
Finally, the aid will be considered proportionate if the beneficiary continues to bear at least 15% of the additional costs without reduction, with an optional cap that Member States can put in place to further reduce the surcharges paid in case certain EIUs have a very high consumption..
Against this background, if on the one hand the Commission should be welcomed for transparently setting out in advance how it will assess the aid measures benefitting EIUs and indicating the possible sets of beneficiaries which are the ones more endangered by the increasing costs of electricity and more exposed to international trade, on the other hand, a more flexible approach is still necessary, with a view to allowing Member States to perform specific assessments on competition grounds aimed at taking into account the competitive dynamics of the markets at both national and EU level (depending on the geographic scope of the relevant market). This would also permit Member States to showing which sectors and which undertakings are negatively affected by the RES surcharge. This is even more important in the context of an Energy Union not yet completed where there are still many differences in terms of RES support and its related costs.
 Directive (EC) 2009/28 of the European Parliament and of the Council of 23 April 2009 on the promotion of the use of energy from renewable sources and amending and subsequently repealing Directives (EC) 2001/77 and 2003/30 (OJ 2009 L 140, p.16).
 Communication from the Commission — Guidelines on State aid for Environmental Protection and Energy 2014-2020,  OJ C200/1.
 Other supports for businesses, including EIUs, related to environmental protection are: (1) a partial compensation for the indirect ETS allowance costs that are passed on in the electricity price. The EU introduced an emission trading scheme as a tool to combat climate change. Member States can partially support EIUs to address the risk of ´carbon leakage´. This serves an environmental objective, since the aid aims to avoid an increase in global greenhouse gas emissions due to shifts of production outside the Union, in the absence of a binding international agreement on reduction of GHG emissions; (2) energy tax reductions or exemptions to facilitate a higher general tax level, and thereby contribute to a higher level of environmental protection. In principle, tax reductions can be granted up to the minimum level set out in the Energy Tax Directive, while for reductions below the minimum level a necessity and proportionality test needs to be carried out.
 Decision of 23 July 2014 SA.38632 (2014/N) – Germany EEG 2014 – Reform of the Renewable energy law. As to the previous scheme implemented by Germany before the entry into force of EEAG, Germany appealed before the General Court, in case T-47/15, the decision of the Commission (Decision of 25 November 2014 SA.33995 (2013) (ex 2013/NN) — Germany — Support for renewable electricity and reduced EEG-surcharge for energy-intensive users) largely approving the reductions to the surcharge granted to energy-intensive companies, but asking also Germany to recover a small portion of the aid granted in 2013 and 2014. The court case is ongoing.
 Decision of 15 October 2014, State aid SA.39042 (2014/N) – Romania – RES support reduction for energy-intensive users.
 Decision of 31 August 2015, State aid SA.42424 (2015/N) – Denmark – Reduced contribution to financing of RES support for energy-intensive users.
 Decision of 14 December 2015, State aid SA.43657 (2015/N) – United Kingdom – Aid for indirect costs of renewable energy support in the UK.
 Decision opening the formal investigation procedure of 27 March 2014, SA.36511 (2014/C) (ex 2013/NN) – France Mécanisme de soutien aux énergies renouvelables et plafonnement de la CSPE.
 The following may be considered to be compatible with the common market: aid to promote the economic development of areas with economic or social problems; aid to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State; aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions; aid to promote culture and heritage conservation; and such other categories of aid as may be specified by decision of the Council.
 Decision 86/60/EEC of 14 December 1985 on aid which Land Rheinland-Pfalz of the Federal Republic of Germany has provided to an undertaking producing primary aluminium, OJ 1986 L 72, p.30.
 Decision 2010/460/EC of 19 November 2009 on State aid measures C 38/A/04 (ex NN 58/04) and C 36/B/06 (ex NN 38/06) implemented by Italy for Alcoa Trasformazioni, upheld by the Court in C-177/10, the appeal is now pending in Case C-604/14 P. Likewise, other two similar cases were also ruled by the General Court in T-291/11, T-308/11 (preferential electricity tariffs, Italy). The EU General Court ruled on appeals against two Commission decisions of November 2009 and February 2011, ordering Italy to recover incompatible state aid from certain energy intensive users. Alcoa brought an action for annulment of the 2009 decision and Eurallumina and Portovesme brought actions against the 2011 decision. The General Court dismissed all three appeals and entirely confirmed the Commission’s findings. This confirms the findings of the same court in T-62/08 – ThyssenKrupp Acciai Speciali Terni v Commission, ECLI:EU:T:2010:268.
 Decision C 24/09 (ex N 446/08) of 8 March 2011, confirmed by the General Court in T-251/11.
 See also the letter to the Commissioner signed by the four ministers of economic affairs from France, UK, Italy and Germany published on Mlex.
 Decision C 24/09 (ex N 446/08) of 8 March 2011, confirmed by the General Court in T-251/11;decision opening the formal investigation procedure of 27 March 2014, SA.36511 (2014/C) (ex 2013/NN) – France Mécanisme de soutien aux énergies renouvelables et plafonnement de la CSPE; decision of 25 November 2014 SA.33995 (2013) (ex 2013/NN) — Germany — Support for renewable electricity and reduced EEG-surcharge for energy-intensive users. As mentioned Germany appealed before the General Court, in case T-47/15, this decision largely approving the reductions to the surcharge granted to energy-intensive companies, but asking also Germany to recover a small portion of the aid granted in 2013 and 2014. The court case is ongoing.
 Section 3.7.2 aid in the form of reductions in the funding of support for energy from renewable sources.
 From the strict legal point of view those type of acts (notice, guidelines, communications) do not have any binding effect on third parties, being soft law instruments, but bind the Commission which, if intends to depart from them, needs to have solid grounds.
 There is at least one ongoing case (SA.36511 (2014/C) (ex 2013/NN) – France Mécanisme de soutien aux énergies renouvelables et plafonnement de la CSPE) where the Commission opened a formal investigation procedure. See para. 248 of the EEAG which set forth that “Unlawful environmental aid or energy aid will be assessed in accordance with the rules in force on the date on which the aid was granted in accordance with the Commission notice on the determination of the applicable rules for the assessment of unlawful State aid with the following exception: Unlawful aid in the form of reductions in funding support for energy from renewable sources will be assessed in accordance with the provisions of Sections 3.7.2 and 3.7.3. As from 1 January 2011, the adjustment plan foreseen in paragraph (194) shall also foresee a progressive application of the criteria of section 3.7.2 and of the own contribution foreseen in paragraph (197). Prior to that date, the Commission considers that all aid granted in the form of reductions in funding support for electricity from renewable sources can be declared compatible with the internal market”.
 For an example of progressive application of the EEAG rules to EIUs see SA.33995 (2013) (ex 2013/NN) — Germany — Support for renewable electricity and reduced EEG-surcharge for energy-intensive users.
 Annex 3 to the EEAG.
 Decision of the Commission authorising amendments to EEG 2014 including two other sectors to the list of EIUs benefiting from the reduction in the RES surcharge, SA.41381 2015/N – Germany – Relief from the EEG surcharge for companies in NACE sectors 25.50 and 25.61.
 As reported by M. Guenaire, P. Lienhardt, Revue de l’énergie, 2014, v. 65, n. 619, p. 221-226, the French authorities have insisted during negotiations on the EEAG for keeping the cap at 0,5% instead of 1% as put forward by Germany. See also P. Nicolaides, M. Kleis, A critical analysis of environmental tax reductions and generation adequacy provisions in the EEAG 2014-2020, EStal 4, 2014, p. 636-649.