European Commission’s new Guidelines on environmental and energy State aid

June 2014 | EXPERT BRIEFING | BANKING & FINANCE

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On 9 April 2014, the European Commission adopted its new Guidelines on environmental and energy State aid for 2014-2020. The adoption followed intense stakeholder consultation and – unusually – even led the Commissioners to a vote, in which one Commissioner voted against and three abstained. The new Guidelines replace the Commission’s 2008 Guidelines on State aid for environmental protection, but now also include detailed rules regarding State aid in the energy sector. According to Commission Vice President Almunia, these Guidelines are “one of the most important pieces” of the Commission’s State Aid Modernisation initiative, launched in 2012, in which it proposed to rewrite many of the existing State aid rules and guidelines. The initiative aims to enhance the Commission’s State aid powers to foster sustainable, smart and inclusive growth in a competitive internal market in line with the Europe 2020 strategy, and to allow the Commission to focus its enforcement on the cases with the biggest impact on the internal market.

The Guidelines will be one of the cornerstones of the Commission’s energy and environmental policy in the years ahead, as under its State aid powers, the Commission is competent to review and approve in accordance with these Guidelines any public support measure envisaged by the Member States before its implementation. Any public support granted in breach of the Guidelines is unlawful and should in principle be recovered from the companies that benefited from it.

The Guidelines thus not only provide the framework for which the EU Member States design their energy and environmental investment policies, but also directly impact any energy player and investor relying on public support. While the detailed rules and principles Guidelines clearly limit the scope of manoeuvring in public spending in many ways, they also provide increased legal certainty to the Member States and companies involved.

The new Guidelines now fully integrate environmental protection measures with the public financing of energy. The 2008 Guidelines already contained rules on energy issues that are closely linked to climate policy such as aid for energy saving, renewable energy sources (RES) and cogeneration and energy-efficient district heating. The new Guidelines now also deal with some specific energy issues such as carbon capture and storage (CCS), energy infrastructure and generation adequacy. On these issues, the new Guidelines follow up in the State aid arena on the Commission’s Communication on ‘Delivering the internal electricity market and making the most of public intervention’, published in November 2013 (the ‘Public Intervention Communication’). What has not been included in the final draft of the new Guidelines is aid to nuclear energy sources. While the Commission initially envisaged including specific rules in the Guidelines permitting nuclear aid under certain conditions, these were ultimately left out.

As usual for State aid guidelines, the new Guidelines only set out the criteria that the Commission will use for assessing environmental and energy aid measures which amount to State aid and which must be notified.

The new Guidelines do not explain which measures are State aid (i.e., measures containing a selective advantage granted through Member State resources which threatens to distort competition within the internal market and affects trade between Member States). Governments thus remain free to structure measures in such a way that they do not constitute State aid.

The new Guidelines first outline the criteria against which the Commission will assess the compatibility of any environmental and energy State aid measure, as follows: (i) it contributes to a well-defined objective of common interest; (ii) it is needed in order to remedy a well-defined market failure; (iii) it is appropriate to address the objective of common interest; (iv) it incentivises market players to behave differently from how they would if the measure were not implemented; (v) it is proportionate (what is needed to carry the incentive effect); (vi) it avoids major negative effects on competition and interstate trade; and (vii) it is transparent as to both its form and its implementation.

More importantly, the new Guidelines apply this general framework to several specific types of environmental and energy aid measures. Some of these types were already present in the 2008 Guidelines and have been reformed. For other types, the new Guidelines contain for the first time specific State aid guidance (carbon capture and storage, reduction of charges to fund energy from renewable sources, investments in infrastructure for interconnections and cross-border networks, and generation adequacy).

Over past years, the Commission has developed an energy and environmental policy, both through hard and soft law initiatives. Some of those initiatives can be framed in an overarching policy objective (e.g., the Europe 2020 targets and the completion of the internal energy market through the Third Energy Package). Others originate from ad hoc problems having materialised in recent years, such as the over-subsidisation of RES and the development of national capacity remuneration mechanisms to tackle generation adequacy and security of supply issues.

With the new Guidelines, the Commission has produced a document with a remarkably high level of detail, clear-cut wording and technical foundation. It has thereby seized the opportunity, at the end of its legislature, to make a big push on a number of the energy, environmental and infrastructure related policy options that have materialised in various documents and legislative initiatives over the past years. In writing these new Guidelines, the Commission has thus attempted to use its hard competences on State aid to progress heavily on a number of policies developed by it in recent years.

The new Guidelines will enter into force on 1 July 2014. Moreover, subject to some exceptions (in particular in respect of aid already granted under existing schemes), Member States should align existing aid schemes with the new Guidelines no later than 1 January 2016.

Arnaud Coibion is a partner and Bram Delvaux is of counsel at Linklaters LLP. Mr Coibion can be contacted on +32 2501 9018 or by email: arnaud.coibion@linklaters.com. Mr Delvaux can be contacted on +32 2501 9017 or by email: bram.delvaux@linklaters.com.

Arnaud Coibion and Bram Delvaux

Linklaters LLP