CN02 - State aid as a Green Deal booster

The European Commission's revised Climate, Energy and Environmental Aid Guidelines ("CEEAG") entered into force on 27 January 2022. The soft law instrument sets out the compatibility criteria for State aid in several sectors that are expected to contribute to EU Green Deal objectives.

Key takeaways

• The revised CEEAG extends to new areas (e.g. clean mobility, energy efficiency, circularity and biodiversity) and to all technologies delivering carbon reductions.
• The revised CEEAG closes the door to aid projects involving the most polluting fossil fuels. Aid to natural gas is still possible, but only as means to transition to greener energy resources.
• Competitive bidding processes are the default mechanism for awarding and setting the amount of aid.

A wider scope to deliver on the EU Green Deal

A new single section covers the reduction or avoidance of greenhouse gas emissions, facilitating the assessment of measures supporting the decarbonisation of the economy. Under the revised rules, Member States are able to:

• support all technologies delivering carbon reductions (e.g. hydrogen, carbon capture and storage or usage);
• use flexible tools, such as contracts for difference. These contracts fix a "strike price", which is guaranteed to the energy provider. If the market price is below the strike price, the State pays the difference. Conversely, if the market price is above the strike price, the energy provider may have to pay back the difference; and
• finance up to 100% of funding gaps (i.e. the full additional cost of a greener investment, over a less green alternative).

Moreover, the revised CEEAG extends to new flagship areas relevant for the Green Deal. They now include dedicated sections for aid for clean mobility (which cover all transport modes as well as the infrastructure to refuel and recharge them), energy efficiency in buildings, circularity and biodiversity. 

Fossil fuels and aid to energy intensive users

At the same time, the CEEAG closes the door to aid projects involving the most polluting fossil fuels (including oil, coal and diesel). In line with the 'do no significant harm' principle, the revised CEEAG makes it clear that measures that involve support to fossil fuels are unlikely to be declared compatible. 

Natural gas is treated as a "bridge on the path to more renewables". To support new investments in natural gas, Member States will have to show the absence of lock-in effects.

As regards energy intensive users, the new rules pragmatically allow for a reduction in levies put in place by the Member States to finance green investments. This aims at limiting the risk that, due to these levies, activities in certain sectors move to countries where environmental targets are absent or less ambitious than in the EU.

Safeguards to keep competition distortions to a minimum

The CEEAG provides for several safeguards to keep competition distortions to a minimum, including:

• for most aid measures, a competitive bidding process should be the default mechanism for awarding aid and setting the amount of aid; and
• for certain projects (involving e.g. renewable energy or recharging/refuelling infrastructure), an ex-ante public consultation on the competitive impact and proportionality of the envisaged measures will be required.

Conclusion

To quote European Commission Vice-President Vestager, the revised CEEAG is "a major step to ensuring that […] State aid rules play their full role in supporting the European Green Deal". 

In particular, it is expected to be widely applied in the context of green projects funded under the EUR 700 billion Recovery and Resilience Facility. Under that framework, Member States have to allocate 37% of the spending in their national plans to climate measures. Some of these measures qualify as notifiable State aid, which need to be declared compatible by the Commission.

The CEEAG will soon be complemented by a widened General Block Exemption Regulation ("GBER"). The revised GBER is expected to allow Member States to mobilise more aid for green projects, without the need for prior approval from the Commission.

With thanks to Jessica Bracker of Ashurst for her contribution.