Review of State aid rules – reform is necessary, but it has to be consistent

Alexandre Ferrafiat, FORATOM Legal & Economic Advisor

In March 2020, the European Union set itself the target of becoming carbon neutral by 2050. The “European Green Deal” aims to transform every aspect of the EU’s economy and society. This will require “a wholesale systematic transformation of Europe’s economies and societies¹, including in the ways in which we produce and consume energy”. Also, this will require significant investment from both public and private sectors. The EU has taken several initiatives to unlock investments in low-carbon technologies through EU funds, financial instruments and policy mechanisms.

In that regard, competition policy can be seen as an efficient complementary tool. Competition rules may encourage businesses to invest and to innovate in more climate-friendly and energy-efficient technologies, while fair and equal market conditions are guaranteed.

Among those rules, state aid has an important role to play in accelerating the deployment of existing technologies, but also in stimulating further innovation in low-carbon technologies. The crucial role of state aid in this regard is recognised by the European Commission in its Progress report on “Accelerating Clean Energy Innovation”², which ranks state aid as action number 1.

In relation to that, the European Commission launched the revision of the guidelines on state aid for environmental protection and energy in November 2020 (public consultation is ongoing³). The main aim is to review the compatibility criteria in order to align it with the European Green Deal objectives (including carbon neutrality and security of supply) while effectively preventing distortions of trade and competition.

An alignment of the state aid rules with the European Green Deal objectives would seem appropriate. However, references to European Green Deal initiatives, such as the EU taxonomy’s criteria, raise the question of policy consistency in a way that potential indirect impacts on public action, resulting from the requirements of the EU taxonomy and its implementation in the private sector, should be assessed. Furthermore, the multiplication of investment financing schemes raises the question of the accumulation of aid. This point needs to be updated taking into consideration parameters such as type of costs, funding sources, etc… Having said that, it is important to bear in mind the principle of Member State sovereignty over the choice of their energy mix, as defined in Article 194.2 of the TFEU⁴, and without prejudice to Article 192.2(c) TFEU⁵ should enable Member States to define different decarbonisation pathways, across the different energy vectors.

FORATOM has been involved in the review of the guidelines and recently replied to the “call for contribution” from DG competition⁶. Although FORATOM fully supports the objectives of the European Green Deal in which state aid plays an important role, it questions whether state aid rules should be specifically adjusted to promote such objectives. In its recent decision relating to Hinkley Point Project (the “HPC Decision⁷), the Court of Justice considered that Article 107(3)c TFEU⁸ did not subordinate the compatibility of aid on the condition that it pursues a common interest objective.

For these reasons, FORATOM believes that the greatest caution should be exerted when using state aid rules to promote environmental objectives, and that such rules should not be amended specifically for European Green Deal purposes.

Therefore, FORATOM recommends amending the State Aid rulebook to:

• Address the new technology developments that are currently absent.
• Ensure greater scrutiny of competition and market distortions, cost-effectiveness, and security of supply.
• Take into account new market economic developments.
• Take into account the level of support other non-EU competitors may benefit from.
• Apply a holistic approach to the energy system, in line with both the principle of technology neutrality and sector integration.

Sources:

1. European Commission Communication, “The European Green Deal”, COM(2019) 640 final, Brussels, 11.12.2019
2. Commission Staff Working Document, Progress in Accelerating Clean Energy innovation 2018, SWD(2019) 157 final, 9.4.2019.
3. https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12616-Revision-of-the-Energy-and-Environmental-Aid-Guidelines-EEAG-
4. https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A12012E194
5. https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:12008E192:EN:HTML
6. https://ec.europa.eu/competition/information/green_deal/call_for_contributions_en.pdf
7. https://curia.europa.eu/jcms/upload/docs/application/pdf/2020-09/cp200112en.pdf
8. https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:12008E107&from=FR