A company receiving government support may gain a distortive advantage over its competitors. Therefore, Article 107 of the Treaty on the Functioning of the European (TFEU) generally prohibits State aid unless exceptionally justified.
The new Guidelines on State aid for Climate, Environment Protection and Energy (the CEEAG), which entered into force in January 2022, detail how the Commission will assess and approve aid that supports the European Green Deal objectives.
Wide range of investments and technologies that Member States can support
The CEEAG enable support for investments that could contribute to the decarbonisation of our economy without discriminating between technologies. This includes aid for low-carbon energy production (such as renewable hydrogen), carbon capture, electricity storage and demand response, high-efficiency cogeneration, or emissions and energy performance improvements in industrial processes.
More generally, the CEEAG captures new areas and objectives that are potentially eligible for aid, such as clean mobility infrastructure (e.g. acquisition and leasing of clean vehicles and clean mobile service equipment), the protection and restoration of biodiversity or the rehabilitation of natural habitats and ecosystems, the circular economy, or energy efficiency in buildings.
Tailored criteria for aid compatibility
The Commission will assess whether to approve the aid following a three-step approach:
- First, the Commission will consider whether the aid facilitates the development of certain economic activities within the Union (positive condition). In particular, the Commission will examine the expected benefits of the aid and its material contribution to environmental protection (e.g. climate change mitigation or the efficient functioning of the internal energy market). The aid should also induce the beneficiary to change its behaviour, to engage in more environmentally friendly economic activity. As a last criterion, the aid shall not be in breach of any relevant provision of EU law.
- Second, the Commission will make sure that the aid does not unduly affect trading conditions to an extent contrary to the common interest (negative condition). In doing so, the Commission will consider whether the aid (i) compensates for market failures that prevent an optimal level of environmental protection (necessity of the aid), (ii) is the only and least distortive policy instrument to achieve the objective (appropriateness of the aid) and (iii) is limited to the minimum needed for carrying out the project or activity (proportionality of the aid).
- As a last step, the Commission will conduct a balancing test. In other words, it will consider an aid measure compatible with the internal market only where the positive effects outweigh the negative effects. In doing so, the Commission will build on the Taxonomy Regulation 2020/852, which establishes a framework for an EU-wide classification system to determine the extent to which economic activities can be considered environmentally sustainable.
Competitive bidding and consultation procedures
While the Commission has traditionally limited the maximum level of aid for a project, the CEEAG now allow aid to cover up to 100% of the eligible costs where aid awards are based on competitive bidding. Indeed, competitive bidding is prescribed as the default mechanism for various aid measures such as fossil fuel plant closure measures or clean mobility.
In addition, the CEEAG provide that governments must carry out a public consultation on proposed aid measured for decarbonization and the security of electricity supply, above certain thresholds. This safeguard aims to ensure transparency and allow stakeholders to contribute to the design of the largest aid schemes.
Please contact Pierre de Bandt or Jeroen Dewispelaere for further information about these guidelines and/or for general legal advice relating to EU State aid law.