European Commission Decisions on Two German ETS Support Schemes for Energy-Intensive Industries – Not EEG and Grid Fees

The European Commission has today adopted two decisions on German support schemes in favour of energy-intensive industries. Both decisions are on the EU Emissions Trading Scheme (ETS), not the EEG surcharge or grid fees.

1. Background

In May 2012 the European Commission adopted a framework under which Member states may compensate some electro-intensive users for part of the higher electricity costs expected to result from a change to the EU Emissions Trading Scheme starting 2013. The idea behind this was to have national support measures designed in a way that preserves the EU objective of decarbonising the European economy while maintaining a level playing field among competitors in the internal market. The sectors deemed eligible for compensation include producers of aluminium, copper, fertilisers, steel, paper, cotton, chemicals and some plastics.

2. German ETS Support Schemes

The Commission today decided both on a 2009 and a 2013 scheme to support energy-intensive industries in Germany regarding costs related to the European Emissions Trading Scheme.

a) 2009 Scheme – Incompatible

For the scheme notified in 2009 by Germany, the Commission had opened an in-depth investigation in November 2010 into subsidies for producers of non-ferrous metals in Germany. The scheme was intended to relieve German producers of non-ferrous metals of part of their electricity costs. Technically, it was to be a remedy for a serious disturbance in the economy, primarily based on Art. 107(3)(c) TFEU. According to this provision, aid to facilitate the development of certain economic activities or of certain economic areas may be considered to be compatible with the internal market, provided  such aid does not adversely affect trading conditions to an extent contrary to the common interest.

Germany intended to grant operating aid totalling €40 million to compensate energy intensive non-ferrous metal producers (aluminium, copper, zinc,) for a large part of the CO2 costs included in their electricity prices for the second half of 2009. Germany argued in particular that the measure was necessary and proportional in order to prevent the beneficiaries from closing their operations in Germany. The German authorities submitted that in case of such a closure the capacities would be taken over by production units outside the EU ETS. Germany contended that this could de facto lead to a global increase of CO2 emissions, so-called carbon leakage risk.

When opening the in-depth investigation, the Commission was of the opinion that Germany did not provide sufficient information to allow the Commission to establish whether there is a risk of closure due to the CO2 costs in the electricity prices and whether in case of a closure the production capacities would indeed be taken over by production units outside the EU ETS. Furthermore, the Commission doubted whether the aid is limited to the amount necessary to achieve the objective. Moreover, the Commission thought it had not received sufficient information to assess the extent of the possibly negative impacts of the measure on European competitors of the beneficiaries.

In its decision today, the Commission concluded that the scheme would favour very selectively only eleven German beneficiaries to the detriment of competitors in the internal market. Moreover, Germany did not demonstrate that at the time there was indeed a risk of carbon leakage. It therefore considered the scheme incompatible with the internal market, so that it cannot be implemented.

b) 2013 Scheme – Compatible

The scheme notified in 2013 was aimed at compensating energy-intensive users for additional CO2 costs deriving from changes to the EU Emissions Trading Scheme (ETS) (case SA.36103).

The Commission’s investigation found that this scheme, in applying the harmonised methodology of the ETS guidelines, would effectively prevent carbon leakage while keeping competition distortions to a minimum. Since the aid will progressively be reduced, the scheme would ensure that the beneficiaries have an incentive to further reduce emissions.

3. Other German Energy-Intensive Industry State Aid Cases

As expected, the Commission did not provide new information about its ongoing in-depth investigation on exemptions for large electricity consumers from network charges granted in Germany since 2011,  nor on its review of the complaint launched by a German private consumers association and SMEs about the compatibility of the EEG surcharge reductions for energy-intensive industries.

On Sunday, Spiegel Online had reported that the EU Commission was to open an official investigation under EU state aid rules into the provisions of the German Renewable Energy Sources Act (EEG) that allow for reductions of the renewable energy surcharge (EEG surcharge) for so-called electricity-intensive manufacturing enterprises and rail operators with high electricity consumption today.

Reports on Monday had indicated that the Commission will continue its preliminary investigation through the summer break, so that a decision on how to proceed will not come before autumn. German federal elections are scheduled for 22 September 2013.

However, it is clear that support schemes for energy-intensive industries are being closely reviewed by the European Commission. Companies currently benefitting from such reductions should review their position, identify how changes to the current scheme would affect them commercially, and what can be done about it.

Sources: European Commission

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