A State aid rulebook tailored to the Green Deal – An offer the European Commission can’t refuse

Already before the Covid-19 pandemic, we heard a steady drumbeat of calls for businesses and regulators to promote sustainability. And while, initially, there were concerns that the crisis, and the subsequent financial turmoil, would lead to sustainability being put on the back burner, we have witnessed the opposite.

Sustainability is holding strong on the agenda as the pressure to go green grows. This trend is further reinforced by the EU’s ambitious Green Deal and related debates on how to factor sustainability into competition policy. Massive investments are however needed to achieve the bold ambitions set out in the Green Deal, and a revision of the State aid rulebook will be indispensable to deliver this transition.

In this context, the European Commission is set to review the Guidelines on State aid for environmental protection and energy (EEAG). The revision will put pressure on energy companies to reinvent themselves. The direction of travel is clear. The EC is holding the energy sector’s feet to the fire; to access public funding, it must deliver green.

Will the State aid rules help achieve climate goals?

State aid rules and policy are particularly well placed to act as catalysts to foster green investments. Tailoring State aid rules to serve various public objectives is nothing new. The current State aid rulebook is already geared towards sustainability and has made important contributions to facilitate green investments. The EEAG in particular have made strides in supporting sustainability projects, the most well-known success story being support for electricity from renewable sources. But further changes will be required for the path to the 2050 climate goals to be realistic.

We expect the proposed revision to significantly impact both energy providers and energy-intensive users as it furthers the EU’s transition towards cleaner sources of energy.

Changes are likely to focus on two areas in particular:

  • First, the EC views the need to accelerate the green transition as pressing, and has indicated that the EEAG are too narrow to allow this shift. We therefore expect the EC to effectively widen the scope by designing rules around broad policy objectives pursued by the Green Deal, making room for new technological innovations and broadening the range of possible support measures. This would be a welcome change, which would bring the EEAG up to date and better exploit the Guidelines’ potential to contribute to the Green Deal’s targets.
  • Second, the EEAG have been instrumental in reducing energy charges for energy-intensive users. But the EC is questioning whether the upshot has truly been more ambitious renewables policies. The EC is therefore assessing an array of options – ranging from a simple update of eligible sectors to an increased alignment with the revised State aid rules on the Emission Trading System. This indicates that the EC is considering allowing Member States to support companies that are at risk of moving production to countries outside the EU with less ambitious green policies.
The additional impact of Covid-19

While sustainability was once a nice-to-have, it is becoming increasingly critical to both investors and competition regulators. It is no surprise that the EC seeks ways to ensure that businesses take sustainability seriously, including pushing for upgraded green credentials and reduced exposure to environmental risk.

And while sustainability conditions are not part of the EC’s Covid-19 toolbox, the regulator has welcomed “green strings” being attached to aid to recipients by Member States (e.g. in the aviation sector). The EC has also announced that 37% of the EU’s Covid-19 recovery fund will be spent directly on Green Deal objectives.

The push for sustainability is widely supported and here to stay. However, we do not expect the outcome of the EEAG revamp to turn on sustainability alone. As the pandemic opened the floodgates to State aid, we heard concerns related to asymmetric national responses, where companies in Member States with deeper pockets would gain an unfair advantage. The EC is mindful of these sensitive political considerations, and has made clear that the revision of the EEAG will take into account the impact of the pandemic on Member States’ economies and their funding capabilities.

We expect the EC to aim to strike a balance between a green agenda and ensuring an even distribution of any aid.

Your future is whatever you make it. So make it a good one

Interested stakeholders now have the opportunity to respond to the EC’s questionnaire covering different aspects of the EEAG review. Once the EC has had time to digest the input, we expect updated draft guidelines to be presented, accompanied by a further public consultation. The aim is to then publish the new EEAG in late 2021. Considering the vital role of the Guidelines in shaping Member States’ support to the energy sector, stakeholders should take the chance to influence the future direction of State aid policy in this sector.