Europe must revisit state aid rules to meet climate ambitions

A new study by Catherine Banet for the think tank CERRE has found that Europe’s energy State aid guidelines no longer reflect market reality.

The report states that the guidelines need to be carefully revised toaccelerate the decarbonisation of Europe’s economy.

The report calls on the European Commission to pursue a combined approach that looks at reinforcing both common objectives and specific State aid measures.

Since the approval of the latest Guidelines for State Aid for Energy and Environmental Protection (EEAG) in 2014, the EU institutions have agreed to accelerate the decarbonisation process to reach a climate-neutral economy by 2050.

This strong impetus heavily influences the energy market where we see new economic models and types of actors emerging, and where there has been significant technological progress over the past years.

The energy and environmental protection State aid guidelines no longer reflect the market’s reality and need to be revised carefully.

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As Brussels is about to kick off the revision of the EEAG, this report provides recommendations for new rules that effectively contribute to fast-tracking the transition towards low carbon energy systems in a cost-efficient way. Above all, Brussels should align the new rules with its 2030 climate and energy transition targets.

The Guidelines are part of a bigger ecosystem of rules. The EEAG work in close interaction with the general block exemption Regulation (GBER) which allows the Commission to exempt prior State aid notification – and approval – in specific cases.

This has proven to be efficient and should be maintained. If during the review, a different approach is chosen, it may impact the entire architecture of the hard and soft law ecosystem of the EU state aid regime.

Enforcing the rules is just as important as setting the right rules. The report notes that, on several occasions in its recent case law, the Court of Justice of the EU has reversed some of the European Commission’s approval decisions, with major impacts on markets. The revised Guidelines should be set and applied so as to eliminate the risk of reversals of the Commission’s decisions as much as possible.

Catherine Banet, author of the report, said: “The EEAG reform should combine approaches that look both at common objectives and specific aid measures. This requires a significant evolution of the current regime whilst ensuring smooth continuity.

“Defining clear criteria to assess the contribution of a specific State aid measure to the ‘common interest’ is of utmost importance. The revised EEAG should strengthen these assessment criteria, including for specific aid measures. They must promote technology neutrality and consider the energy system’s resilience. Among the assessment criteria, the application of the proportionality test should be improved.

“The COVID-19 crisis is just one example of the deep uncertainties and changes our society is going through. Europe should be prepared for more disruption. We need to build a more resilient energy system that can cope with such unexpected external shocks. The energy state aid Guidelines should be an integral part of a long term sustainable recovery roadmap.”

Professor Banet, adds: “The Clean Energy Package for All Europeans is a driver of the reflection behind the revision of the Guidelines. This shouldn’t be forgotten.

“The scope of application of the EEAG should reflect and build upon the provisions laid down in this package. At the same time, the new Guidelines have the challenging task of anticipating the impacts of moving climate targets from the European Green Deal and the upcoming rules to achieve them, such as the revised renewable energy directive, the revised alternative fuels infrastructure directive, the implementation of the sector integration strategy and the Hydrogen strategy.”

Learn more about the report.