The European Commission launches a timely consultation on State aid for environmental protection and energy

As part of a broader “fitness check” of the capacity of State aid rules to meet the objectives of the European Green Deal, the European Commission (Commission) opened a public consultation last Thursday on the Guidelines on State aid for environmental protection and energy (EEAG). The consultation is an opportunity for stakeholders to provide comments on a planned revision of the legal framework under which Member States may finance projects that enhance environmental objectives, such as ‘greening’ of manufacturing operations, industrial transformation processes or the like.

How does the consultation work and where is its focus?

To guide this consultation, the Commission has published an extensive questionnaire seeking views from stakeholders on whether the EEAG should be adjusted in light of new technologies and support types as well as recent environmental and energy legislation and policy.  Notably:

• In its opening remarks on the consultation, the Commission states that “there are indications that the scope of the guidelines might have been too restricted and that the guidelines are too tightly focused on specific aid categories and technologies”. Likewise, the Commission acknowledges that “there are some indications that the compatibility rules on environmental protection are not entirely suited to face the climate neutrality challenge, in particular the rules to ensure necessity of aid, proportionality and limitation of distortions”.
• The substantive questions in the questionnaire include general policy topics as well as detailed queries on specific areas of environmental and energy aid. The Commission invites input on a range of questions focused on which forms of aid are generally more appropriate policy instruments (investment aid vs. operating aid, while aid eligibility of the latter has so far been limited) as well as the areas in which they should be used (e.g. renewable or low carbon hydrogen production, industrial decarbonisation, etc.).
• There are several fundamental, detailed questions on the state aid compatibility assessment that are of high practical relevance. In questions 42 et seq., for example, the Commission consults on whether the “aid intensities” approach (i.e. allowing public funding only up to a certain percentage of the overall costs of the project) should be maintained in order to prevent any overcompensation or whether instead the “funding gap” approach (i.e. allowing funding to bridge the projected gap of a project’s forecasted revenues and expenses over its lifetime) should be introduced going forward.
• There is another chapter on whether the administrative burden of State aid applications in the area of EEAG is too high, and how this can be addressed going forward.

The consultation suggests that the Commission is cognisant of some of the criticism that has been voiced in the past in relation to the EEAG, namely that the rules have sometimes been perceived as too complex, leading to protracted processes and insufficient investment volumes (see our piece: “Climate change and State aid: Making “green investments” great (again)!”).

What next?

The consultation is open until 7 January 2021. The Commission plans to publish draft revised Guidelines in the course of 2021. These revised Guidelines will be open for public consultation again and shall ultimately enter into force on 1 January 2022.

The consultation is a great opportunity for businesses to provide their perspective on necessary public support in this area to the Commission. The revised EEAG will likely be a cornerstone for years to come in the State aid framework for any projects that intend to contribute to environmental protection and energy objectives: a highly pertinent topic as companies think about and review their supply chain management (see our piece: “Beyond the pandemic: rethinking the supply chain” here) and their transformation to ‘greener’ production to address climate change by reducing greenhouse gas emissions (see our piece: “The European Commission adopts revised State aid Guidelines in relation to its Emissions Trading System” here)

Companies that intend to engage in such projects in the future should consider taking a look at the consultation and submitting input in the coming weeks. We are of course happy to assist in this process.