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Freshfields Sustainability

| 4 minutes read

A fresh look at the Commission’s EU State aid puzzle: tackling the economy’s green transition in 2022 and beyond

In 2019, the European Commission (Commission) kicked off its State aid “fitness check” and also published its European Green Deal (Green Deal) roadmap document. While we have seen the first concrete results of the Commission’s policy revision in 2021 and expect further changes in 2022, we want to take stock and look at current and future applicable rules to tackle the green transition in 2022 and beyond.

The State aid “fitness check” and the Green Deal

The results of the fitness check were published in 2020 and suggested the clarification, simplification and adjustment of individual rules to reflect recent legislative developments as well as changes in markets and green technologies. With regard to the environmental and energy rules, the fitness check showed that a more effective and less distortive deployment of State resources to improve environmental protection had been achieved, but only in a limited manner. Consequently, the Commission attempted to further adjust its State aid toolbox to allow for public funding to meaningfully contribute to the achievement of the Green Deal, while also safeguarding competition and the EU’s single market.

The Green Deal sets out ambitious objectives on carbon-neutrality, environmental protection and climate change. Realising these objectives requires a cross-sectoral approach and the revision of various policy areas. State aid will play an important role in this.

The Commission estimates that achieving the increased 2030 climate and energy targets as set out in the Green Deal will require EUR 350 billion of additional annual investments. The Green Deal therefore stresses the need for increased public funding to achieve these targets.

We have summarised the most important elements of the Commission’s revision below, outlining the changes in the recently adopted Guidelines on State aid for climate, environmental protection and energy 2022 (CEEAG), the General Block Exemption (GBER), the rules on Important Projects of Common European Interest (IPCEI), the Regional Aid Guidelines (RAG), and the Framework for Research, Development and Innovation (RDI Framework).

Guidelines on State aid for climate, environmental protection and energy 2022

In late December 2021, the Commission published its revised version of the CEEAG. The CEEAG guidelines are not just “another guideline from the depths of the Commission’s bureaucracy” but are intended to be a cornerstone in the EU’s pursuit of the Green Deal objectives. So, it is definitely worth having a closer look.

The CEEAG introduce fundamental changes compared to the previous Guidelines for Energy and Environmental Aid. In June 2021, the Commission had published a proposal for the CEEAG which we discussed in a previous blog post.

The changes between the soon to be adopted final version of the CEEAG and the proposal from June 2021 are generally moderate, and the main pillars of the revision have remained untouched.

June 2021 CEEAG proposal

Final CEEAG 

Main pillars that remain unchanged

      13 permitted aid categories

Member States may fund up to 100% of the costs for decarbonisation projects if:

(i) this leads to accelerated decarbonisation that the market would not have delivered, and
(ii) there is no overcompensation of the beneficiaries
Cumulation provisions: Aid under the CEEAG can be combined with other aid, e.g. the RAG, up to the maximum aid amounts under each instrument, allowing for significantly higher funding of individual projects

Key changes

The starting date of the obligation to consult publicly on measures for certain aid categories

1 January 2022

1 July 2023

The starting date of the obligation to estimate the subsidy per tonne of CO2 equivalent emissions avoided for each beneficiary or reference project for aid for the reduction and removal of greenhouse gas emissions, including support for renewable energy

1 January 2022

1 July 2023

The General Block Exemption Regulation

The targeted revision of the GBER complements the CEEAG by introducing State aid provisions to facilitate the granting of State aid without prior approval by the Commission. Some proposed revisions to the GBER that are worth highlighting are:

  • broader aid categories for green projects;
  • increased monetary thresholds for the notification of green projects.

More information on the revised GBER can be found in our previous blog post.

State aid rules on Important Projects of Common European Interest

The revised IPCEI framework constitutes another piece of the puzzle since such projects have the potential to facilitate cross-border collaboration between Member States and industry and allow the growth of new technologies and production processes in line with Green Deal objectives.

Two of the key points under the revised IPCEI framework are that Member States must:

  • spell out a notified project’s contribution to the EU’s environmental objectives; and
  • provide evidence of compliance with the “do no significant harm” principle stemming from the Green Deal.

Regional Aid Guidelines

The RAG were the first State aid rules which were updated following the announcement of the Green Deal and have entered into force on 1 January 2022. The guidelines will play a role in pursuing the Green Deal by allowing (i) additional support for less developed areas, (ii) increased aid intensities for projects supporting the Green Deal and (iii) for the possibility of combining regional aid and aid under the CEEAG.

State aid Framework for Research, Development and Innovation

The revised RDI Framework aims to simplify the rules on State support for research, development and innovation and align them with the Green Deal by facilitating aid for investments in green technology. It introduces the possibility of granting aid in favour of “technology infrastructures” which are expected to play a role in contributing to the green transition.

Also, the Commission will most likely not scrutinize aid for R&D if it aims to develop a new technology that has the potential to change a sector’s greenhouse gas emissions’ footprint for the better.

2022 and beyond

The green transition will affect many businesses through increased costs as a result of necessary investments in carbon-free production processes and the use of more expensive sources of energy e.g. renewables, hydrogen. While different policy instruments will have to be combined in a smart way to achieve the Green Deal objectives, it is evident from the revision of the Commission’s State aid framework that it considers targeted and proportionate public support as a solution for many industries on the way to net-zero emissions.

Please contact us or your usual contact in our Antitrust, Competition and Trade team to discuss these developments further.