European Commission Targets Aids from Germany to Energy-Intensive Industries in relation to Risks of Carbon Leakage (updated)

As expected (see previous post), the European Commission has concluded its assessment of Germany's state support to energy-intensive industries facing an alleged risk of carbon leakage in two state aid decisions, both released on 17 July 2013 (press release, IP/13/704). In the first decision, the Commission concludes positively, but not in the second one.

From a procedural point of view, it should be reminded that a Member State cannot put into effect a scheme which has been notified under state aid rules to the Commission until the latter has approved it.

Positive decision on 2013 national carbon leakage scheme

In the first decision, the Commission assessed Germany's scheme for the compensation of CO2 costs in favour of energy-intensive industries as reflected in their electricity price, i.e. so-called carbon leakage. The European executive concludes that the scheme is in line with the harmonised methodology defined in the EU state aid guidelines adopted in the field because "it can help them to compete in the world market" and in the same time "avoids unilateral actions by individual Member States distorting competition" and "maintains incentives for the beneficiaries to further reduce their CO2 emissions" (see previous post on this blog). The Commission guidelines were adopted in May 2012. The national scheme was notified in 2013 (case SA.36103, details not yet available on DG Competition website). It will last from 1 January 2014 to 31 December 2020.

Negative decision on 2009 support scheme in favour of non-ferrous metals industry facing alleged risk of carbon leakage

The second decision relates to another national support scheme which had been notified in November 2009 and aimed to compensate non-ferrous metal producers - aluminium, copper, zinc - from risks of carbon leakage. More precisely, the envisaged aid aimed to compensate changes in the electricity costs of those producers as a consequence of the EU ETS and in relation to indirect emissions incurred by these producers in the second half of 2009. Those would have received a direct operating aid of EUR 40 million in total. The aid would have been calculated on the basis of the producers' annual electricity consumption (minus 1 GWh) multiplied by a certain amount per MWh defined by sector. (See press release IP/10/1520.) 

The Commission opened an in-depth investigation in 2010. The Commission is now concluding that the scheme infringes internal market rules "in particular because it would have entailed serious distortions of competition to the detriment of producers in other Member States." (Case SA.30068). The press release (full decision not yet available) reports that "the Commission has concluded that the scheme would favour very selectively only eleven German beneficiaries to the detriment of competitors in the internal market." This would not fulfill the test of proportionality (level of negative consequences of the measure on competition compared to the aimed pursued). In addition, the Commission is of the opinion that Germany "did not demonstrated that at the time there was ... a risk of carbon leakage."

What to retain

The German renewable energy laws and its diverse exemptions in favour of energy-intensive industries has several times been targeted by the Commission, but it is the first time that legal steps are taken. The nature of the schemes investigated and the fact that it is Germany that is concerned raises some comments.

First, and as a general comment, it should be observed that the scope of the measures under scrutiny is more limited than primarily feared. But still, it shows that the Commission wishes to keep Member States within the framework of the agreed guidelines it has itself adopted, and secure that Member States do not yield to the temptation of protecting national industries in a period of economic difficulties or continue a subsidy race between themselves. If the Commission decides to continue using the tools of competition law, other actions may be expected against Member States during the autumn in relation to similar support measures to European energy intensive industries. As regards Germany, the Commission has already declared that it will conclude on whether or not an in-depth investigation is necessary after August, at the earliest (based notably on complaints from consumers and SMEs association). The Commission had also proceeded to a preliminary assessment of the exemption from grid charges in Germany, with request for additional information, in May this year (case SA.34045 - Germany, Exemption from network charges for large electricity consumers (§19 StromNEV)).

Second, the Commission's decisions are related to notified schemes in an area where the Commission has already adopted a detailed assessment framework (the May 2012 Commission Guidelines). The Commission has recently assessed the UK national carbon leakage scheme (case SA.35543 - Compensation for indirect EU ETS costs in the UK, adopted on 2 May 2013). This new decision will constitute a valuable reference for other states that have notified or will notify their scheme to the European Commission (or to EFTA Surveillance Authorities in the case of EEA states) for the purpose of granting compensation to their energy-intensive industries facing a risk of carbon leakage.

Third, the Commission looks at one of the most successful renewable energy markets in the EU. Although the measure does not relate to renewable energies, it may be interpreted as a warning signal for Germany and other Member States eager to protect their national electricity and renewables industry through a general support scheme. The Commission has several times informed Germany that it is looking at the recently adopted legal framework for RES (EEG law). The Commission has also signaled that it is eager to complete an "internal market in renewable energy".

Photo credits: Angela Merkel and José Manuel Barroso, 3 July 2013 (c) The Council of the European Union