France: EU Commission approves €13.5bn to compensate energy-intensive companies for indirect emission costs

The European Commission has approved, under EU State aid rules, a French scheme to partially compensate energy-intensive companies for higher electricity prices resulting from indirect emission costs under the EU Emission Trading System (‘ETS’).

The French measure

The scheme notified by France, with a total estimated budget of €13.5 billion, will cover part of the higher electricity prices arising from the impact of carbon prices on electricity generation costs (so-called ‘indirect emission costs’) incurred between 2021 and 2030. The support measure is aimed at reducing the risk of ‘carbon leakage’, where companies relocate their production to countries outside the EU with less ambitious climate policies, resulting in increased greenhouse gas emissions globally.

The measure will benefit companies active in sectors at risk of carbon leakage listed in Annex I to the Guidelines on certain State aid measures in the context of the greenhouse gas emission allowance trading scheme post-2021 (‘ETS State aid Guidelines’). Those sectors face significant electricity costs and are particularly exposed to international competition.

The compensation will be granted to eligible companies through a partial refund of the indirect emission costs incurred in the previous year. Beneficiaries will receive a partial advance payment each year, which will be completed in the following year. The final payment will be made in 2031. In view of the necessary time to prepare the measure and the exceptional circumstances related to the current energy crisis, the deadline for the aid payments for year 2021 is 28 April 2023.

The maximum aid amount per beneficiary will be equal to 75 % of the indirect emission costs incurred. However, in some instances, the maximum aid amount can be higher to limit the remaining indirect emission costs incurred to 1.5 % of the company’s gross value added. The aid amount is calculated based on electricity consumption efficiency benchmarks, which ensure that the beneficiaries are encouraged to save energy.

The measure applies a market-based CO2 emission factor of 0.51 tCO2/MWh. This factor is calculated based on a study of the CO2 content of the marginal technology setting electricity prices. This study was prepared by the French transmission system operator (RTE) and approved by the French regulator (CRE). This CO2 emission factor applies for the period 2021-2025. France will notify an updated value for the period 2026-2030 following the mid-term update of the ETS State aid Guidelines foreseen in 2025.

In order to qualify for compensation, beneficiaries have to implement certain energy audit recommendations based on an energy performance plan of four years.

The Commission’s assessment

The Commission assessed the measure under EU State aid rules, and in particular the ETS State aid Guidelines.

The Commission found that the scheme is necessary and appropriate to support energy-intensive companies to cope with the higher electricity prices and to avoid that companies relocate to countries outside the EU with less ambitious climate policies, resulting in an increase in global greenhouse gas emissions. Moreover, the Commission found that the scheme complies with the requirements on energy audits and management systems set out in the ETS State aid Guidelines. It therefore supports the EU’s climate and environmental objectives and the goals set in the European Green Deal. Furthermore, the Commission concluded that the aid granted is limited to the minimum necessary and will not have undue negative effects on competition and trade in the EU.

In particular, the Commission found that, based on the exceptional energy crisis-related circumstances invoked by France, a reasonable grace period for the aid payment for 2021 is justified. The Commission will apply the same approach to any future similar case.

On this basis, the Commission approved the French scheme under EU State aid rules.

Background

The European Green Deal, presented by the Commission on 11 December 2019, sets the goal of making Europe the first climate-neutral continent by 2050. The EU ETS is a cornerstone of the EU’s policy to combat climate change and a key tool for curbing greenhouse gas emissions cost-effectively. On 30 June 2021, the European Parliament and the Council adopted the European Climate Law endorsing the binding target to cut emissions by at least 55% by 2030, compared to 1990 levels.

On 21 September 2020, the Commission adopted revised ETS State Aid Guidelines in the context of the system for greenhouse gas emission allowance trading post-2021, as part of the modernisation of all carbon leakage prevention tools related to the EU ETS, such as free allocation of CO2 emission allowances. The revised ETS State Aid Guidelines entered into force on 1 January 2021 with the start of the new EU ETS trading period. They will apply until 2030, with a mid-term update of certain elements foreseen for 2025.

The non-confidential version of today’s decision will be made available under the case number SA.63404 (in the State Aid Register) on the DG Competition website. New publications of State aid decisions on the internet and in the Official Journal are listed in the Competition Weekly e-News.