European Union: European Union Issues New Guidelines On State Aid For Environmental Protection And Energy

Last Updated: April 23 2014
Article by Charlotte Breuvart
Most Read Contributor in United States, September 2019

On April 9, 2014, the European Commission adopted new Guidelines on State aid in the field of environmental protection and energy for 2014-2020 (the "New Guidelines"). State aid is generally prohibited under European Union ("EU") competition rules, but may be allowed under certain conditions where it is in the overall interest of the EU. The New Guidelines set out the conditions under which State aid in the field of environmental protection and energy can be declared compatible with the EU internal market on the basis of Article 107(3) of the Treaty on the Functioning of the European Union (the "TFEU"). They will apply as of July 1, 2014 and replace the previous Guidelines on State aids for environmental protection entered into force in 2008.

Compared to the previous Guidelines, the New Guidelines expand well beyond the environmental field into the energy area and also further simplify and clarify the assessment of State aid measures, based on the Commission's decision-making practice and policy developments in recent years.

The adoption of the New Guidelines followed three rounds of public consultation (the latest of which ended February 14, 2014), which sparked numerous comments from Member States, public authorities and stakeholders, and even led to the unusual circumstance of a vote by the European Commissioners, in which one Commissioner voted against and three abstained. The New Guidelines constitute one of the most important elements of the Commission's ambitious State aid reform package, as set out in its Communication on EU State aid modernization published May 8, 2012. The main objectives of this package are to (i) foster growth in a strengthened, dynamic and competitive EU internal market, (ii) focus enforcement on cases with the biggest impact on the internal market, and (iii) streamline State aid rules and accelerate the issuance of decisions by the Commission.

The New Guidelines will significantly impact the EU's energy profile, including the future of energy production from renewable sources, electricity prices, and hence, the overall direction of European competitiveness in the energy sector and beyond within the next few years. For instance, they establish basic rules for assessing Member State legislation favoring the production of renewable energy and exempting certain energy-intensive industries from the ensuing cost, which is one of the most hotly contested issues in EU State aid law over the past few years. In particular, the New Guidelines are designed to help resolve multi-billion Euro State aid cases pending on this question, especially in Germany and France.

Main objectives. The Commission seeks to fine-tune the balance between the need for public funds in support of renewable energy and the goal of ensuring competitive markets. On the one hand, the Commission considers that "well-designed public support measures can make a key contribution to achieving the EU's energy and climate objectives for 2020 and strengthening cross-border energy flows, thus ensuring that European companies and consumers have access to more affordable energy." On the other hand, the Commission points out that public support measures, which largely induced the tremendous growth in renewable energy over recent years, has caused serious market distortions and increased energy costs for consumers. Thus, the Commission finds that "it is time for renewables to join the market" through "more efficient public support measures that reflect market conditions, in a gradual and pragmatic way."

In this context, the new EU framework for environmental and energy State aid aims at supporting Member States' efforts in reaching their 2020 climate targets, while addressing the market distortions that may result from subsidies granted to renewable energy sources. It also promotes a gradual move to market-based support for renewable energy. The overall rationale of the New Guidelines is to favor the achievement of a competitive low-carbon economy, as well as the integration of the EU internal energy market through fewer, but better targeted and more cost-effective State aid measures.

Scope of the New Guidelines. The New Guidelines apply to State aid granted for environmental protection or energy objectives in all sectors governed by the TFEU, including those sectors subject to specific EU State aid rules (e.g., transport, coal, agriculture, forestry, fisheries and agriculture), unless provided otherwise. However, the New Guidelines do not apply to (i) the design and manufacture of environmentally friendly products, (ii) the financing of environmental protection measures relating to transport infrastructure, (iii) stranded costs (which remain subject to the regime set out in the Commission's 2001 Communication), (iv) State aid for research, development and innovation (which are subject to the 2006 Framework for State aid for research and development and innovation, as currently under review by the Commission), and (v) State aid for biodiversity measures (which usually fall within the scope of the rules set out for Services of General Economic Interest). In addition, environmental and energy aid may not be awarded to firms in difficulties, as defined by the Guidelines on State aid for rescue and restructuring undertakings in difficulty.

The New Guidelines identify various environmental and energy measures that may be compatible with Article 107(3)(c) TFEU under certain conditions:

  • Aid for exceeding EU standards or increasing the level of environmental protection in the absence of EU standards
  • Aid for early adaptation to future EU standards
  • Investment and operating aid for energy from renewable sources (i.e., renewable non-fossil energy sources)
  • Aid for environmental studies
  • Energy efficiency measures, including cogeneration and district heating and district cooling
  • Aid for resource efficiency and waste management
  • Aid for the remediation of contaminated sites
  • Aid for relocation of undertakings
  • Aid in the form of tradable permits
  • Aid for CO2 capture, transport and storage ("CCS")
  • Operating aid in the form of reductions in or exemptions from environmental taxes
  • Operating aid in the form of reductions in funding support for electricity from renewable sources
  • Aid for energy infrastructure
  • Aid for generation adequacy measures

The New Guidelines will enter into force on July 1, 2014 and will be applicable until December 31, 2020. Following their entry into force, the Commission will apply the New Guidelines to all notified aid measures for which it is called upon to make a decision, even if the projects were notified prior to July 1, 2014. Unlawful environmental or energy aid will be assessed in accordance with the rules in force at the date on which the aid was granted. The Commission also clarifies that it will not retroactively apply the New Guidelines to any individually notifiable aid granted on the basis of an already approved aid scheme. Member States are nonetheless required to amend their existing national environmental and energy aid schemes in order to bring them into line with the New Guidelines no later than January 1, 2016. In exception to this, schemes for operating aid for renewable sources and cogeneration need only be brought into line with the New Guidelines if they are prolonged or adapted.

State aid to nuclear projects not covered. As anticipated for several months, the New Guidelines do not include public support measures to the nuclear industry. Thus, such measures must be notified to the Commission and assessed under the general provisions of the TFEU on State aid. Earlier in the process, a leaked draft of the New Guidelines included several pages on how the Commission would address State aid measures in the nuclear industry, but the New Guidelines abandoned these proposals following an intensive lobbying effort led by Germany, and including several other EU governments. Generally, this has been viewed as a victory for the anti-nuclear lobby and a setback for the nuclear industry, particularly in the U.K. where a new generation of reactors is proposed. Whether this is actually a setback is debatable, since the nuclear industry may actually benefit from falling outside of the scope of the New Guidelines and thereby retaining more flexibility for future individual nuclear cases. The ongoing formal State aid probe into the Hinkley Point C nuclear power station in the U.K., opened by the Commission on December 18, 2013, pertains to the U.K.'s plan to spend approx. £16 billion to build a new nuclear facility with EDF Energy. The plan involves, among other elements, a guaranteed price for nuclear power known as the "strike price." This investigation is very much regarded as a test case that should probably set a major precedent for future nuclear investments in the EU.

Common compatibility assessment principles. The New Guidelines provide the compatibility criteria for environmental and energy individual aid and aid schemes, which are subject to the notification obligation pursuant to Article 108(3) TFEU. In line with the Commission's decision-making practice, the New Guidelines are based on a "balancing test," which requires that the positive impact of the aid towards an objective of common interest exceeds its negative effects on trade and competition, taking into account the "polluter pays" principle established by Article 191 TFEU. In particular, the Commission will consider a State aid compatible with the EU internal market only if it satisfies each of the following criteria:

  • Contribution of a well-defined objective of common interest: the aid must ensure an increased level of environmental protection compared to the level that would be achieved absent the aid, or must ensure a competitive, sustainable and secure EU internal energy market;
  • Need for state intervention: the aid must correct market failures which remain unaddressed by other policies and measures;
  • Appropriateness of the aid measure: the aid must be the less distortive policy instrument and the less distortive type of aid instruments in order to reach the specific objective of common interest;
  • Incentive effect: the aid must induce the beneficiary to change its behavior to increase the level of environmental protection or the functioning of the EU energy market, which it would not do without the aid (e.g., no aid can be granted where the aid beneficiary would already be obliged to undertake the aided action pursuant to EU legislation);
  • Proportionality of the aid: the aid amount must be limited to the minimum necessary to achieve the environmental protection or energy objective aimed for, which is generally the case where the aid corresponds to the (net) extra cost necessary to meet the objective, compared to the counterfactual in the absence of aid (or do not exceed a given percentage of the eligible costs of a project, i.e., the maximum aid intensity);
  • Avoidance of undue negative effects on competition and trade: the negative effects of the aid must be sufficiently limited, so that the overall balance of the measure is positive (in order to keep the distortions of competition and trade to a minimum, the Commission will put great emphasis on the selection process of the aid beneficiary(ies) which, where possible, should be conducted in a non-discriminatory, transparent and open manner).
  • Transparency: Member States must publish information on their State aid schemes and ad hoc aid measures.

Investment and operating State aid for renewable energy production. In recent years, renewable energy sources have been heavily supported by fixed tariffs, leading to market distortions. In particular, support mechanisms have simultaneously led to significant cost increases for electricity customers and sheltered renewables producers from risks, allowing the production of electricity irrespective of actual demand. This has impacted wholesale electricity prices and weakened price signals for investment in electricity generation.

The New Guidelines aim at better integrating renewables into the EU electricity market on a gradual basis, limiting State aid to what is strictly necessary. They foresee the progressive introduction of auctioning or competitive bidding processes for allocating public support, as well as the gradual replacement of feed-in tariffs by feed-in premiums (a top-up on the market price), thereby exposing renewable energy sources to market signals. In 2015-2016, Member States will start implementing competitive bidding procedures for a small share of their new capacity from renewables. As from 2017, Member States shall set up tenders to grant support to all new installations. Small installations and technologies in an early stage of development can, however, be exempted from participating in competitive bidding processes. The New Guidelines define small installations as those producing less than 6 MW of wind power (or 6 generation units), or 1 MW of power from other renewable sources, such as solar or biomass. In addition, small installations below 3 MW (or 3 generation units) for wind or 500 kW for other sources will be allowed to continue to benefit from any form of aid, including feed-in tariffs.

The New Guidelines will have no effect on aid given to the owners of existing installations, who will continue to receive aid based on existing approved aid schemes. The Commission will authorize aid schemes for a maximum period of ten years. If maintained, the scheme should be re-notified after such period. As regards food-based biofuel, existing and newly notified schemes should be limited to 2020.

State aid in the form of electricity charge reductions for energy-intensive companies. In recent years, the financing of renewable support measures has led to an increase in electricity costs in many Member States. Cost increases have emerged either directly through a specific charge levied from electricity consumers on the top of the electricity price, or indirectly through additional costs faced by electricity suppliers due to obligations to buy renewable energy, which are subsequently passed on the electricity consumers. Such additional costs affect the competitiveness of energy-intensive industries, in particular those exposed to strong international competition, and raises the risk of so-called "carbon leakage," whereby industries relocate outside of the EU to escape excessive environmental costs of operating within the EU.

In this context, the New Guidelines allow Member States to partially relieve cost burdens for a limited number of energy-intensive sectors (such as the manufacturing of chemicals, paper, ceramics or metals) or individual companies. This is done through State aid in the form of reductions on charges levied to support renewable sources, while establishing safeguards to limit distortions of competition and avoid harmful subsidy races between Member States. For example, the Commission will only approve aid that is:

  • limited to beneficiaries who are exposed to a competitive risk, i.e. companies belonging to a predefined list of eligible sectors (as set out in Annex 3 of the New Guidelines) or, alternatively, companies with a high "electro-intensity" (electricity costs accounting for at least 20% of gross-value added) and that are active in a sector exposed to international trade (4% of trade intensity, calculated as the total trade of the sector with third countries, relative to the market size in the EU);
  • non-discriminatory: the aid should be granted in the same way to all competitors in the same sector if they are in a similar factual situation; and
  • proportionate: the aid beneficiaries must pay at least 15% of full renewable surcharge, provided that Member States will have the possibility to further limit the amount of the renewable surcharges to be paid under certain circumstances.

The New Guidelines will apply retroactively for the assessment of reductions in the financing of renewables for energy-intensive users.

Since the 2008 Guidelines did not foresee the possibility of such reductions, the Commission recently opened two State aid cases regarding respectively (i) reductions granted to energy-intensive companies on a surcharge for the financing of renewable energy in Germany, known as the German EEG-support system (in-depth investigation opened December 18, 2013), and (ii) three types of reductions granted to large energy consumers on renewable energy surcharges in France (the so-called "contribution au service public de l'électricité"—CSPE) designed to finance the support for on-shore wind (in-depth investigation opened March 27, 2014, following a judgment of the EU Court of Justice on December 19, 2013 – Case C-262/12, Association Vent de colère, confirming that the French support for the production of electricity from on-shore wind installations involves an intervention through state resources and hence, State aid within the meaning of the TFEU). Soon after their entry into force, the New Guidelines will therefore apply to these two State aid cases, which should considerably help to "solidify" the principles laid down in the new EU framework for environmental and energy State aid.

State aid to energy infrastructure. Since a modern infrastructure is crucial for an integrated energy market and for achieving the EU's climate and energy goals, for the first time, the New Guidelines include rules for assessing State aid to energy infrastructure. Where market operators cannot deliver the energy infrastructure needed, the Commission acknowledges that State aid may be necessary to overcome market failures and to ensure meeting the considerable investment needs in energy infrastructures of European significance (about €200 billion until 2020, as estimated by the Commission). However, State aid to energy infrastructure (in principle, investment aid) should focus on infrastructure projects improving cross-border energy flows or contributing to regional cohesion (i.e., promoting infrastructure in Europe's less developed regions). The aided energy infrastructure should also be open to access by third parties and subject to tariff regulation, in order to benefit all users.

State aid to secure generation adequacy. The New Guidelines also include State aid rules to secure adequate electricity generation. In the event of a risk of insufficient electricity generation capacity, the New Guidelines allow Member States to introduce so-called "capacity mechanisms" to encourage producers to build new generation capacity, to prevent them from shutting down existing plants, or to reward consumers for reducing consumption during peak hours. Under the New Guidelines, Member States shall clearly demonstrate the reasons why the market cannot be expected to deliver an adequate generation capacity in the absence of intervention. Since aid to generation adequacy may contradict the objective of phasing out environmentally harmful subsidies including those for fossil fuels, Member States should also primarily consider alternative ways of achieving generation adequacy, such as facilitating demand-side management, developing electricity storage and increasing interconnection capacity. Moreover, the State aid should solely reward the availability of capacity (remuneration per MW) and not the sale of electricity (remuneration per MWh) and should not unduly favor national generation or any particular technologies, in order to limit the risks of distortions of competition.

Interplay with the General Block Exemption Regulation on State aid measures ("GBER"). The Commission's State aid modernization package also encompasses a revision of the 2008 GBER, which exempts unproblematic categories of aid from prior notification to the Commission. In the draft amended GBER submitted to public consultation, the Commission proposes, among other things, to revise and extend the list of environmental and energy aid that may benefit from an exemption (e.g., certain forms of aid to promote renewable energies or district heating, to clean up contaminated sites, or to improve energy efficiency in buildings). According to the Commission, automatically exempted measures may cover up to 40% of the public expenditure in the environmental and energy field and will therefore significantly simplify the granting of support measures with a limited potential for distorting competition. The new GBER will be adopted in May 2014 and enter into force on July 1, 2014 in parallel with the New Guidelines.

The New Guidelines will directly affect many companies operating in the EU, including producers of electricity from renewable sources and energy-intensive companies. In coordination or in parallel with EU Member States, companies now have several months before the entry into force of the New Guidelines. This will be a time to not only assess how to best adapt to the new rules and constraints, but also to identify possible new opportunities arising from the revised EU framework.

The Commission's New Guidelines are available here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions