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New Guidelines of the EU Commission on Environmental State Aid: Who Will Gain and Who Will Lose?

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Written by: Vojtěch Máca

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1. Introduction

Following extensive consultations in 2005 and 2007 the new Guidelines on Environmental State Aid (the "Guidelines") were finally published in April 2008.[1] These Guidelines are one of the outcomes of an ambitious reform of state aid rules launched by the Commission of European Communities (hereinafter the "Commission") in 2005[2] and at the same time one of the cornerstones of the new Energy Policy for Europe.[3] While the objective of the state aid reform is increasing effectiveness and better the targeting of state aid, the new energy policy focuses primarily on climate change, sustainability, and security of the energy supply. Nonetheless, both policies share a common overarching interest - to ensure the competitiveness of the EU economy.

This text tries to track some of the more important changes which have taken place since the previous guidelines and to analyse the likely beneficiaries of those changes. However first we start with explaining the logic of state aid for environmental protection, and the history of Commission's guidelines. Then we will proceed to a discussion of the major amendments in the new Guidelines and their expected consequences.

2. State aid and its control

There are four cumulative conditions set out in Article 107(1) of the Treaty on Functioning of the European Union (hereinafter the "TFEU") (i.e. ex Article 87(1) of the EC Treaty), that define state aid - the transfer of state resources, provision of economic advantage, selectivity of beneficiary undertakings, and effect on competition and trade.[4] In a landmark environmental case, PreussenElektra,[5] the European Court of Justice refused to uphold an extensive interpretation of transfer of resources the first criterion. According to the judgement (and contrary to view of the Commission), setting guaranteed preferential prices for green electricity that are paid for by electricity distributors and not passed on to consumers does not constitute state aid since it is by no means financed directly or indirectly through state resources.[6] However, if such a green electricity support  system is to be financed through a body controlled by the state then it should be viewed as harnessing the state's resources, even though the extra costs are in the end borne by final consumers.[7]

There is a general rule that any state aid that fulfils the said criteria will be declared to be incompatible with the Single European Market. Exceptions apply for particular types of aid that are or may be allowed in accordance with Articles 107(2) and 107(3) of the TFEU. Most state aid which is granted in line with the Guidelines is deemed to be compatible with the provision on the admissibility of aid for development of certain economic activities.[8] Additionally there is a minority amount of aid that falls under the provision relating to projects of  common European interest.[9]

Aid for environmental protection is a type of horizontal aid; this cross-industry category also includes, for example, aid for research and development or aid for small and medium enterprises (SMEs). The other two main categories are regional aid and sectoral aid (e.g. aid for fisheries, agriculture, transport, automotive industry etc.).

The control of state aid is carried out by the Commission which may approve the aid, declare it incompatible with the common market or set additional conditions for compatibility. State aid under a threshold of EUR 200,000 over a period of 3 years is deemed compatible (so-called "de minimis aid").[10] In addition, the Commission may waive the prior notification requirement for certain categories of state aid.[11]

3. The environmental protection context

Competition and environmental policies are both spelled out among the main activities of the EU in Article 3 of the TFEU. In addition, Article 11 TFEU[12] calls for the integration of environmental protection needs into Union policies with a view to promote sustainable development. This means, inter alia, that the requirements of environmental policy should be integrated also into implementation of the competition policy. In the field of environmental protection, virtually all the origins of market failures - externalities, public goods, imperfect information, coordination problem, or market power - are present.

Since the market fails to provide appropriate market signals (prices) in the presence of these imperfections, it is generally accepted that it is the role of government to correct such situations. Governmental intervention usually takes the form of either direct regulation or market incentives (such as taxes or tradable permits) to make the polluter bear full the costs of the harm to the environment. This objective, also known as the "polluter pays principle", is spelled out with regard to Union policy on the environment in Article 191(2) of the TFEU.[13]

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While state aid may not be the best solution for market failures,[14] it may still be employed to correct them by expressing a preference for more environmentally friendly activities. The primary aim is therefore to secure that the aid is granted only for such a level of environmental protection that would not otherwise be achieved. As a general rule the aid amount ('aid intensity')[15] is based on extra investment costs in favour of a higher level of environmental protection ('eligible costs') as compared to investment costs necessary for an installation fulfilling only mandatory standards that are imposed directly by the EU legislation. Moreover, aid is acceptable as long as its benefits outweigh its potential adverse effects on trade and competition.[16]

4. A brief history of the Guidelines on Environmental State Aid

The very first Commission memorandum on state aid for environmental protection dates back to 1974.[17] It brought in a  'transitional period' approach that allowed for aid to be authorised if it was aimed at speeding up the application of a new major regulation embodying the 'polluter-pays' principle and incurring significant compliance costs for the regulated entity. The overwhelming majority of aid granted was targeted at trying to help firms with making the necessary investments in order to achieve the prescribed mandatory emission standards.[18] The transitional period regime was retained also in the 1980 and 1986 extensions of the memorandum.[19]

In 1994, the new guidelines were published and the new document partly relaxed the strict adherence to the 'polluter pays' principle.[20] The previously applied maximum amount of state aid, which had been set at 15% of eligible costs, was increased to 30% for firms investing in improvements which would result in a significantly higher level of environmental protection.[21] In addition, the possibility of operational aid was introduced and the concept of state aid was broadened as reflected in some of the economic instruments being endorsed in the 5th Environmental Action Programme. In addition there was as well encouraging to couple investment incentives with voluntary agreements or stricter regulation.[22]

The state aid framework was shaken up again in the 2001 Guidelines.[23] Some new types of state aid were added, for example, investments in energy savings and renewable energy production, as well as aid for the rehabilitation of polluted sites and the relocation of firms. The concept of eligible costs was specified for different types of investment that in principle should be equal to the difference between total investment costs on the one hand, and the sum of investments in (comparable) conventional technology and benefits gained from more environmentally friendly technology (e.g. commercial value of environmentally friendly image) on the other hand. The aid intensity was set at 30% for the majority of investment aids (40% for investments in energy) with an additional 10% bonus for SMEs.[24]

5. New Guidelines

The new Guidelines were prepared as part of an integrated proposal for Climate Action, a package aiming at fighting climate change and promoting renewable energy.[25] The Guidelines were to be applicable from 2 April 2008 (the first day following their official publication) until the end of 2014. As with previous guidelines, they do not have the status of hard law; however, they are binding on member states once they accept the appropriate measures proposed by the Commission.[26]

The trend evident in the previous guidelines of continuously extending the scope of eligible aid has been continued. The new types of aid include aid for the acquisition of new environment friendly transport vehicles, aid for energy-efficient district heating and aid involved in tradable permit schemes. Some other schemes such as aid for waste management have been substantially revised.

The new Guidelines also substantially increase maximum aid intensities - they can now be as high as 60% for large enterprises, 70% for medium-sized enterprises and 80% of eligible costs for small enterprises.[27] If the granting of investment aid is based on a competitive procedure (bidding process), the aid intensity may be as high as 100% of eligible costs, irrespective of the size of the enterprise.[28] In addition, operating aid for the production of renewable energy and cogeneration may include not only the full difference between the production costs and market price of that energy (e.g. depreciation of extra investments) but also a normal return on capital.[29] In spite of the relative relaxing of the aid ceilings, this relaxation may still not suffice for some technologies in the early stages of development such as carbon capture and storage (CCS).[30] This issue was also addressed in the consultations during the preparation of the Guidelines. One of the proposals suggested using the net present value methodology, an alternative way of fixing aid ceilings based on the incentive effect of aid that would determine the minimum amount of aid necessary to encourage a positive investment decision.[31]

The main procedural change from the 2001 Guidelines represents a differentiated scope of assessment and a related balancing test.[32] The scope of assessment is based on the amount of aid: if a threshold is surpassed, a detailed assessment is prescribed.[33] There are two exceptions to this rule. The first is that a detailed assessment is always obligatory if the amount of aid for new plants producing renewable energy is determined on the basis of the calculation of

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external costs avoided ("external costs" are costs incurred by a third party not directly involved in a given economic transaction).[34] Second and to the contrary, exemptions from and reductions of environmental taxes are not subject to a detailed assessment even when surpassing the threshold.[35] The balancing test is presented as a new general criterion for assessment of both state aid rules and single state aid cases subjected to detailed assessment. It is structured around three core criteria. The first two criteria - the existence of market failure and incentive effect and proportionality - address the positive effects of the aid in question;[36] the third criterion aims at measuring its negative effects in terms of distortion of trade and competition.[37] The criterion of incentive effect and proportionality is further elaborated in three sub-criteria assessing whether the aid is an appropriate policy instrument, whether it has an incentive effect and whether it is necessary and proportional.[38] When balancing positive and negative effects of a proposed measure, the Commission will ideally like to have them expressed 'using the same referential', e.g. in terms of external costs avoided versus loss of profits.[39] Nevertheless, the balancing test has been criticised from three different viewpoints: from the procedural point of view as being too complex and giving too little legal certainty, from the legal point of view as lacking an appropriate legal basis in Article 107(3) of the TFEU and from the economic point of view as being too narrowly defined.[40]

Firstly, it is submitted that the procedural criticism about complexity and lack of legal certainty is largely inappropriate. Since the aim of state aid control is to minimize distortion of competition that is of a factual nature, a trade-off with legal certainty and complexity remains inevitable. Secondly, the discussion of an appropriate legal basis for the balancing test is concentrated around the wording 'may be considered' in Article 107(3). Some authors argue that this provision does not allow for analysing the existence of a market failure, as this would set additional criteria for assessing compatibility of particular aid beyond those enumerated in the TFEU.[41]Thirdly, the narrow setting of the balancing test may be well illustrated in the following case. As mentioned earlier, the calculation of operating aid for new plants producing renewable energy may be based on external costs avoided, but necessitates surpassing a balancing test. Critics have argued that the external costs avoided approach should not be limited to renewable energy production only, since it is principally the most accurate method of calculation for the correction of a market failure.[42] However, the Commission's view is that the calculation based on external costs avoided should be used only in exceptional cases (and the method of calculation used has to be internationally recognized and validated by the Commission) as there is no direct link between external costs avoided and the (extra) costs incurred by the undertaking. Apparently, the 'polluter-pays' principle is given up here as potentially distorting the common market. The Commission rather sticks to its 'transitional period' logic based on the extra costs needed to meet the higher environmental protection but fails to take full account of social costs and benefits. In other words, the extra cost approach does not take into account the ratio of change in costs to the change in effects (i.e. benefits) for available alternatives. Therefore, the current state aid regime is only a second-best solution as it neither satisfies the 'polluter-pays' principle nor is in itself cost effective.[43]

6. Who will gain?

A thorough analysis of potential winners and losers for every particular type of state aid is well beyond the scope of this article. Therefore we rather focus on the assessment of two related state aid schemes linked to energy and climate change. The first is aid involved in tradable permits. The second focus is on aid in the form of reduction or exemption from environmental taxes.

State aid involved in tradable permit schemes is a bright new topic in the Guidelines. It was added mainly due to the common practice of granting permits and allowances for free or for less than their market value which confers a financial benefit on participants of tradable permit scheme. This is exactly the case with the EU emission trading scheme ('EU ETS') as the Emission Trading Directive[44] allows only for the auctioning of 5% and 10% of the total allocation for the first and second trading period respectively[45] (the first trading period began on 1 January 2005 and was three years long; every subsequent trading period, from 1 January 2008 onwards, is five years long).[46] In such a situation, very precise criteria are needed to secure equal and accurate allocation that properly set the overall cap on emissions and do not favour certain sectors.

Two particular issues characterise the first trading period experiences. Firstly, the allocation plans were largely based on exaggerated expectations about future aggregate emissions. Secondly, no Member State (except for Poland) is allowed to retain permits for use in subsequent trading periods (so-called 'banking' of allowances).[47] Consequently, when the verified emission data from 2005 - much lower than initially expected were published in May 2006, the market in allowances collapsed.[48]

The Guidelines set slightly different criteria for the trading periods before and after 2012. All the national allocation plans for the second trading period were, however, already cleared before the final  publication of the Guidelines. In contrast to the first trading period, allocation plans have been drafted based on verified emissions. Still, differences in the national CO2 reduction targets as well as different allocation methods used may potentially distort competition. From a competition point of view, it would be more desirable to auction all allowances instead of granting them for free.[49]

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For the trading period starting in 2013, the Guidelines already envisage that the allowances will, in general, be allocated by auctions and any deviation from this rule will be assessed in detail for a number of criteria including non-discrimination and proportionality. However, full auctioning will apply from the onset only in some sectors included in the EU ETS. Thus, the problem of potential distortion of competition similar to that with the allocation plans for the second trading period is not eliminated.

Moreover, the decision on what sectors will start with full auctioning from the onset of the third trading period is mainly driven by competitiveness concerns, therefore, we will most likely witness weighing the amount of aid against its economic impact (as shown, for example, by demand elasticity) instead of environmental benefits. The Commission's proposal for the revision of the Emission Trading Directive was tabled exactly in this way in January 2008. It proposes full auctioning from 2013 in the power sector and carbon capture and storage while confining the other sectors to a gradual implementation by 2020.[50] The policy debate in the Council that has just started shows very divergent positions among the Member States.[51] The Czech government has already gone ahead with an alternative plan that postpones the introduction of full auctioning in all sectors until 2020.[52]

The rules on aid in the form of a reduction in or exemption from environmental taxes apply not only to environmental taxes harmonised at the EU level but also to non-harmonised taxes. Currently, the single most important category of environmental taxes are those on energy products and electricity that were harmonised by the 2003 Energy Taxation Directive.[53] The most frequent arguments for the granting tax reductions or exemptions include concerns for competitiveness and, to some extent, also anticipated negative distributional effects (e.g. significant increase in prices affecting low-income households).

The previous guidelines on environmental state aid allowed only for total tax exemptions conditional on the conclusion of an agreement stipulating the achievement of the same effect as the tax would have.[54] The alternative was a tax reduction that could not exceed a Union minimum (in case of a harmonised tax) or a significant proportion of the national tax.[55]

These rules were repeatedly challenged in connection with tax reliefs for energy products used in installations under the EU ETS. Denmark[56] and Sweden[57] had previously notified the Commission about their intention to grant a total exemption for such installations. The aim of the relief was to avoid the double burdening of undertakings with carbon taxes and a CO2 emission trading scheme based on the same environmental objective, with a potential substantial effect on their competitiveness. However, the Energy Taxation Directive allowed for such tax exemptions only under specific conditions and subject to notification as state aid.

Still, some of the EU ETS installations are not energy-intensive undertakings and no agreements were proposed in the notified tax relief schemes. Moreover, the Commission disagreed with the double burden argument. In its view, the objective of the Energy Taxation Directive is not only environmental protection but at the same time the harmonization of excise taxes that contribute to the proper functioning of the Single Market.[58] Consequently, Sweden withdrew its notification in August 2007,[59] while a decision is still pending concerning the Danish scheme. Expectations that the new Guidelines would allow more profound tax breaks have not been met. Under the new rules, it has to be cumulatively proven that the choice of beneficiaries is based on objective and transparent non-discriminative criteria and that the full tax rate would lead to a substantial increase in production costs that could not be passed onto consumers without leading to important sales reductions.[60] If these conditions are met, three options are available: (i) the full tax exemption will be reserved only for installations with the best performing techniques while others will have to pay part of the tax according to their (worse) environmental performance; [61] (ii) all beneficiaries will pay at least 20% of the national tax;[62] or (iii) an agreement will be concluded between beneficiaries (or their association) and the Member State with a commitment to achieving environmental objectives that would be otherwise achieved should the first two options or a minimum Union tax level be in place. [63] In any case the preferential tax treatment is limited to up to 10 years.[64]

The performance-based exemption is an entirely new option that may potentially incentivise the development of new technologies. However, it will also necessitate a kind of benchmarking system that may have the result that using this exemption will be relatively complicated.

It is more likely that the Member States will choose the option to reduce the tax to 20% which is more precisely defined than paying a 'significant proportion of the national tax' set in the previous guidelines.[65] One open question remains with respect to setting an environmental objective in negotiated agreements. The intricate issue here is that the commitment should apparently go above the Union standards, most likely including the EU ETS.[66] On the other hand, the Guidelines request that the EU ETS must be set up to achieve environmental objectives beyond those achieved on the basis of mandatory Union standards.[67] One option is that the initial allocation in EU ETS is taken as a baseline and any achievement above this level may be counted for the agreement. Still, it is up to the Commission to resolve this knotty problem.

To sum up, we may identify both winners and losers under the new Guidelines. Taxpayers will benefit from the more precise assessment rules (including evaluation on a more rigorous economic basis) as these suggest that public funds will be spent more effectively. In particular, subjecting EU ETS permit granting to the state aid rules might ensure that energy producers will not make more windfall profits by

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passing opportunity costs of tradable permits onto the consumers (in spite of getting them for free). Conversely, businesses subjected to EU ETS will mainly lose out following the adoption of the new scheme. Not only were the rules tightened but the high expectations about total carbon tax exemption have not been met. In addition, the scope for state aid in the EU ETS is going to shrink in the years to come. One may reasonably expect that these steps will help foster the position of low-carbon energies in the energy market. The delicate issue here is that this includes not only renewables, but also nuclear power which is in a category of its own with the massive engagement of state resources during construction, operation, decommissioning and nuclear waste treatment. Another topical aspect is the voiced concern about competitiveness in the international market due to a higher level of environmental protection (including environmental taxes and emission trading).  The Commission, when upholding strict limitations on tax exemptions, clearly showed reluctance to compromise the effects of limited harmonisation on competitiveness with pursuing the single market objective. It remains to be seen to what extent this may lead to any substantial relocation to 'pollution heavens' (e.g. EU Eastern neighbouring countries). The chance for relocation is however less likely in large parts of the energy sector (simply because of dependency on transmission networks), but other sectors in the EU ETS (e.g. chemicals) may be more susceptible to relocation with resulting potential adverse effects for member states economies.

7. Concluding remarks

The new version of the Guidelines seems to follow the path of evolution rather than revolution. Most of the changes and amendments are driven from the outside, mainly as part of the recent Commission initiatives called Climate Action and Better Lawmaking. Even though the scope of application has been somewhat extended and the aid intensity increased in comparison to previous guidelines, there still remain some doubts whether the regime is flexible enough. The experience with previous guidelines that were not accurately tailored for some 'new' forms of state aid (e.g. operating aid for renewable energies and energy tax breaks for EU ETS installations) leaves open the possibility of discussion about a more radical reshuffling and perhaps the abandoning of the white-list approach for a more flexible market failure- correction based economic assessment of environmental state aid measures of possibly unrestricted nature.

In spite of the overall objective of state aid reform - that it should be less and better targeted - the increase in maximum allowed aid intensity and the extended scope of eligible aid in the Guidelines seems to lead, at least in part, in the opposite direction. The increase in aid intensity, including the use of special bonuses, and relatively high thresholds for detailed assessment seems to lay out favourable conditions for SMEs. This preferential approach to SMEs builds on a hypothesis of higher costs of achieving environmental protection (as formulated in point 14 of the Guidelines), something that is far from having been proved by any empirical analysis.[68]

Looking from a practical point of view, it is simply too early to judge the impact of the new Guidelines, especially before the new super block exemption regulation is adopted. This holds true also for the functionality of the balancing test even though it is already criticized as being narrow and vague. Perhaps due to the evolutional nature of the new Guidelines they have not live up to some prominent expectations: they have especially failed to provide a clear answer concerning linkages between major instruments in the environmental protection field as well as clear criteria for the assessment of the upcoming environmental technologies.

Vojtěch Máca is a research fellow at the Charles University Environmental Center. He recently completed PhD. programme at the Charles University Law Faculty. His primary research focus is the law and economics of environmental externalities.                   

                                           



Footnotes

  1. Community guidelines on State aid for environmental protection, OJ C 82, 1. 4. 2008 (hereinafter "Guidelines"), pp. 1-33.
  2. State Aid Action Plan - Less and better targeted state aid: a roadmap for state aid reform 2005-2009, COM(2005) 107 final.
  3. See Communication from the Commission to the European Council and the European Parliament - an energy policy for Europe, COM(2007) 1 final.
  4. See, for a more detailed description, EC Commission Vademecum Community Rules on State Aid, 2007 version, http://ec.europa.eu/competition/state_aid/studies_reports/vademecum_on_rules_2007_en.pdf (25.10.2008). Some authors split the last criterion into two separate ones, see, e.g., Andersen, B. Revision of Environmental Guidelines [2008] 17 (1) EELR 25.
  5. See Case C-379/98 PreussenElektra [2001] ECR I-00219.
  6. For a more detailed commentary of the ruling, see Krzeminska J. Are Support Schemes for Renewable Energies Compatible with Competition objective? An Assessment of National and Community Rules, The Yearbook of European Environmental Law, Oxford University Press, 2007, pp. 146 ff.
  7. See State aid NN 162a/2003 (Support of Renewable Electricity Production under the Austrian Green Electricity Act) and State aid N 317a/2006 (Ökostromgesetz - Renewables feed-in tariff), OJ C 221 of 14 September 2006.
  8. Article 107(3)(c) of the TFEU and point 72 of the Guidelines.
  9. Article 107(3)(b) of the TFEU and section 3.3 of the Guidelines.
  10. See Commission Regulation (EC) No. 1998/2006 of 15 December 2006 on the application of Articles 87 and 88 of the Treaty to de minimis aid, OJ L 379/5
  11. This regime is called the block exemption regulation (BER). Currently, BER is applied to specific aids for research and developments activities by SMEs, regional investments, employment and training. As a part of state aid reform the Commission recently adopted a "super BER" regulation covering both current and new BER areas, including environmental protection, see Commission Regulation (EC) No 800/2008 of 6 August 2008 declaring certain categories of aid compatible with the common market in application of Articles 87 and 88 of the Treaty (General block exemption Regulation), OJ L 214/3.
  12. See Article 3(1)(b) and 4(2)(e) of the TFEU.
  13. See also point 70(25) of the Guidelines.
  14. See, e.g., Goulder L.H. and Parry I.W.H. Instrument Choice in Environmental Policy, RFF Discussion Paper 08-07, Resources for the Future, Washington, p. 5 ff (arguing that from economic perspective, state aids tend to achieve the optimal level of pollution at higher costs than other economic instruments).
  15. Aid intensity is defined as the amount of gross aid expressed as a percentage of the eligible costs, see point 70(19) of the Guidelines.
  16. See point 6 of the Guidelines.
  17. Letter to Member States SEC(74) 4264 of 6 November 1974; Fourth Report on Competition Policy, points 175- 182.
  18. Granting of aid was restricted to installation already in operation for two years before the implementation of a new (usually emission) standard. For a detailed retrospective, see, e.g., Evans, A. European Community Law of State Aid, Oxford: Clarendon Press, 1997, pp. 359 ff.
  19. Letter to Member States SG(80) D/8287 of 7 July 1980 (Tenth Report on Competition Policy, points 222-226) and Letter to Member States SG(87) D/3795 of 23 March 1987 (Sixteenth Report on Competition Policy, point 259).
  20. Community guidelines on State aid for environmental protection, OJ C 72, 10.3.1994, pp. 3-9.
  21. Ibid., section 3.2.3.
  22. Ibid., section 1.5.1.
  23. Community guidelines on State aid for environmental protection, OJ C 37, 3.2.2001 (hereinafter "2001 Guidelines"), pp. 3-15.
  24. See ibid., points 29, 30, and 35 respectively.
  25. See Communication from the Commission to the European Council and the European Parliament - 20 20 by 2020 Europe's climate change opportunity, COM(2008) 30 final.
  26. See section 7.4 of the Guidelines and case C-242/00 Germany vs. Commission [2002] ECR I-05603. The Commission stipulates to apply the Guidelines to all aid measures notified (or granted) after their publication, see points 204 and 205 of the Guidelines.
  27. See Annex to the Guidelines (Table illustrating the aid intensities for investment aid as a part of eligible costs).
  28. See points 77, 97, 104, 116, and 123 of the Guidelines.
  29. See point 109 of the Guidelines.
  30. Carbon capture and storage (CCS) is a method of geological storage of carbon dioxide aiming to reduce carbon emissions resulting from combustion of fossil fuels. Despite initial high expectations about specific state aid rules governing CCS, this method was due to its novelty addressed only generally in the new Guidelines; see point 69 of the Guidelines.
  31. Moreover, this method allows for comparison between different projects and choosing cost-effective ones. See EFTA Surveillance Authority submission to the European Commission questionnaire on the review of the current Community Guidelines on State aid for environmental protection, http://ec.europa.eu/comm/competition/state_aid/reform/comments_environmental_protection_revision/38540_en.pdf (25.10.2008), p. 8.
  32. See Sections 1.3 and 5 of the Guidelines.
  33. The thresholds for particular aid types are set as follows: EUR 7.5 mil. per one undertaking for investment aid, EUR 5 mil. per undertaking for operating aid for energy saving, generation capacity of 125 MW for operating aid for the production of renewable electricity and/or heat, production capacity of 150,000 tonnes per year for operating aid for biofuel production, cogeneration capacity of 200 MW for operating aid for cogeneration.
  34. Point 161 of the Guidelines.
  35. Point 160 of the Guidelines.
  36. Section 5.2.1 of the Guidelines.
  37. Section 5.2.2 of the Guidelines.
  38. See section 5.2.1.2 et seq of the Guidelines.
  39. See point 186 of the Guidelines. The likely turning to more economic assessment can be traced also elsewhere in the Guidelines, for example, in the encouraging of the Member States to ensure cost-effectiveness (point 35).
  40. See Nicolaides P. Compatibility of State Aid and the Balancing Test: Its Role in the Architecture of State Aid Control. Proceedings of the Annual Conference of the Global Competition Law Centre, College of Europe, Bruges, August 2006, http://www.eipa.eu/UserFiles/File/state_aid/Balancing_Test_and_Architecture_of_Control_23Aug06.pdf (25.10.2008), p. 1 ff.
  41. See ibid.
  42. See UK Government response to the European Commission questionnaire on the review of the current Community Guidelines on State aid for environmental protection, http://ec.europa.eu/comm/competition/state_aid/reform/comments_environmental_protection_revision/38229_en.pdf (25.10.2008), p. 3 ff.
  43. See point 35 of the Guidelines.
  44. Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC, OJ L 275/32.
  45. See ibid., Art. 10. In practice, only Denmark, Hungary and Ireland made use of this option in the first trading period, see EEA Application of Emission Trading Directive by EU Member States - reporting year 2008, European Environmental Agency, Copenhagen, 2008, p. 57.
  46. See ibid., Art. 11(1) and (2). Recently, the Commission proposed extending the duration of trading periods to 8 years, see point 13 of the Proposal for a Directive of the European Parliament and of the Council amending Directive 2003/87/EC so as to improve and extend the greenhouse gas emission allowance trading system of the Community, COM(2008) 16 final.
  47. See Seinen A.T. State Aid Aspects of the EU Emission Trading Scheme: the second trading period [2007] 3 Competition Policy Newsletter 100.
  48. See, e.g., Ellerman D.A. and Joskow P.A. The European Union's Emission Trading System in perspective, Pew Center on Global Climate Change, Arlington, 2008, p. 12 ff.
  49. See Seinen A.T., op. cit., note 47, p. 105.
  50. See Proposal for a directive of the European Parliament and of the Council amending Directive 2003/87/EC so as to improve and extend the greenhouse gas emission allowance trading system of the Community, COM(2008) 16 final.
  51. See Presidency Conclusions of the Brussels European Council, 13/14 March 2008, Doc. 7652/08, p. 12.
  52. See Resolution of the Government of the Czech Republic no. 226 of 5.3.2008 setting a general position of the CR to the Climate Energy Package.
  53. Council Directive 2003/96/EC of 27 October 2003 restructuring the Community framework for the taxation of energy products and electricity, OJ L 283/51.
  54. See point 51.1(a) of the 2001 Guidelines.
  55. See point 51.1(b) of the 2001 Guidelines
  56. See State aid no. C 41/2006 - Modification of the CO2 tax for quota-regulated fuel consumption in the industry, OJ C 274 of 10.11.2006
  57. See State aid no. C 46/2006 - CO2 tax relief for EU ETS participants, OJ C 297/29 of 7.12.2006.
  58. While Emission Trading Directive has the legal basis of an environmental protection measure (now Art. 192 of the TFEU), Energy Taxation Directive is based on the provision governing the harmonisation of indirect taxation (now Art. 113 of the TFEU); see also State aid no. C 46/2006.
  59. A new scheme with a CO2 tax reduction was notified in January 2008, see State aid N-22/2008 (Sweden), OJ C 184 of 22.6.2008.
  60. Point 158 of the Guidelines.
  61. Point 159(a) of the Guidelines.
  62. Point 159(b) of the Guidelines.
  63. Point 159(c) of the Guidelines.
  64. Point 154 of the Guidelines.
  65. In fact, the Commission used a relatively relaxed interpretation of this condition, allowing for tax reduction up to 20%. See, e.g., cases N 2/2004 Aggregates Levy - Northern Ireland, OJ C 81 of 2.4.2005, or N-449/2001 Ecological Tax Reform (Germany), OJ C 137 of 8.6.2002.
  66. See also Andersen, op. cit., note 4, p. 28.
  67. See point 140(a) of the Guidelines.
  68. See UK Government response, op. cit., note 42.