Europaudvalget 2018-19 (1. samling)
EUU Alm.del Bilag 656
Offentligt
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Danish response to the public consultation concerning the revision of ETS
State Aid Guidelines
In general it is important that the focus for the revision of the ETS State Aid Guidelines is on
aligning the guidelines with
the Commission’s
vision for a climate-neutral Europe
1
in 2050 and
on fulfilling the European ambitions for providing Clean Energy for all Europeans.
2
The aim behind the revision of the guidelines should therefore not only be on ensuring global
competitiveness of European industries and minimise the risk of carbon leakage, but also
–
as
the main point
–
erase any perception that subsidies to fossil energy production would be
necessary to achieve this goal. The revised State Aid Guidelines should consequently serve as
an instrument for promoting competitiveness by providing industries in risk of carbon leakage
with a broader choice of energy solutions. These choices must include industry access to
affordable green energy.
Denmark’s key priorities for the revision of the ETS State Aid Guidelines
Compensation for indirect ETS cost should not be an obstacle for the green transition
All possibilities should be explored for reforming the State Aid Guidelines in a way, which allows carbon
leakage exposed industry sectors to source green energy without injuring the economic benefits, which may
be provided by national ETS state aid schemes.
Ensuring fair competition, especially in relation to small exposed businesses
ETS state aid rules must be redesigned in order to ensure fair competition among businesses, and especially
minimize harm to small businesses, as well as to sectors, where large and small businesses directly compete
with each other within the internal market.
Conducting and completing state aid measures on a strict and temporary basis
The revised guidelines must not counteract the most climate ambitious Member States and businesses.
Instead, the guidelines must be formulated in a way that prepares the phasing out of ETS state aid as a
temporary measure by the end of ETS phase IV in 2030 or soonest possible thereafter.
A targeted approach is needed for Annex II of the revised guidelines
The same level of ambition must be used as when the number of eligible sectors on the Carbon Leakage
list was reduced by two thirds from 2021 and onwards.
Fulfilling the 25 percent target of article 10a (6)
The agreed original financial scope of state aid granted under article 10a (6) must be restored without
undue delay. The Commission needs to monitor and report the full background for Member States missing
the 25 percent target repeatedly and inform about the measures taken to rectify the situation within an
acceptable time frame.
In the current State Aid Guidelines, the Commission outlines three explicit guiding objectives:
minimising the risk of carbon leakage
preserving the EU ETS objective to achieve cost-efficient decarbonisation
minimising competition distortions in the internal market.
1
2
The Commission’s 2050 long-term strategy:
https://ec.europa.eu/clima/policies/strategies/2050_en
Including a binding renewable energy target for 2030 of at least 32% and an energy efficiency target of at
least 32.5%, with a possible upward revision in 2023:
https://ec.europa.eu/energy/en/topics/energy-strategy-
and-energy-union/clean-energy-all-europeans
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The Danish Government fully supports these goals and is of the opinion that it would be
possible in the revised guidelines to target all three objectives in a much more efficient manner.
Compensation for indirect ETS costs should not be an obstacle for the green transition
The current State Aid Guidelines state that no state aid must be granted
in case of electricity
supply contracts that do not include any CO
2
costs.
Thus energy supply choices for carbon
leakage exposed sectors are deliberately limited to fossil fuelled energy production.
For two reasons, this limitation is not to the advantage of the exposed industry sectors: 1)
Whenever renewable energy (clean energy) could be bought at a lower price than fossil energy,
exposed industry was denied the full benefit of a state aid scheme, and 2) whenever renewable
energy could be bought at the same (or a slightly higher) price than fossil energy, current state
aid rules could encourage purchase of fossil energy, disregarding the efforts for a green
transition.
As a consequence, globally exporting, energy intensive industry could be slowed down in their
efforts to phase out fossil fuelled electricity supply. An example could be a manufacturer of
other
organic basic chemicals,
providing more than 2.600 jobs in Denmark and many more globally,
whose efforts to make it easier to use 100 percent clean energy have been limited by EU-
jurisdictions not granting ETS state aid and to certain non-EU jurisdictions.
The current state of affairs is compromising the objectives of
cost-efficient decarbonisation
and
of
minimising the risk of carbon leakage.
Denmark therefore suggests the following:
The Commission should explore all possibilities for reforming the State Aid Guidelines in a
way that allow carbon leakage exposed industry sectors to use clean energy without
risking the economic benefits which may be provided to these sectors by national ETS
state aid schemes.
Ensuring fair competition, especially in relation to small exposed businesses
State aid schemes in general do often contain administrative burdens for the
industries/businesses that are able to receive aid, with the current ETS state aid schemes as no
exception. This has time and again been reflected in the guidance documents issued by
Member States that have implemented these types of schemes. While it is easier for large
businesses to handle this kind of administrative requirements, small businesses will typically be
more challenged by requirements put to them for collection, verification, documentation and
regular reporting of necessary data.
As an example, energy intensive industry sectors like
manufacturing of pulp, paper and
paperboard
in Denmark include both large businesses and businesses with a small, highly
specialized production. For such small businesses, state aid schemes would often be perceived
as a benefit to larger businesses and competitors. This situation should therefore be avoided
since the overall aim of the guidelines to ensure fair competition is not supported by this.
While encouraging the Commission in its efforts to reduce unnecessary administrative burdens,
Denmark also recognizes the need for high standards for monitoring and compliance in the field
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of state aid, which in many cases make administrative requirements inevitable. On those
grounds, the following is suggested:
Avoid wherever possible granting of state aid to sectors, where large and small businesses
compete with each other within the internal market, since this could worsen the competitive
situation for small businesses. Thus operating against
all three objectives
the Commission
has set out for the ETS State Aid Guidelines.
Exempt sectors from the ETS State Aid Guidelines that may benefit from horizontal state
aid rules such as the General Block Exemption Regulation (GBER), since such regulation
allows for more flexible national state aid schemes and therefore easily could be given
preference in order to limit the number of national schemes that companies need to know,
understand, apply for, and administer.
Conducting and completing state aid measures on a strict and temporary basis
While acknowledging the importance and necessity of addressing carbon leakage risks, on
behalf of social, economic as well as climate priorities, it is important to emphasise that the ETS
State Aid Guidelines cannot, and has never been intended to, be used as an opportunity to
delay the efforts that Member States should put in place in the transition to energy supplies
based on renewable energy. For that reason, the state aid rules in ETS phase III were designed
as a transitional measure only.
The revision of the State Aid Guidelines should therefore focus on maintaining and increasing
the incentives for industries as well as Member States to promote the transition to an energy
supply based on renewable energy. The guidelines should consequently be balanced and take
fair consideration to Member States which have taken a lead in removing fossil fuels from their
electricity supply, e.g. instead of allowing their industries access to state aid for the purpose of
compensating indirect ETS costs.
Denmark and a considerable number of other EU Member States have joined the Powering
Past Coal Alliance, a coalition of ambitious states, corporations and organisations who deem it
possible and urgent to ban fossil fuels from electricity production within a limited number of
years. In Denmark, a country with access to sizable fossil deposits within its own national
borders, all the political parties have agreed upon phasing out coal in the electricity production
no later than 2030.
3
A number of EU Member States have similar ambitions which points to the
fact that it will be a likely possibility in the European Union to provide electricity supplies based
on renewable energy to industries within a time frame that reaches not very far beyond ETS
phase IV.
Based on this, the Commission should:
Formulate the revised ETS State Aid Guidelines in a way that prepares the phasing out of
ETS state aid as a temporary measure by the end of ETS phase IV in 2030 or soonest
possible thereafter. This can be achieved by increasing the pace, at which the maximum
The Danish Energy Agreement of june 2018:
https://en.efkm.dk/media/12307/energy-agreement-2018.pdf
3
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aid intensity factor (guidelines section 26) is reduced from 75 percent in 2020 to a zero or
near-zero percentage by 2030.
A targeted approach is needed for Annex II of the revised guidelines
Denmark has some reservation in relation to the described policy option of aligning criteria of
eligibility for compensation of indirect costs with the criteria of eligibility for free allowances as
defined in the Commission’s Carbon Leakage list.
The current guidelines are, in accordance with directive 2003/87, stressing the temporary nature
of the indirect cost compensation measures.
The directive’s carbon leakage list is also
originated from a different legal basis and intended for a much broader purpose.
Even though an alignment could make it more transparent in relation to sectors receiving direct
aid in form of free allowances and/or indirect aid in form of cost compensation measures, it
would not be preferable to make such a choice, since an alignment (between Annex II and the
Carbon Leakage list) would result in a larger extension of the list of eligible sectors. Unless the
conditions for providing legal state aid are tightened and made more stringent, an extension of
the list would in our opinion be incompatible with the stated objectives of the revised ETS-
Directive.
The following is therefore suggested:
Use the same level of ambition when
the number of eligible sectors on the Carbon
Leakage list was reduced by two thirds
from 2021 and onwards. This would reduce the
number of listed sectors in Annex II of the revised State Aid Guidelines to less than five
sectors and no more than two subsectors.
Fulfilling the 25 percent target in article 10a (6)
For Denmark, it has been difficult to conceive a satisfying explanation on how state aid
measures under article 10a (6) were meant to be implemented, as clearly stated in the article
itself. The provision explicitly express that
“Member
States shall also seek to use no more than
25 percent of the revenues generated from the auctioning of allowances for the financial
measures”.
According to the Commission’s own data
4
, the volume of state aid measures within Member
States has, however, reached much higher levels, e.g. from 34 percent to 60 percent of
revenues generated from the auctioning of allowances.
Recognizing the non-binding character of the target value agreed upon, Denmark is suggesting
that the Commission should:
4
Report from the Commission to the European Parliament and the Council on the functioning of the European
carbon market, COM(2018) 842 final:
http://ec.europa.eu/transparency/regdoc/rep/1/2018/EN/COM-2018-842-
F1-EN-MAIN-PART-1.PDF
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Reinstate the agreed original financial scope of aid granted under article 10a (6) without
undue delay.
Emphasize the obligation of Member States under article 10a (6) as from 2018, in any year
in which a Member State uses more than 25 percent of its auctioning revenues, to publish
a report setting out the reasons for exceeding that amount.
Exert the Commission’s own reporting tasks in a way that provide full transparency to the
reasons why Member States keep missing the 25 percent target as well as to the
measures taken to rectify the situation within an acceptable time frame.
Exhibit a rigorous assessment of future submissions by Member States of national aid
schemes under article 10a (6).
Other comments
With the adoption of directive 2018/410/EC for a revised Emission Trading System, the EU ETS
is confirmed as one of the cornerstones of the European climate policy. The ETS State Aid
Guidelines play a crucial part in the implementation of the directive, and its revision comprises
considerable potential to either support or undermine the success of the revised directive.
Denmark is therefore urging the Commission to make every effort possible to ensure a prudent,
ambitious and highly targeted approach when revising its ETS State Aid Guidelines.
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