The European Commission has approved, under EU State aid rules, a €104 million Croatian scheme to reduce an electricity consumption levy imposed on energy-intensive companies. The scheme aims at mitigating the risk that, due to this levy, energy-intensive companies may relocate their activities to locations outside the EU with less ambitious climate policies. In addition, the scheme contributes to the achievement of EU’s climate and environmental objectives set out in the European Green Deal.
The Croatian scheme
Croatia notified the Commission of its intention to introduce a €104 million scheme to support energy-intensive companies. In particular, Croatia plans to reduce for those companies a levy on electricity consumption, which finances the deployment of renewable energy sources in Croatia (‘RES levy’). Paying the full amount of the RES levy increases (i) the risk that certain energy-intensive companies relocate their activities to locations outside the EU with less ambitious climate policies, as well as (ii) the electricity costs of energy-intensive companies, thereby discouraging the electrification of their production processes.
The scheme, which will run until 31 December 2028, will be open to companies active in sectors listed in Annex I to the Guidelines on State aid for climate, environmental protection and energy 2022 (‘CEEAG’). Those sectors rely heavily on electricity and are exposed to international trade. Beneficiaries will need to consume at least 500 MWh per year. Under the scheme, the reduction in the RES levy will not exceed 75% and it will depend on the electro-intensity of the beneficiary (i.e. the greater the electro-intensity, the higher the reduction). The applicable reduction may not result in a levy below 0.5 EUR/MWh.
Beneficiaries will have to conduct an energy audit and to either (i) perform certain energy efficiency investments, (ii) invest in projects leading to substantial reductions of their greenhouse gas emissions, or (iii) cover at least 60% of their electricity consumption with renewable energy sources.
Croatia has also established a transitional plan to progressively phase-out the RES levy reduction for energy-intensive companies that paid reduced RES levies in 2020 or 2021 but are no longer eligible under the new scheme.
The Commission’s assessment
The Commission assessed the measure under EU State aid rules, in particular Article 107(3)(c) of the Treaty on the Functioning of the European Union (‘TFEU’), which enables Member States to support the development of certain economic activities subject to certain conditions, and the CEEAG.
The Commission found that the scheme facilitates the development of certain economic activities that rely heavily on electricity in their production processes and are particularly exposed to international competition.
In addition, the Commission found that the measure is necessary and appropriate to contribute to the achievement of the European Green Deal objectives. In particular, it reduces the risk of (i) adverse environmental impacts due to relocation of the targeted economic activities to jurisdictions with less ambitious climate policies, and (ii) discouraging the electrification of production processes within the sectors concerned. The measure also requires the beneficiaries to undertake investments in energy efficiency or greenhouse gas emission reductions, or to consume a sufficient share of electricity from renewable sources. Moreover, the measure is proportionate, as aid will not exceed 75% of the RES levy and is limited to the energy-intensive sectors listed in Annex I of the CEEAG. The Commission therefore concluded that the scheme brings about positive effects that outweigh any possible negative effects in terms of distortions to competition and trade in the EU.
On this basis, the Commission approved the Croatian scheme under EU State aid rules.
The Commission’s 2022 CEEAG provide guidance on how the Commission will assess the compatibility of environmental protection, including climate protection, and energy aid measures which are subject to the notification requirement under Article 107(3)(c) TFEU.
The new guidelines, applicable as from January 2022, create a flexible, fit-for-purpose enabling framework to help Member States provide the necessary support to reach the Green Deal objectives in a targeted and cost-effective manner. The involve an alignment with the important EU’s objectives and targets set out in the European Green Deal and with other recent regulatory changes in the energy and environmental areas and cater for the increased importance of climate protection. They include sections on energy efficiency measures, aid for greenhouse gas emissions removal, clean mobility, infrastructure, circular economy, pollution reduction, protection and restoration of biodiversity, as well as measures to ensure security of energy supply and to support energy-intensive users through reductions from electricity levies, subject to certain conditions.
With the European Green Deal Communication in 2019, the Commission reinforced its climate ambitions, setting an objective of net zero emissions of greenhouse gases in 2050. The European Climate Law in force since July 2021, which enshrines the 2050 climate neutrality objective and introduces the intermediate target of reducing net greenhouse gas emissions by at least 55% by 2030, sets the ground for the ‘Fit for 55′ legislative proposals presented by the Commission on 14 July 2021.
More information will be made available under the case number SA.102294 in the State aid register on the Commission’s competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the Competition Weekly e-News.
This €104 million scheme enables Croatia to reduce the risk that energy-intensive companies move their activities to locations outside the EU with less ambitious climate policies. At the same time, it maintains the incentives for an electrification and decarbonisation of the Croatian industry, in line with the European Green Deal objectives.