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Review EU State Aid Guidelines for Environmental protection and Energy post 2020 (EEAG)

Date

13 Jan 2021

Sections

Energy

European Aluminium represents the entire value chain of the aluminium industry in Europe. We welcome the European Commission’s review of the EEAG. It represents a unique opportunity to improve and update the current regime to reflect the latest EU regulatory and policy developments stemming from the low carbon transition affecting the competitiveness of our sector, ranging from EU energy, climate and environmental legislation to global trade and competition law developments over the last decade (1).

Also, Covid-19 crisis shines a light on Europe’s dependence on strategic raw materials from other regions. Europe should urgently reflect on how to reinforce its strategic autonomy in global value chains, preserve existing industrial assets and reshoring the production in Europe instead of relying on carbon-intensive imports. Reduced European production will only increase our dependency on primary imports with a significantly higher carbon footprint. The aluminium value chain should thus be at the forefront of strategic eco-systems, both in the recovery plan and in the transition to a climate-neutral and circular economy. Industries in Europe need today more than ever an enabling state aid framework to be more energy-efficient, competitive, circular, and sustainable in order to deliver and invest in climate neutrality while operating in a free and fair-trade environment.

Summary of key policy asks

We strongly disagree in with the European Commission that it “is unclear, whether the existence of reductions for Energy Intensive Users has led to the introduction of more ambitious renewables policies by all Member States” and that “the effectiveness of those reductions seems to vary depending on the proportion of the RES charge over the electricity bill for Energy Intensive Users in the various Member States”(2).

In our industry, the reductions for energy intensive of RES charges has been an effective tool to protect our industry against carbon leakage and the increased costs Aluminium producers face only in Europe (see case studies in ANNEX to this consultation response). Furthermore, these reductions have played a crucial role in enabling the introduction of more ambitious renewable policies across Europe, by ensuring the stability of the financing base. Reductions for Energy Intensive Users (EIUs) are a consequence of renewable energy support schemes, not the other way around.

Furthermore, we strongly disagree on the proposal to use the EU Sustainable Finance Taxonomy as a tool to identify the contribution to environmental protection. The Taxonomy Regulation is addressed to financial market participants and was originally conceived by EU policymakers to be a voluntary transparency tool to facilitate the disclosure of sustainability information by companies. Its scope is not to restrict or condition access to financing, but to set up certain criteria to be taken into consideration when an investment can be labelled sustainable.

For this reason, we call upon the European Commission to:

  • Preserve the approach adopted in paragraphs 188 and 189 of the current EEAG, wherein relief granted is proportionate to the specific exposure of each sector at the level of undertaking/activity. In particular, the reduction of RES surcharges has been vital for preserving competitiveness and preventing carbon leakage in our industry. The reduction of RES surcharges by 85% for industry, with the possibility of limiting the costs to 0.5% of GVA for the most electro-intensive undertakings, should thus be maintained. The Guidelines should also specify that in the case of an integrated undertaking with activities in numerous sectors, the GVA should be calculated at the sub-undertaking level.
  • Maintain the principles embedded in EEAG that any aid to renewables’ generation must be granted in a cost-effective manner based on competitive bidding. Furthermore, introduce enabling conditions for the competitive consumption of RES electricity, particularly for electro-intensive industries.
  • Extend the EEAG’s scope to reflect recent case law on existing surcharges related to the energy transition. This must carefully consider all future costs as a result of the path towards higher emission reduction targets for 2030 and the 2050 climate neutrality objective. The GVA cap could potentially cover all related incremental costs.
  • The new EEAG must provide long-term certainty on regulatory costs related to electricity consumption so that solutions such as long-term low carbon PPAs can become more attractive. One possible form could be a cross-border support mechanism backed by a public guarantee aimed to allow Energy Intensive Users (EIU) to source their renewable energy from where it brings most value while protecting them against electricity costs volatility and cross border risks.
  • Important Projects of Common European Interest (IPCEI)3 and breakthrough innovation: The Commission IPCEI criteria should be amended to allow funding for the operational costs incurred by the use of lowcarbon production processes, including the additional costs incurred when consuming renewable electricity.
  • Support for circular value chains and sorting infrastructure: The current Guidelines do not reflect the higher ambition for climate and circularity under the Green Deal and recently released Circular Economy 2 Action Plan. Aid should go beyond waste management systems and focus higher up the waste hierarchy to support innovative circular solutions.
  • Operating aid is not the only measure that can ensure the deployment of renewables: Investment aid can be a more viable option that offers certainty to investors.
  • Competitive bidding process: Bidding should remain the general rule for when there is competition and when projects are comparable and not at the early stages of the development process. However, industries with hard to abate emissions, and no available scalable technology, will need larger support than other type of industries where technologies are available. Therefore, competitive bidding might not be the only appropriate criteria to be considered and emission reduction potential must be taken into account.
  • In the review, the Commission should explore the possibility of demand-side measures to incentivise low carbon products.
  • The EU Taxonomy must not be used as a tool for deciding when and if to grant aid. Competition policy should focus on facilitating access to affordable finance for European industry’s decarbonization projects where the market itself cannot deliver. Restricting access to state aid for energy-intensive users based on EU taxonomy rules would annul the positive effect aimed at by measures preventing carbon leakage.

(1) See OECD Report: “Measuring distortions in international markets: the aluminium value chain” (7 January 2019)

(2) See also EC EEAG Inception Impact Assessment Roadmap, December 2020

 

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