State of the Union: European Commission adopts revised EU Emission Trading System State aid Guidelines

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State of the Union: Commission adopts revised EU Emission Trading System State aid Guidelines

In line with the European Green Deal and the EU’s objective to become the first climate neutral economy by 2050, the Commission adopted today revised EU Emission Trading System State aid Guidelines in the context of the system for greenhouse gas emission allowance trading post-2021 (the ‘ETS Guidelines’).

They will enter into force on 1 January 2021 with the start of the new ETS trading period, and replace the previous Guidelines adopted in 2012. The ETS Guidelines aim at reducing the risk of ‘carbon leakage’, where companies move production to countries outside the EU with less ambitious climate policies, leading to less economic activity in the EU and no reduction in greenhouse gas emissions globally.

In particular, they enable Member States to compensate companies in at-risk sectors for part of the higher electricity prices resulting from the carbon price signals created by the EU ETS (so-called ‘indirect emission costs’). At the same time, overcompensation of companies would risk running counter to the price signals created by the EU ETS to promote a cost-effective decarbonisation of the economy and create undue distortions of competition in the Single Market.

Against this background, the revised ETS Guidelines will target aid only at sectors at risk of carbon leakage due to high indirect emission costs and their strong exposure to international trade, set a stable compensation rate of 75% in the new period and exclude compensation for non-efficient technologies, and make compensation conditional upon additional decarbonization efforts by the companies concerned.

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “To sustainably tackle climate change and achieve our Green Deal objectives, we have to put a price tag on carbon emissions while avoiding carbon leakage. The revised EU Emission Trading System State aid Guidelines adopted today are an important element of this project. They enable Member States to support those sectors that, because of indirect emission costs, are most at risk of carbon leakage. At the same time, they help deliver on a cost-effective decarbonisation of the economy by avoiding overcompensation and undue distortions of competition in the Single Market.”