Environmental Aspects of State Aid for Energy Investment Projects

Abstract

INTRODUCTION THEMATIC CONTEXT AND SCOPE OF ANALYSIS The European law rules on State aid are of considerable importance to the energy sector given the traditionally high level of involvement of governments in energy production and supply. The development of large-scale energy projects – e.g. nuclear or coal-fired power stations, major hydropower plants, electricity transmission and distribution networks, gas pipelines, storage, gas or oil terminals – frequently depends on the State aid granted for investment by the Member States. Granting State aid to develop energy projects could affect competition on the internal energy market. Therefore State aid is in principle prohibited under Article 107(1) of the Treaty on the Functioning of European Union (‘TFEU’ or ‘Treaty’) but can be allowed by the European Commission if certain conditions under Articles 107(2) or 107(3) TFEU are satisfied. The State aid rules, Articles 107–109 TFEU, are found in Title Seven, Chapter One (named ‘Rules on Competition’) of the Treaty. The TFEU provides that the European Union shall have exclusive competence in the area of establishing competition rules necessary for the functioning of the internal market. EU State aid regulations were not established to protect the environment and do not have environmental objectives. However, as State aid for energy investment projects could have indirect significant impacts on the environment, the environmental consequences may need to be taken into account during State aid assessment. The growing importance of EU climate and energy legislation has caused several specific legal problems where environmental law and State aid law interact, e.g. in the scope of free allowances for power stations under EU Emission Trading System; exemptions from environmental taxes or charges; aid for Carbon Capture and Storage projects and aid for renewable energy, energy efficiency or Combined Heat and Power projects. In addition, several environmental conditions are included in the Commission's soft law State aid documents. Indeed, the European Commission adopted the Community Guidelines on State Aid for Environmental Protection of 2008 as part of the first Climate and Energy Package. Also adopted were the Guidelines on State aid for environmental protection and energy 2014– 2020 (EEAG). These should be understood as being applicable to the EU climate and energy policy up to 2020, confirmed by the text of EEAG, which refers in the ‘Introduction’ to the Europe 2020 strategy.