European Union State Aid Research Articles

Reconciling Environmental VAT Differentiations With EU State Aid Law

Differentiations in value added tax (VAT) rates and VAT exemptions are used to pursue environmental policy goals, among other things. This article analyses the compatibility of such environmental VAT measures with European Union (EU) state aid law. It is found that the criteria for the granting of a fiscal advantage to (certain) undertakings and the liability to (threaten to) distort competition and affect intra-Union trade are typically fulfilled in these situations. Conversely, the qualification of the relevant advantage as ‘state’ aid (as opposed to Union aid) essentially depends on the (voluntary or mandatory) character of the advantage according to the EU VAT Directive. In any case, one could argue that aligning the VAT legal framework with the European Green Deal is now an additional objective of EU VAT law. Such a reading would speak against the selectivity of these environmental measures pursuant to the Court of Justice of the European Union’s (CJEU’s) established three-stage assessment. Value added tax (VAT), rate reductions, rate differentiation, exemptions, state aid, Union aid, selectivity, distortion of competition, environmental policy, European Green Deal.

EU State Aid Rules and the European Green Deal: Will Their Stars Align?

The European Union (EU) is in the process of revamping its star cast for a greener production. While, economic growth and competition rules have dominated the centre stage and been the lead actors so far, the director - European Commission (EC) is now trying to spotlight imminent issues such as ‘sustainability’, ‘environment protection’ and ‘climate change’ through its newest rising stars the ‘European green deal’, ‘European climate law’ and ‘Fit for 55’ package, albeit with some resistance from senior actors such as ‘competition rules’, more specifically the ‘state aid rules’. This paper covers the story of the rise, conflicts and probable conciliation between these actors on the grand EU stage. European Green Deal, EU State aid, Competition, Fit for 55, Environment, Sustainability

State aid policy in the United Kingdom post-Brexit: a case of de-Europeanisation as orbiting Europeanisation

ABSTRACT Competition policy has been at the core of the European integration project from its very inception. The United Kingdom (UK) played a truly pivotal role in the development of European Union (EU) competition policy with the policy long presenting one of the best illustrations of Europeanisation. The public vote for Brexit in 2016 pushed the reset button for the UK’s engagement with the EU and saw successive UK governments all pursuing a de-Europeanisation trajectory as part of their objective of ‘taking back control’. State aid emerged as a contentious issue during the Brexit negotiations. The UK government hailed its new Subsidy Control Act (2023) as a clear departure from the EU state aid regime, but is this a case of de-Europeanisation or partial de-Europeanisation? This article argues that the UK has still not entirely broken free from EU’s state aid regime and finds itself in a state of orbiting Europeanisation.

The Development of the European Union State Aid Rules in the Energy Sector

The present paper presents the developments on the framework that governs the investments on the energy sector, focusing on competition law and the support to renewable energy sources through state aid. The researchers examine the developments of the state aid cases that have been under assessment by the European Commission over the course of the years and particularly, those regarding investments on renewable energy sources (RES) after the announcement of the European Green Deal, in late 2019. In addition to the above, the decisions of the European Commission and its tendency to not raising any severe objections, in general, against such cases of support schemes provided as state aid, are reviewed in parallel to the energy policy of the European Union, as it has been recently shaped in order to promote the increase of the use of RES in the EU Member States. Besides, the increased penetration of RES for the European Union, bares multiple benefits since, apart from playing a key role in the Union’s policy to tackle climate change and its severe consequences, it also contributes in the extended efforts of the EU Member States to minimize their dependence on energy products highly imported from Russia, such as natural gas, in the shadow of the recent war in Ukraine. Under that prism, the present paper provides a coherent and consistent examination of the ways in which state aid can be accepted by the European Commission, within the broader framework of the Competition protection in the EU, as well as the ways in which it can be even considered not to cause any severe distort of competition. The above are mainly concluded in case in which the support provided through such schemes tends to promote the development of activities that serve - on a high degree - the common interest, both on the national and the European level. Thus, the development of renewable energy technologies in the European energy sector and their enhancement towards greening the Union’s energy mix while turning it into a more resilient and independent one, can be considered as such a type of activities, as it will be further analyzed in this paper.

Between rational and realistic – the Market Economy Operator Test in European Union State aid law in times of economic downturn

Between rational and realistic – the Market Economy Operator Test in European Union State aid law in times of economic downturn

The Three Poisons of Post-Covid State Aid Control:

Even though the economic situation remains precarious, the Covid-19 economic shock has subsided enough to allow us to take stock of the European Union (EU) responses to the pandemic and appraise them in the context of emerging trends. The author argues that there are early precursors of such trends – referred to as the ‘Three Poisons’ – observable in interpretive and legislative approaches to Member States’ aid measures. These are: the easier justification of extended lifelines without adequately recognising the need for adaptation to new market conditions, and moral hazard associated with subsidy dependence; the blurring of lines between what is theoretically rational and what is obtainable under crisis market conditions thereby distorting the results of the Market Economy Operator Test; the increasing reliance on ad hoc frameworks, and highly situation-specific interpretations potentially eroding the pre-existing acquis. In this context, the purpose of this article is to identify post-Covid trends which negatively affect or might affect the long-term effectiveness of the EU State aid control system. Based on this, to assess whether these ‘poisons’ can and should be opposed. This analysis will conclude with de lege lata and de lege ferenda recommendations. Keywords: COVID-19; market economy operator test; MEOP; moral hazard; ad hoc regulation; common assessment criteria

Playing the Game: The EU’s Proposed Regulation on Foreign Subsidies

The objective of ‘level playing field’ has become increasingly more present in international trade affairs. The European Union (EU) has recently embarked on a quest to promote and protect the level playing field within and outside the borders of the internal market. The most recent manifestation of this objective is the regulation of foreign subsidies, i.e., subsidies provided by non-EU countries to undertakings operating within the EU. The European Commission issued its proposal for a new Regulation with the goal of tackling distortions to the level playing field caused by foreign subsidies. The present article introduces the major concepts of the Proposal and provides a comparative analysis with EU State Aid law and the WTO Subsidies and Countervailing Measures (SCM) Agreement. Further, it pursues an economic analysis of the anticipated impact of the Proposal with a view of examining whether the Proposal is capable of addressing global distortions caused by foreign subsidies and ensure a level playing field. Lastly, the article examines the compatibility of the Proposal with Article 32.1 of the SCM Agreement. Trade Remedies, WTO Law, Subsidies, Treaty Interpretation, EU Law, International Trade Law

Neutrality and Equality Aspects in the EU State Aid Temporary Framework 2020: The Case of the Airline Industry

Abstract Following the declaration of the COVID-19 pandemic, the restrictions imposed by the Member States (MSs) of the European Union (EU) led the tourism and commercial air transport industry to face serious financial difficulties that required airlines to apply for state support. In March 2020, the European Commission adopted a State Aid Temporary Framework (TF) for the COVID-19 period to simplify the process of granting aid, allowing the MSs rapid economic interventions. Claims regarding the approval of State aid to certain airlines reached the EU General Court (EGC), on the grounds of violation of the fair competition principle. It became clear that the processes enabled by the TF dispensed unequal treatment to airline companies and that the flexibility of the TF created competition imbalances. In spite of these events, little attention has been given to the way its application ignores the requirements of EU State aid control and other procedural justice and fairness principles, by failing to ensure neutrality and equality. This article addresses the matter using a standard legal interpretive approach to explain the imbalances created by the regulation. It presents a systematic review of the current regime, identifies the TF inefficiencies affecting competition principles, and argues for specific adjustments that could enhance its transparency. These contributions are useful to improve the existing framework and help prepare for a better management of future crises.

The Relationship Between State Aid and Nuclear Energy and A Legal Analysis of Nuclear Energy State Aid Cases in Terms of European Union State Aid Rules

State aid to the nuclear energy sector has increased significantly within the last decade and in parallel to this increase, controversy about giving state aid to nuclear energy has soared. In addition to this controversy, the existence of a special treaty for nuclear energy, called the Euratom Treaty, exclusion of nuclear energy from the ‘Guidelines on State aid for environmental protection and energy 2014-2020’ and very intrinsic risks and market failuresrelated to the nuclear energy sector distinguish nuclear state aid cases from other energy state aid cases. Considering the scarcity of research dealing with increasing nuclear state aid cases in detail, this research intended to focus on the relationship between state aid and nuclear energy and analyse prominent nuclear state aid cases. During the research, prominent nuclear state aid cases which have shaped the case law and related legislations were analysed. It could be briefly concluded that nuclear state aid cases will likely continue to increase as energy markets become more competitive. But it is very clear that intrinsic risks of nuclear energy and related market failures stemming from imperfect market conditions are keenly appreciated by the European Commission and the European Courts, and nuclear cases are treated more leniently in line with these conditions. This sends a very clear message that the lenient approach of the Commission and the Courts toward the nuclear state aid cases will remain as long as market failures and the Euratom Treaty exist and in this regard, the absence of guidelines for nuclear energy, while it seems like a disadvantage, will ensure the needed flexibility of the Commission when making its state aid assessment in nuclear state aid cases.

The Legal Implications of Public Support Policies Targeting Research, Development and Innovation in the European Union

Abstract The research problem of this article focuses on how the public support system in Estonia can help small and medium-sized enterprises (SMEs) to acquire and commercialise their intellectual property rights (IPR) in a sustainable and legally permissible manner. The study aims to analyse and determine which specific public support measures are needed by SMEs for acquiring and commercialising IPR and how to design such public support within the legal boundaries set under European Union (EU) laws. The theoretical framework used in this study is built around the social system as defined by Parsons. The 4S Model (based on scope, scale, skill and social networking) derived by researchers from the said social system is considered. Further, 19 key attributes were devised by the authors in conjunction with the role of motivation to form a revised framework. The analysis employs qualitative research methods. To apply the framework of social systems theory, the authors used semi-structured interviews as a method to study the public support measures required by Estonian stakeholders. This was also analysed in the framework of EU State aid law, which poses both restrictions and exemptions. This research presents several desired support measures. Although the public support systems for acquiring and commercialising IPR by SMEs are restrained by legal frameworks within the EU, the analysis of the relevant laws and cases shows that State aid for RDI purposes is legally permissible within the EU, depending on the state’s willingness and availability of funds.

Phasing out fossil fuel subsidies in the EU? Exploring the role of state aid rules

ABSTRACT The paper aims to identify and analyse potential legal avenues for phasing out fossil fuel subsidies (FFS) in the European Union (EU) using State aid rules. Our analysis reveals that the EU State aid rules would allow the European Commission to effectively target and monitor a vast number of FFS. From a policy perspective, the requirements for notification, examination, transparency, reporting, and recovery of unlawfully granted aid are of particular importance. The legal framework also provides avenues for the EU Commission to start a ‘Fossil Fuel Inquiry’, while providing important tools for civil society to apply pressure on states for the removal of FFS. Based on our legal analysis and pertinent literature, we discuss which of these different FFS and corresponding estimates are likely (or not) to fall under the EU State aid rules. Despite inherent uncertainties, the EU State aid toolbox offers various possibilities to the EU to actively advance its climate change policy and comply with its international commitments to reduce FFS. Key policy insights Member States in the EU still subsidize both the consumption and production of fossil fuels by a myriad of different measures, despite pledges to reduce FFS as part of the EU’s ambitious climate policy. A major part of these fossil fuels subsidies could be addressed by the already existing EU State aid rules, which provide an effective system that is not dependent on Member States political will and has a powerful enforcement mechanism. A first key step would be for the EU Commission to start a ‘Fossil Fuel Inquiry’, which would identify and quantify all support for fossil fuels within Member States. The EU State aid rules could also provide civil society with the possibility to actively lobby for State aid control, while offering the court systems in Member States as an additional avenue for enforcement.With this in mind, the EU State Aid rules could be used effectively to help the EU to phase out a major part of FFS.

A guardian in need of support: the enforcement of EU state aid rules

ABSTRACT State aid poses a threat to undistorted competition in the common market and, therefore, is rigidly regulated. However, elected political leaders have an incentive to disobey European Union (EU) regulations and grant aid in order to boost their electoral support. The European Commission is responsible for monitoring and enforcing member states’ compliance with EU state aid regulation. The present article analyses the effect of domestic politics on the Commission’s willingness to open a formal investigation and thus risk conflict with national governments. Specifically, it argues that the Commission is more likely to investigate, where institutional trust is strong and where ruling parties follow an interventionist economic policy.

Capacity remuneration mechanisms on European electricity markets—legal basis and actual implementation status

ABSTRACT In recent years a range of different capacity remuneration mechanisms have been discussed and implemented on European electricity markets. This article gives an overview of different designs, classifying and exploring central and decentral capacity markets, strategic reserves and different capacity payments. To illustrate the particular designs, examples in Germany, Italy, France and Switzerland are discussed in detail. Given that all capacity remuneration mechanisms in the European Union (EU) are subject to EU state aid and electricity regulations, the article examines the legal framework of capacity remuneration mechanisms.

EU Health Union and State Aid Policy: With Great(er) Power Comes Great Responsibility

This contribution evaluates whether European Union State aid policy could play a role in achieving deeper and more solidary integration in the area of public health. According to Article 107 TFEU, the powers of Member States to grant aid to help their economies are seriously limited. Exceptions to the general prohibition to grant State aid are authorised by the European Commission, which enjoys wide discretion in weighing national objectives against European integration goals. The area of public health has been shielded from the application of these rules, with activities such as the provision of health insurance failing to be considered of economic nature (see most recently the Dôvera judgment). The COVID-19 experience shows that, in cases of major health crises, State aid provisions are practically suspended, with interventions allowed in the name of the fight against the pandemic. The eventual creation of a Health Union will require the re-evaluation of the application of the State aid rules to healthcare. This paper questions whether these rules should evolve as a reflective function of strengthened competences in healthcare or whether existing regulatory powers are enough to determine the interaction between national spending policies, a solidary European Health Union and fair competition.

The Role of EU State Aid Law as a “Risk Management Tool” in the COVID-19 Crisis

This article discusses the role of European Union (EU) State aid law in the COVID-19 crisis. It contends that different Treaty derogations have played unique roles in addressing the core determinants of the economic risk linked to the pandemic (ie the “exposure” to lockdown measures and the “vulnerability” of certain sectors to them), and in increasing the resilience of national economies. Moreover, this article examines the extent to which EU State aid law has been used to manage and mitigate health risks, by allowing Member States to enhance the preparedness and capacity of their healthcare sector (broadly conceived) to respond to the pandemic. On the whole, this article maintains that State aid control has been used by the European Commission as an important “risk management tool”, and it highlights the role of the Commission as the crisis management authority.

Shaping the Social Market Economy After the Lisbon Treaty: How ‘Social’ is Public Economic Law?

Since the introduction of the Lisbon Treaty in 2009, public authorities in the European Union (EU) operate within a social market economy. This socioeconomic model inherently contains an initial promise that social objectives – in addition to economic objectives – have an important role to play in creating this context. Whilst aiming to contribute to social objectives and, thus, shape their part of this economy, public authorities are frequently faced with the possibilities and the often emphasised limitations of public economic law, which most prominently includes EU public procurement law, EU state aid law and EU competition law. This contribution considers the legal tensions that can arise when these authorities aim to pursue social objectives within the remit of these fields of law. Based on the areas of sustainability and employment, it argues that public economic law contains various suitable instruments for the pursuit of these objectives, but also that differences still exist between how a balance is struck between the ‘economic’ and the ‘social’, thereby creating obstacles for public authorities and their social agenda.

The Sun Behind the Clouds? Enforcement of Renewable Energy Awards in the EU

AbstractA number of European Union (EU) countries have undertaken thorough reforms in the renewable energy sector over the past years. The regulatory changes have triggered a wave of claims from low-carbon investors asserting that the reforms have diminished or exhausted the economic viability of their investments. Unlike local investors, who typically take legal action before domestic courts, foreign investors have filed arbitration claims in accordance with the Energy Charter Treaty, notably against Spain, Italy, Bulgaria, and the Czech Republic, resulting in several awards of damages. However, recent developments in EU state aid law seem to restrict the ability of investors to obtain compensation. This article argues that such developments may undermine renewable energy policy, because arbitration enhances the regulatory stability and predictability which low-carbon investments require only if arbitral awards can be enforced effectively. The article examines the different scenarios that may arise out of the interplay between EU law and investment arbitration in the EU and concludes that the European Commission's arguable redrawing of the boundaries of state aid rules to encompass investment arbitration, combined with the EU's general quest to replace investment arbitration with alternative mechanisms of adjudication, may jeopardize climate change mitigation policies.

Policy Instrument Supply and Demand: How the Renewable Electricity Auction Took over the World

The selection and design of renewable electricity support instruments is an important part of European Union (EU) energy policy and central to the governance of the Energy Union. In 2014, the European Commission published updated guidelines for state aid that effectively mandate the EU-wide implementation of auctions for allocating revenue support to commercial scale renewable electricity generation. This article argues that the RES auction’s rapid ascent towards dominance is explained by a coincidence of an activist interpretation of EU state aid law creating demand for knowledge about the instrument and the emergence of a ready source of supply from a burgeoning community of a RES auction specialists and experts. Knowledge gained through EU-wide implementation of auctions further adds to supply of auctions expertise among the community. The implications of positive feedback between instrument demand and the growing supply of knowledge about an instrument reinforces the importance of critical engagement between policymakers and policy experts.

Transfer pricing and state aid: The unintended consequences of advance pricing agreements

An advance pricing agreement (APA) is a formal arrangement between a tax authority and a multinational enterprise (MNE) in which the parties jointly agree on the MNE’s transfer pricing methodology, estimated taxable income, and tax payments for a fixed period, thus reducing the likelihood of an income tax dispute. We argue that APAs, which were developed by governments to solve MNE-state problems in one realm (international taxation of related party transactions), have had unintended consequences for both parties due to the spillover impacts of APAs into other policy realms. We explore this argument in the European Union state aid cases where, in the context of competition policy, APAs can be viewed as hidden, discretionary policies that can be misused by lower-tier governments to attract or retain inward foreign direct investment by offering individual MNEs preferential tax treatment. Our paper contributes to this literature by analyzing the unintended consequences of APAs and recommending policy changes to reduce these negative spillovers.

European Union Development Policy: Collective Action in Times of Global Transformation and Domestic Crisis

This special issue of Development Policy Review reflects on European Union (EU) efforts to build a more effective global development policy amid a rapidly changing international context. As 2030 Agenda and the Sustainable Development Goals have made clear, global development challenges require collective action if they are to be resolved. Contributions to the special issue explore the ways in which the EU approaches collective action challenges in different development cooperation frameworks and policy settings. Themes explored include strategies for overcoming collective action problems, the impacts of these interactions on EU and member state aid policies, coherence between development and other policy fields, relations between European and other development actors, and the reception of the EU's efforts in developing countries.