The European Commission has cleared Member States to pay billions to high electricity using industrial sites, such as steel and aluminium producers, to compensate for EU Emissions Trading Scheme (ETS) costs after 1 January 2013.
The sectors deemed eligible for compensation include producers of aluminium, copper, fertilisers, steel, paper, cotton, chemicals and some plastics.
It will allow the refunding of up to 85% of costs incurred by these sectors from complying with the scheme from 2013 to 2015, falling to 75% by 2019 to 2020. This will amount to billions of euros.
In Britain, George Osborne has already promised £250 million of help for UK companies to compensate them for the carbon price floor in his Autumn Statement last year. Many already perform well in meeting their carbon reduction targets and reducing, thereby, their energy bills.
The Commission reached this decision after lengthy period of consultation with member states and stakeholders. It determined that these industries would not be able to pass on the costs incurred to their customers without suffering from unfair competition from imports that are not subject to the same rules.
EC Vice President Joaquín Almunia said that the rules were being changed to prevent “carbon leakage, in other words the relocation of industrial sites outside the EU" as a result of changes to the emissions trading scheme, and to preserve competition within the internal market.
The EU has an aim of reducing greenhouse gas emissions by 20% by 2020 compared to 1990 levels. Mr. Almunia said that if companies were to relocate their facilities outside the EU then “the objective of reducing overall emissions will not be realised".
“The rules have been designed to protect the effectiveness of the EU ETS in order to promote a cost-effective decarbonisation of the economy," Almunia said, and “to minimise competition distortions in the internal market by avoiding subsidy races within the EU at a time of economic uncertainty and budgetary discipline".
The maximum aid amount that Member States can grant will be calculated according to a formula that takes into account the installation’s baseline production levels or the installation’s baseline electricity consumption levels, together with the CO2 emission factor for local electricity.
This ensures that the aid is proportionate and that it maintains the incentives for electricity efficiency and the transition from "grey" to "green" electricity. For this reason it does not fully compensate industry for the full costs of the EU Allowances.
Carbon capture and storage
Mr. Almunia also announced that the construction of carbon capture and storage plants for coal burning power stations can receive up to 15% cost subsidy without breaking state aid rules. Aid will be highest for those projects which are chosen in a genuinely competitive and transparent bidding process.
Member states are allowed to use the revenues generated from the auction of emission allowances to support the construction of highly efficient power plants, including those that are carbon capture and storage ready. This is mandated for plants over 300 MW of rated capacity.
Support is also available to upgrade dirty power plants; and hospitals are to be excluded from the costs of the EU ETS.
"All in all," he said, "these new rules reflect the general approach to state aid that it is legitimate as long as it supports areas of common interest like climate change, provided that it is necessary, efficient and well designed".