28.6.2014   

EN

Official Journal of the European Union

C 200/1

1.

1.1.

1.2.

1.3.

2.

3.

3.1.

3.2.

3.3.

3.4.

3.5.

3.6.

3.7.

3.8.

3.9.

3.10.

3.11.

4.

5.

6.

7.

(1)

In order to prevent State aid from distorting competition in the internal market and affecting trade between Member States in a way which is contrary to the common interest, Article 107(1) of the Treaty on the Functioning of the European Union (‘the Treaty’) lays down the principle that State aid is prohibited. In certain cases, however, State aid may be compatible with the internal market under Articles 107(2) and (3) of the Treaty.

(2)

On the basis of Article 107(3)(c) of the Treaty, the Commission may consider compatible with the internal market State aid to facilitate the development of certain economic activities within the European Union, where such aid does not adversely affect trading conditions to an extent contrary to the common interest.

(3)

The Europe 2020 strategy (1) focuses on creating the conditions for smart, sustainable and inclusive growth. To that end, a number of headline targets have been set, including targets for climate change and energy sustainability: (i) a 20 % reduction in Union greenhouse gas emissions when compared to 1990 levels; (ii) raising the share of Union energy consumption produced from renewable resources to 20 %; and (iii) a 20 % improvement in the EU’s energy-efficiency compared to 1990 levels. The first two of these nationally binding targets were implemented by ‘The climate and energy package’ (2).

(4)

On 22 January 2014 the Commission proposed the energy and climate objectives to be met by 2030 in a Communication ‘A policy Framework for climate and energy in the period from 2020 to 2030’ (3) (the 2030 Framework). The pillars of the 2030 Framework are: i) a reduction in greenhouse gas emissions by 40 % relative to the 1990 level; ii) an EU-wide binding target for renewable energy of at least 27 %; iii) renewed ambitions for energy efficiency policies; and iv) a new governance system and a set of new indicators to ensure a competitive and secure energy system.

(5)

The headline targets mentioned in recital (3) are particularly important for these Guidelines. In order to support achieving those targets, the Europe 2020 strategy put forward the ‘Resource efficient Europe’ as one of the seven flagship initiatives (4). That flagship initiative aims to create a framework for policies to support the shift towards a resource-efficient and low-carbon economy which helps to:

(6)

It should be recalled that the Resource Efficiency Roadmap (5) as well as several Council conclusions call for a phasing out of environmentally harmful subsidies (6). These Guidelines should therefore consider negative impacts of environmentally harmful subsidies, while taking into account the need to address trade-offs between different areas and policies as recognised by the flagship initiative. Aid for the extraction of fossil fuels is not included in these Guidelines.

(7)

The Roadmap also calls on Member States to address gaps in their performance in delivering the benefits from Union legislation (7). To avoid that State aid measures lead to environmental harm, in particular Member States must also ensure compliance with Union environmental legislation and carry out an environmental impact assessment when it is required by Union law and ensure all relevant permits.

(8)

The Communication ‘Energy 2020 – A strategy for competitive, sustainable and secure energy’ (8), as part of the ‘Resource efficient Europe’ flagship initiative already concluded that the objectives of a secure, affordable and sustainable energy market will be undermined unless electricity grids are upgraded, obsolete plants are replaced by competitive and cleaner alternatives and energy is used more efficiently throughout the whole energy chain.

(9)

The 2030 Framework calls for an ambitious commitment to reduce greenhouse gas emissions in line with the 2050 roadmap. Delivery of this objective should follow a cost-efficient approach, providing flexibility to Member States to define a low-carbon transition appropriate to their specific circumstances and encourage research and innovation policy to support the post-2020 climate and energy framework. These Guidelines respect those principles and prepare the ground for the 2030 Framework.

(10)

In these Guidelines, the Commission sets out the conditions under which aid for energy and environment may be considered compatible with the internal market under Article 107(3)(c) of the Treaty.

(11)

In the Communication on State aid modernisation (9), the Commission announced three objectives pursued through the modernisation of State aid control:

(12)

In particular, the Communication called for a common approach in the revision of the different Guidelines and frameworks based on strengthening the internal market, promoting more effectiveness in public spending through a better contribution of State aid to the objectives of common interest, greater scrutiny on the incentive effect, on limiting the aid to the minimum necessary, and on avoiding the potential negative effects of the aid on competition and trade. The compatibility conditions set out in these Guidelines are based on these common assessment principles.

(13)

These Guidelines apply to State aid granted for environmental protection or energy objectives in all sectors governed by the Treaty in so far as measures are covered by Section 1.2. They therefore also apply to those sectors that are subject to specific Union rules on State aid (transport (10), coal, agriculture, forestry, and fisheries and aquaculture) unless such specific rules provide otherwise.

(14)

For agriculture and fisheries and aquaculture, these Guidelines apply to aid for environmental protection in favour of undertakings active in the processing and marketing of products and, under certain conditions, to undertakings active in primary production. The following conditions apply to these sectors:

(15)

These Guidelines do not apply to:

(16)

Environmental and energy aid may not be awarded to firms in difficulty as defined for the purposes of these Guidelines by the applicable Guidelines on State aid for rescuing and restructuring firms in difficulty (19) as amended or replaced.

(17)

When assessing aid in favour of an undertaking which is subject to an outstanding recovery order following a previous Commission decision declaring an aid illegal and incompatible with the internal market, the Commission will take account of the amount of aid still to be recovered (20).

(18)

The Commission has identified a number of environmental and energy measures for which State aid under certain conditions may be compatible with the internal market under Article 107(3)(c) of the Treaty:

(19)

For the purposes of these Guidelines the following definitions apply:

(20)

Individual aid granted on the basis of an aid scheme remains subject to the notification obligation pursuant to Article 108(3) of the Treaty, if the aid exceeds the following notification thresholds (32) and is not granted on the basis of a competitive bidding process:

(21)

Tax exemptions, reductions from environmental taxes and exemptions from the financing of energy from renewable sources falling under Section 3.7 will not be subject to the conditions for individually notified aid. However, aid granted in the form of fiscal aid not covered by Section 3.7 of these Guidelines will be subject to an individual assessment if the thresholds in that Section are exceeded. This also applies irrespective of whether the individual beneficiary benefits at the same time from a tax exemption or reduction falling under Section 3.7.

(22)

These Guidelines provide the compatibility criteria for aid schemes and individual aid for environmental protection and energy objectives which are subject to the notification obligation pursuant to Article 108(3) of the Treaty.

(23)

State aid for environmental protection and energy objectives will be considered compatible with the internal market within the meaning of Article 107(3)(c) of the Treaty if, on the basis of the common assessment principles set out in this Chapter, it leads to an increased contribution to the Union environmental or energy objectives without adversely affecting trading conditions to an extent contrary to the common interest. The specific handicaps of assisted areas will be taken into account.

(24)

This Chapter clarifies how the Commission will apply the common assessment principles set out in Section 3.1 when assessing aid measures falling within the scope of these Guidelines and, where applicable, lays down specific conditions for individual aid (either provided on the basis of a scheme or ad hoc).

(25)

Section 3.2 sets out the general compatibility conditions applicable to all aid measures falling within the scope of these Guidelines, unless the more specific sections of Chapter 3 specify or amend these general compatibility conditions. Accordingly, Section 3.2 applies in particular to the following measures which are not part of the more specific sections of Chapter 3:

(26)

To assess whether a notified aid measure can be considered compatible with the internal market, the Commission generally analyses whether the design of the aid measure ensures that the positive impact of the aid towards an objective of common interest exceeds its potential negative effects on trade and competition.

(27)

The Communication on State aid modernisation of 8 May 2012 (33) called for the identification and definition of common principles applicable to the assessment of compatibility of all aid measures carried out by the Commission. For that purpose, the Commission will consider a State aid measure compatible with the internal market only if it satisfies each of the following criteria:

(28)

Certain categories of schemes may further be made subject to a requirement of ex post evaluation as described in Chapter 4. In such cases, the Commission may limit the duration of those schemes (normally to four years or less) with a possibility to re-notify their prolongation afterwards.

(29)

Moreover, if a State aid measure or the conditions attached to it, including its financing method when it forms an integral part of it, entail a non-severable violation of Union law, the aid cannot be declared compatible with the internal market (34). For example, in the field of energy, any levy that has the aim of financing a State aid measure needs to comply in particular with Articles 30 and 110 of the Treaty (35).

(30)

The general objective of environmental aid is to increase the level of environmental protection compared to the level that would be achieved in the absence of the aid. The Europe 2020 strategy in particular set targets and objectives for sustainable growth to support the shift towards a resource-efficient, competitive low-carbon economy. A low carbon economy with a significant share of variable energy from renewable sources requires an adjustment of the energy system and in particular considerable investments in energy networks (36). The primary objective of aid in the energy sector is to ensure a competitive, sustainable and secure energy system in a well-functioning Union energy market (37).

(31)

Member States intending to grant environmental or energy aid will have to define precisely the objective pursued and explain what is the expected contribution of the measure towards this objective. When introducing a measure co-financed by the European Structural and Investments Funds, Member States may rely on the reasoning in the relevant Operational Programmes in indicating the environmental or energy objectives pursued.

(32)

Environmental studies can contribute to achieving a common objective when they are directly linked to investments eligible under these Guidelines, also if following the findings of a preparatory study, the investment under investigation is not undertaken.

(33)

To demonstrate the contribution of an individually notifiable aid towards an increased level of environmental protection, the Member State may use, as much as possible in quantifiable terms, a variety of indicators, in particular the ones mentioned below:

(34)

Whereas it is generally accepted that competitive markets tend to bring about efficient results in terms of prices, output and use of resources, in the presence of market failures (38), State intervention may improve the efficient functioning of markets. Indeed State aid measures can under certain conditions, correct market failures and thereby contribute towards achieving the common objective to the extent that the market on its own fails to deliver an efficient outcome. In order to assess whether State aid is effective to achieve the objective, it is necessary first to diagnose and define the problem that needs to be addressed. State aid should be targeted towards situations where aid can bring a material improvement that the market cannot alone deliver.

(35)

To establish Guidelines ensuring that aid measures achieve the common objective, Member States should identify the market failures hampering an increased level of environmental protection or a well-functioning secure, affordable and sustainable internal energy market. Market failures related to environmental and energy objectives may be different or similar, but can prevent the optimal outcome and can lead to an inefficient outcome for the following reasons:

(36)

The mere existence of market failures in a certain context is not sufficient to justify State intervention. In particular, other policies and measures may already be in place to address some of the market failures identified. Examples include sectorial regulation, mandatory pollution standards, pricing mechanisms such as the Union Emissions Trading System (‘ETS’) and carbon taxes. Additional measures including State aid may only be directed at the residual market failure, that is to say the market failure that remains unaddressed by such other policies and measures. It is also important to show how State aid reinforces other policies and measures in place that aim at remedying the same market failure. Therefore, the case for the necessity of State aid is weaker if it counteracts other policies targeted at the same market failure.

(37)

The Commission will consider that aid is needed if the Member State demonstrates that the aid effectively targets a (residual) market failure which is not addressed.

(38)

Whereas market failures may exist in general and aid measures may be, in principle, well-designed to target an efficient market outcome, not all undertakings concerned may be confronted with these market failures to the same extent. Consequently, for notifiable individual aid, the Commission will assess the specific need for aid in the case at hand. It is for the Member State to demonstrate that there is a market failure which is still not addressed with regards to the specific activity supported by the aid and whether the aid is effectively targeted to address that market failure.

(39)

Depending on the specific market failure addressed, the Commission will take into account the following factors:

(40)

The proposed aid measure must be an appropriate instrument to address the policy objective concerned. An aid measure will not be considered compatible with the internal market if the same positive contribution to the common objective is achievable through other less distortive policy instruments or other less distortive types of aid instruments.

(41)

State aid is not the only policy instrument available to Member States to promote increased levels of environmental protection or to achieve a well-functioning secure, affordable and sustainable European energy market. It is important to keep in mind that there may be other, better placed instruments to achieve those objectives. Regulation and market-based instruments are the most important tools to achieve environmental and energy objectives. Soft instruments, such as voluntary eco-labels, and the diffusion of environmentally friendly technologies may also play an important role in achieving a higher level of environmental protection.

(42)

Different measures to remedy the same market failure may counteract each other. This is the case where an efficient, market-based mechanism has been put in place to deal specifically with the problem of externalities. An additional support measure to address the same market failure risks to undermine the efficiency of the market-based mechanism.

(43)

Different measures to remedy different market failures may also counteract each other. A measure addressing a generation adequacy problem needs to be balanced with the environmental objective of phasing out environmentally or economically harmful subsidies, including for fossil fuels. Similarly, a measure to reduce greenhouse gas emissions can increase the supply of variable power which might negatively affect generation adequacy concerns.

(44)

Respect for the ‘polluter pays principle’ (‘PPP’) through environmental legislation ensures in principle that the market failure linked to negative externalities will be rectified. Therefore, State aid is not an appropriate instrument and cannot be granted insofar as the beneficiary of the aid could be held liable for the pollution under existing Union or national law (40).

(45)

Environmental and energy aid can be awarded in various forms. The Member State should however ensure that the aid is awarded in the form that is likely to generate the least distortions of trade and competition. In that respect, the Member State is required to demonstrate why other potentially less distortive forms of aid such as repayable advances as compared to direct grants or tax credits as compared to tax reductions or forms of aid that are based on financial instruments such as debt or equity instruments (for example, low-interest loans or interest rebates, State guarantees, or an alternative provision of capital on favourable terms) are less appropriate.

(46)

The choice of the aid instrument should be coherent with the market failure that the aid measure aims at addressing. In particular where the actual revenues are uncertain, for instance in case of energy saving measures, a repayable advance may constitute the appropriate instrument. For aid schemes implementing the objectives and priorities of operational programmes, the financing instrument chosen in this programme is in principle presumed to be an appropriate instrument.

(47)

For operating aid, the Member State must demonstrate that the aid is appropriate to achieve the objective of the scheme to which the aid is targeted. To demonstrate that the aid is appropriate, the Member State may calculate the aid amount ex ante as a fixed sum covering the expected additional costs over a given period, to incentivise undertakings to minimise their costs and develop their business in a more efficient manner over time (41).

(48)

For the purpose of demonstrating the appropriateness of schemes, the Member State can also rely on the results of past evaluations as described in Chapter 4.

(49)

Environmental and energy aid can only be found compatible with the internal market if it has an incentive effect. An incentive effect occurs when the aid induces the beneficiary to change its behaviour to increase the level of environmental protection or to improve the functioning of a secure, affordable and sustainable energy market, a change in behaviour which it would not undertake without the aid. The aid must not subsidise the costs of an activity that an undertaking would anyhow incur and must not compensate for the normal business risk of an economic activity.

(50)

The Commission considers that aid does not present an incentive effect for the beneficiary in all cases where work on the project had already started prior to the aid application by the beneficiary to the national authorities. In such cases, where the beneficiary starts implementing a project before applying for aid, any aid granted in respect of that project will not be considered compatible with the internal market.

(51)

Member States must introduce and use an application form for aid. The application form includes at least the applicant’s name and the size of the undertaking, a description of the project, including its location and start and end dates, the amount of aid needed to carry it out and the eligible costs. In the application form, beneficiaries must describe the situation without the aid, i.e., a situation that is referred to as the counterfactual scenario, or the alternative scenario or project. In addition, large undertakings must submit documentary evidence in support of the counterfactual scenario described in the application form.

(52)

When receiving an application form, the granting authority must carry out a credibility check of the counterfactual scenario and confirm that the aid has the required incentive effect. A counterfactual scenario is credible if it is genuine and relates to the decision-making factors prevalent at the time of the decision by the beneficiary regarding the investment. It is not required to meet the conditions of paragraphs (50) and (51) where the aid is awarded on the basis of a competitive bidding process.

(53)

The Commission considers that aid granted to adapt to future Union standards has in principle an incentive effect, including when the standard has already been adopted but is not yet in force. However, in the latter case, aid has an incentive effect if it incentivises the realisation of the investment long before the standard enters into force. Aid granted for the adaptation to Union standards already adopted but not yet in force will be considered to have incentive effect if the investment is implemented and finalised at least one year before the Union standards enter into force.

(54)

As a further exception to paragraph (53), an incentive effect may exist if aid is granted for:

(55)

The Commission considers that aid in support of investments that enable the beneficiary to take measures that go beyond the applicable Union standards contributes positively to the environmental or energy objective. In order not to discourage Member States from setting mandatory national standards which are more stringent than the corresponding Union standards, such positive contribution exists irrespective of the presence of mandatory national standards that are more stringent than the Union standard. This includes for instance measures to improve the water and air quality beyond mandatory Union standards. Such positive contribution also exists in the presence of a mandatory national standard adopted in the absence of Union standards.

(56)

Under the Directive 2012/27/EU (42) (‘the Energy Efficiency Directive’ or ‘the EED’), large enterprises have to carry out energy audits every four years. Therefore aid for energy audits for large enterprises can have an incentive effect only to the extent that the aid does not compensate an energy audit required by the EED. As the same obligation is not imposed on SMEs, State aid granted to SMEs for carrying out the energy audit can have an incentive effect.

(57)

The previous paragraph is without prejudice to the assessment of the incentive effect of State aid for energy-efficiency measures prescribed by or carried out as a result of the energy audit or those resulting from other tools, such as energy management systems and environmental management systems.

(58)

For measures subject to individual notification, the Member States must fully demonstrate to the Commission the incentive effect of the aid. They need to provide clear evidence that the aid has an effective impact on the investment decision in a way that it changes the behaviour of the beneficiary leading the beneficiary to increase the level of environmental protection or leading to a better functioning of the Union energy market. To allow a comprehensive assessment, the Member State must provide not only information concerning the aided project but also a comprehensive description of the counterfactual scenario, in which none of the Member States award aid to the beneficiary.

(59)

The advantages of new investments or production methods are usually not limited to their direct environmental effects or effects on the energy market. Such advantages may in particular be production advantages (43) while the risks relate particularly to the uncertainty about whether the investment will be as productive as expected.

(60)

The incentive effect is, in principle, to be identified through the counterfactual scenario analysis, comparing the levels of intended activity with aid and without aid. Essentially, that amounts to checking the profitability of the project in the absence of the aid, to assess whether it indeed falls short of the profit obtained by the company by implementing the alternative project.

(61)

In that context, the level of profitability can be evaluated by reference to methodologies which are standard practice in the particular industry concerned, and which may include methods to evaluate the net present value (‘NPV’) of the project (44), the internal rate of return (‘IRR’) (45) or the average return on capital employed (‘ROCE’). The profitability of the project is to be compared with normal rates of return applied by the company in other investment projects of a similar kind. Where those rates are not available, the profitability of the project is to be compared with the cost of capital of the company as a whole or with the rates of return commonly observed in the industry concerned.

(62)

Where no specific counterfactual scenario is known, the incentive effect can be assumed when there is a funding gap, that is to say when the investment costs exceed the NPV of the expected operating profits of the investment on the basis of an ex ante business plan.

(63)

The Member States are, in particular, invited to rely on contemporary, relevant and credible evidence including, for example official board documents, credit committee reports, risk assessments financial reports, internal business plans, expert opinions and other studies related to the investment project under assessment. Documents containing information on demand forecasts, cost forecasts, financial forecasts, documents that are submitted to an investment committee and that elaborate on various investment scenarios, or documents provided to the financial institutions could help to verify the incentive effect.

(64)

In order to ensure that the incentive effect is established on an objective basis, the Commission may in its assessment of the incentive effect compare company-specific data with data concerning the industry in which the company is active, known as benchmarking. In particular, the Member State should where possible provide industry-specific data demonstrating that the company’s counterfactual scenario, its required level of profitability and its expected cash-flows are reasonable.

(65)

The Commission may find that there is an incentive effect in cases where an undertaking may have an incentive in carrying out a project, with aid, even if the aided project does not achieve the normally required level of profitability. This might be justified for example in view of wider benefits not reflected in the profitability of the project itself. In such circumstances, the evidence provided to support the existence of an incentive effect becomes particularly important.

(66)

Where an undertaking is adapting to a national standard going beyond Union standards or adopted in the absence of Union standards, the Commission will verify that the aid beneficiary would have been affected substantially in terms of increased costs and would not have been able to bear the costs associated with the immediate implementation of national standards.

(67)

For investments that bring undertakings above the minimum levels required by Union standards, the Commission can still find no incentive effect, in particular if such investments correspond to the minimum technical standards available in the market.

(68)

If the aid does not change the behaviour of the beneficiary by stimulating additional activities, that aid does not have incentive effect in terms of promoting environmental behaviour in the Union or strengthening the functioning of the European energy market. Therefore, aid will not be approved in cases where it appears that the same activities would still be pursued without the aid.

(69)

Environmental and energy aid is considered to be proportionate if the aid amount per beneficiary is limited to the minimum needed to achieve the environmental protection or energy objective aimed for.

(70)

As a general principle, aid will be considered to be limited to the minimum necessary if the aid corresponds to the net extra cost necessary to meet the objective, compared to the counterfactual scenario in the absence of aid. The net extra cost is determined by the difference between the economic benefits and costs (including the investment and operation) of the aided project and those of the alternative investment project which the company would carry out in the absence of aid, that is the counterfactual scenario.

(71)

However, it might be difficult to fully take into account all economic benefits that a company will derive from an additional investment (46). Therefore, for measures, which are not subject to an individual assessment, a simplified method that would focus on calculating the extra investment costs, that is to say not taking into account the operating benefits and costs may be used. Measures which are not subject to an individual assessment will be deemed proportional if the aid amount does not exceed the maximum aid intensity, that is a given percentage of the eligible costs as defined in paragraphs (72) to (76). Those maximum aid intensities also serve as a cap to the aid given for notifiable measures.

(72)

The eligible costs for environmental aid are the extra investment costs in tangible and/or in intangible assets which are directly linked to the achievement of the common objective.

(73)

The eligible costs are determined as follows:

(74)

Annex 2 contains a list of the relevant counterfactual scenarios or eligible cost calculations reflecting the counterfactual scenario that should be used in similar cases. The Commission may accept alternative counterfactual situations if duly justified by the Member State.

(75)

For measures supporting integrated projects such as integrated energy-efficiency measures, or biogas projects, the counterfactual scenario can be difficult to establish. Where a counterfactual scenario cannot credibly be established, the Commission is amenable to consider the total costs of a project as an alternative, which may imply lower aid intensities to reflect the different eligible cost calculation.

(76)

The rules set out in paragraphs (73) to (75) are applicable to the construction of the production plants in energy efficient district heating or cooling projects. However, the funding gap approach will be applied for aid to the construction of the network, similar to the assessment of energy infrastructure.

(77)

In order to ensure predictability and a level playing field, the Commission applies maximum aid intensities for aid, set out in Annex 1. These aid intensities reflect the need for State intervention determined, on the one hand, by the relevance of the market failure and, on the other hand, by the expected level of distortion of competition and trade.

(78)

Higher aid intensities may be allowed for some types of aid or for investments located in an assisted area, but the aid intensity can never exceed 100 % of eligible costs. Higher aid intensities may be allowed as follows:

(79)

Therefore, the Commission will consider aid to be compatible with the internal market if the eligible costs are correctly calculated and the maximum aid intensities set out in Annex 1 are respected.

(80)

Where aid to the beneficiary is granted in a competitive bidding process on the basis of clear, transparent and non-discriminatory criteria, the aid amount may reach 100 % of the eligible costs (53). Such a bidding process must be non-discriminatory and provide for the participation of a sufficient number of undertakings. In addition, the budget related to the bidding process must be a binding constraint in the sense that not all participants can receive aid. Finally, the aid must be granted on the basis of the initial bid submitted by the bidder, therefore excluding subsequent negotiations.

(81)

Aid may be awarded concurrently under several aid schemes or cumulated with ad hoc aid, provided that the total amount of State aid for an activity or project does not exceed the limits fixed by the aid ceilings laid down in these Guidelines. Union funding centrally managed by the Commission that is not directly or indirectly under the control of the Member State (54), does not constitute State aid. Where such Union funding is combined with State aid, only the latter is considered for determining whether notification thresholds and maximum aid intensities are respected, provided that the total amount of public funding granted in relation to the same eligible costs must however not exceed the maximum funding rate(s) laid down in the applicable rules of Union law.

(82)

Aid is not to be cumulated with de minimis aid in respect of the same eligible costs if such cumulation would result in an aid intensity exceeding that laid down in these Guidelines.

(83)

For individual aid, compliance with the maximum aid intensities set out in this section and in Annex 1, is not sufficient to ensure proportionality. These maximum aid intensities are used as a cap for individual aid (55).

(84)

As a general rule, individually notifiable aid will be considered to be limited to the minimum if the aid amount corresponds to the net extra costs of the aided investment, compared to the counterfactual scenario in the absence of aid. All relevant costs and benefits must be taken into account over the lifetime of the project.

(85)

If no specific alternative project can be identified as a counterfactual scenario, the Commission will verify whether the aid amount exceeds the minimum necessary to make the aided project sufficiently profitable, for instance whether it increases its IRR beyond the normal rates of return applied by the undertaking concerned in other investment projects of a similar kind. When that benchmark is not available, the cost of capital of the company as a whole or rates of return commonly observed in the industry concerned may be used for that purpose.

(86)

The Member State should provide evidence that the aid amount is kept to the minimum. Calculations used for the analysis of the incentive effect can also be used to assess whether the aid is proportionate. The Member State must demonstrate the proportionality on the basis of the documentation referred to in paragraph (63).

(87)

For operating aid granted by way of a competitive bidding process, the proportionality of individual aid is presumed to be met if the general conditions are fulfilled.

(88)

For the aid to be compatible with the internal market, the negative effects of the aid measure in terms of distortions of competition and impact on trade between Member States must be limited and outweighed by the positive effects in terms of contribution to the objective of common interest.

(89)

The Commission identifies two main potential distortions caused by aid, namely product market distortions and location effects. Both types may lead to allocative inefficiencies which undermine the economic performance of the internal market and to distributional concerns which affect the distribution of economic activity across regions.

(90)

Aid for environmental purposes will by its very nature, tend to favour environmentally friendly products and technologies at the expense of other, more polluting ones and that effect of the aid will, in principle, not be viewed as an undue distortion of competition, since it is inherently linked to the very objective of the aid, that is to say making the economy greener. When assessing the potential negative effects of environmental aid, the Commission will take into account the overall environmental effect of the measure in relation to its negative impact on the market position, and thus on the profits, of non-aided firms. In doing so, the Commission will consider in particular the distortive effects on competitors that likewise operate on an environmentally friendly basis, even without aid. Likewise, the lower the expected environmental effect of the measure in question, the more important the verification of its effect on competitors’ market shares and profits in the market.

(91)

One potentially harmful effect of State aid for environmental and energy objectives is that it prevents the market mechanism from delivering efficient outcomes by rewarding the most efficient and innovative producers and putting pressure on the least inefficient to improve, restructure or exit the market. That might lead to a situation where, due to the aid granted to some firms, more efficient or innovative competitors, for example competitors with a different, possibly even cleaner technology, that would otherwise be able to enter and expand are unable to do so. In the long run, interfering with the competitive entry and exit process may stifle innovation and slow down industry-wide productivity improvements.

(92)

Aid may also have distortive effects by strengthening or maintaining substantial market power of the beneficiary. Even where aid does not strengthen substantial market power directly, it may do so indirectly, by discouraging the expansion of existing competitors or inducing their exit or discouraging the entry of new competitors.

(93)

Apart from distortions on the product markets, aid may also give rise to effects on trade and location choice. Those distortions can arise across Member States, either when firms compete across borders or consider different locations for investment. Aid aimed at preserving economic activity in one region or attracting it away from other regions within the internal market may not lead directly to a distortion in the product market, but it may displace activities or investments from one region into another without any net environmental impact.

(94)

In principle, an aid measure and the context in which it is applied need to be analysed to identify the extent to which it can be deemed distortive. However, there are situations where the negative effects manifestly outweigh any positive effects, meaning that the aid cannot be found compatible with the internal market.

(95)

The Commission establishes maximum aid intensities which constitute a basic requirement for compatibility, and which have the aim of preventing the use of State aid for projects where the ratio between aid amount and eligible costs is deemed very high and particularly likely to be distortive.

(96)

Likewise, aid for environmental and energy objectives that merely leads to a change in location of the economic activity without improving the existing level of environmental protection in the Member States will not be considered compatible with the internal market.

(97)

In assessing the negative effects of the aid measure, the Commission focuses on the distortions resulting from the foreseeable impact of the environmental and energy aid has on competition between undertakings in the product markets affected and the location of economic activity. If State aid measures are well targeted to the market failure they aim to address, the risk that the aid will unduly distort competition is more limited.

(98)

If the aid is proportionate and limited to the extra investment costs, the negative impact of the aid is in principle softened. However, even where aid is necessary and proportionate, aid may result in a change in behaviour of the beneficiaries which distorts competition. A profit seeking undertaking will normally only increase the level of environmental protection beyond mandatory requirements if it considers that this will result, at least marginally in some sort of advantage for the undertaking.

(99)

In order to keep the distortions of competition and trade to a minimum, the Commission will place great emphasis on the selection process. Where possible, the selection process should be conducted in a non-discriminatory, transparent and open manner, without unnecessarily excluding companies that may compete with projects to address the same environmental or energy objective. The selection process should lead to the selection of beneficiaries that can address the environmental or energy objectives using the least amount of aid or in the most cost-effective way.

(100)

The Commission will in particular assess the negative effects of the aid by considering the following elements:

(101)

The Member State must ensure that the negative effects as described in Section 3.2.6.1 are limited. In addition to the elements specified in Section 3.1.6.2, the Commission will take into account and assess whether the individual aid leads to:

(102)

The Commission may consider the planned introduction of energy and environmental support schemes, other than the one notified, which directly or indirectly benefit the beneficiary with a view to assessing the cumulative impact of the aid.

(103)

The Commission will also assess whether the aid results in some territories benefiting from more favourable production conditions, notably because of comparatively lower production costs as a result of the aid or because of higher production standards achieved through the aid. This may result in companies staying in or re-locating to the aided territories, or to displacement of trade flows towards the aided area. In its analysis of notifiable individual aid, the Commission will accordingly take into account any evidence that the aid beneficiary has considered alternative locations.

(104)

Member States must ensure the publication of the following information on a comprehensive State aid website, at national or regional level: the full text of the approved aid scheme or the individual aid granting decision and its implementing provisions, or a link to it, the identity of the granting authority/(ies), the identity of the individual beneficiaries, the form and amount of aid granted to each beneficiary, the date of granting, the type of undertaking (SME/large company), the region in which the beneficiary is located (at NUTS level II) and the principal economic sector in which the beneficiary has its activities (at NACE group level).

(105)

For schemes in the form of tax advantage and aid in the form of reductions in the funding of support for energy from renewable sources, the information on individual aid amounts can be provided in the following ranges (in EUR million): [0,5-1]; [1-2]; [2-5]; [5-10]; [10-30]; [30 and more].

(106)

Such information must be published after the decision to grant the aid has been taken, must be kept for at least 10 years and must be available to the general public without restrictions (57). Member States will not be required to provide such information before 1 July 2016. The requirement to publish information can be waived with respect to individual aid awards below EUR 500 000.

(107)

The Union set ambitious climate change and energy sustainability targets in particular as part of its EU 2020 strategy. Several Union legislative acts already support the achievement of those targets, such as the Union ETS, Directive 2009/28/EC (58) (‘the Renewable Energy Directive’or ‘RED’) and the Directive 2009/30/EC (59) (‘the Fuel Quality Directive’). However, their implementation may not always result in the most efficient market outcome and under certain conditions State aid can be an appropriate instrument to contribute to the achievement of the Union objectives and related national targets.

(108)

These Guidelines apply to the period up to 2020. However, they should prepare the ground for achieving the objectives set in the 2030 Framework. Notably, it is expected that in the period between 2020 and 2030 established renewable energy sources will become grid-competitive, implying that subsidies and exemptions from balancing responsibilities should be phased out in a degressive way. These Guidelines are consistent with that objective and will ensure the transition to a cost-effective delivery through market-based mechanisms.

(109)

Market instruments, such as auctioning or competitive bidding process open to all generators producing electricity from renewable energy sources competing on equal footing at EEA level, should normally ensure that subsidies are reduced to a minimum in view of their complete phasing out.

(110)

However, given the different stage of technological development of renewable energy technologies, these Guidelines allow technology specific tenders to be carried out by Member States, on the basis of the longer-term potential of a given new and innovative technology, the need to achieve diversification; network constraints and grid stability and system (integration) costs.

(111)

Specific exceptions are included for installations of a certain size, for which it cannot be presumed that a bidding process is appropriate, or for installations at demonstration phase. The inclusion of such installations is optional.

(112)

In view of the overcapacity in the food-based biofuel market, the Commission will consider investment aid in new and existing capacity for food-based biofuel not to be justified. However, investment aid to convert food-based biofuel plants into advanced biofuel plants is allowed to cover the costs of such conversion. Other than in this particular case, investment aid to biofuels can only be granted in favour of advanced biofuels.

(113)

Whilst investment aid to support food-based biofuel will cease from the date of application of these Guidelines, operating aid to food-based biofuels can only be granted until 2020. Therefore, such aid can only be granted to plants that started operation before 31 December 2013 until the plant is fully depreciated but in any event no later than 2020.

(114)

In addition, the Commission will consider that the aid does not increase the level of environmental protection and can therefore not be found compatible with the internal market if the aid is granted for biofuels which are subject to a supply or blending obligation (60), unless a Member State can demonstrate that the aid is limited to sustainable biofuels that are too expensive to come on the market with a supply or blending obligation only.

(115)

In particular while the EU ETS and CO2 taxes internalise the costs of greenhouse gas (‘GHG’) emissions, they may not, yet, fully internalise those costs. State aid can therefore contribute to the achievement of the related, but distinct, Union objectives for renewable energy. Unless it has evidence on the contrary, the Commission therefore presumes that a residual market failure remains, which can be addressed through aid for renewable energy.

(116)

In order to allow Member States to achieve their targets in line with the EU 2020 objectives, the Commission presumes the appropriateness of aid and the limited distortive effects of the aid provided all other conditions are met.

(117)

With regard to aid for the production of hydropower, its impact can be twofold: on the one hand, such aid has a positive impact in terms of low GHG emissions, on the other hand, it might also have a negative impact on water systems and biodiversity. Therefore, when granting aid for the production of hydropower, Member States must respect Directive 2000/60/EC (61) and in particular Article 4(7) thereof, which lays down criteria in relation to allowing new modifications of bodies of water.

(118)

A core principle of Union legislation on waste is the waste hierarchy which prioritises the ways in which waste should be treated (62). State aid for energy from renewable sources using waste, including waste heat, as input fuel can make a positive contribution to environmental protection, provided that it does not circumvent that principle.

(119)

Aid to energy from renewable sources can be granted as investment or operating aid. For investment aid schemes and individually notified investment aid, the conditions set out in Section 3.2 apply.

(120)

For operating aid schemes, the general provision of Section 3.2 will be applied as modified by the specific provisions as set in this Section. For individually notified operating aid, the conditions set out in Section 3.2 apply, where relevant taking into account the modifications made by this Section for operating aid schemes.

(121)

The Commission will authorise aid schemes for a maximum period of 10 years. If maintained, such measure should be re-notified after such period. Concerning food-based biofuel, existing and newly notified schemes should be limited to 2020.

(122)

The Union set an overall Union target for the share of renewable energy sources in final energy consumption and translated this target into mandatory national targets. The Renewable Energy Directive includes cooperation mechanisms (63) to facilitate cross border support for achieving national targets. Operating aid schemes should in principle be open to other EEA countries and Contracting Parties of the Energy Community to limit the overall distortive effects. It minimises costs for Member States whose sole aim is to achieve the national renewables target laid down in Union legislation. Member States however may want to have a cooperation mechanism in place before allowing cross border support as otherwise, production from installations in other countries will not count towards their national target under the RED (64). The Commission will consider positively schemes that are open to other EEA or Energy Community countries.

(123)

Aid to electricity from renewable energy sources should in principle contribute to integrating renewable electricity in the market. However, for certain small types of installations, this may not be feasible or appropriate.

(124)

In order to incentivise the market integration of electricity from renewable sources, it is important that beneficiaries sell their electricity directly in the market and are subject to market obligations. The following cumulative conditions apply from 1 January 2016 to all new aid schemes and measures:

(125)

The conditions established in paragraph (124) do not apply to installations with an installed electricity capacity of less than 500 kW or demonstration projects, except for electricity from wind energy where an installed electricity capacity of 3 MW or 3 generation units applies.

(126)

In a transitional phase covering the years 2015 and 2016, aid for at least 5 % of the planned new electricity capacity from renewable energy sources should be granted in a competitive bidding process on the basis of clear, transparent and non-discriminatory criteria.

From 1 January 2017, the following requirements apply:

Aid is granted in a competitive bidding process on the basis of clear, transparent and non-discriminatory criteria (66), unless:

If such competitive bidding processes are open to all generators producing electricity from renewable energy sources on a non-discriminatory basis, the Commission will presume that the aid is proportionate and does not distort competition to an extent contrary to the internal market.

The bidding process can be limited to specific technologies where a process open to all generators would lead to a suboptimal result which cannot be addressed in the process design in view of, in particular:

(127)

Aid may be granted without a competitive bidding process as described in paragraph (126) to installations with an installed electricity capacity of less than 1 MW, or demonstration projects, except for electricity from wind energy, for installations with an installed electricity capacity of up to 6 MW or 6 generation units.

(128)

In the absence of a competitive bidding process, the conditions of paragraphs (124) and (125) and the conditions for operating aid to energy from renewable energy sources other than electricity as set out in paragraph (131) are applicable.

(129)

The aid is only granted until the plant has been fully depreciated according to normal accounting rules and any investment aid previously received must be deducted from the operating aid.

(130)

These conditions are without prejudice to the possibility for Member States to take account of spatial planning considerations, for example by requiring building permissions prior to the participation in the bidding process or requiring investment decisions within a certain period.

(131)

For energy from renewable sources other than electricity, operating aid will be considered compatible with the internal market if the following cumulative conditions are met:

(132)

Unlike most other renewable sources of energy, biomass requires relatively low investment costs but higher operating costs. Higher operating costs may prevent a biomass (68) plant from operating even after depreciation of the installation as the operating costs can be higher than the revenues (the market price). On the other hand, an existing biomass plant may operate by using fossil fuel instead of biomass as an input source if the use of fossil fuel as an input is more economically advantageous than the use of biomass. To preserve the use of biomass in both cases, the Commission may find operating aid to be compatible with the internal market even after plant depreciation.

(133)

The Commission will consider operating aid for biomass after plant depreciation compatible with the internal market if a Member State demonstrates that the operating costs borne by the beneficiary after plant depreciation are still higher than the market price of the energy concerned and provided that the following cumulative conditions are met:

(134)

The Commission will consider operating aid for biomass after plant depreciation compatible with the internal market if a Member State demonstrates that, independent from the market price of the energy concerned, the use of fossil fuels as an input is more economically advantageous than the use of biomass and provided that the following cumulative conditions are met:

(135)

Member States may grant support for renewable energy sources by using market mechanisms such as green certificates. These market mechanisms (69) allow all renewable energy producers to benefit indirectly from guaranteed demand for their energy, at a price above the market price for conventional power. The price of these green certificates is not fixed in advance, but depends on market supply and demand.

(136)

The Commission will consider the aid referred to in paragraph (135) to be compatible with the internal market if Member States can provide sufficient evidence that such support (i) is essential to ensure the viability of the renewable energy sources concerned; (ii) does not, for the scheme in the aggregate, result in overcompensation over time and across technologies, or in overcompensation for individual less deployed technologies in so far as differentiated levels of certificates per unit of output are introduced; and (iii) does not dissuade renewable energy producers from becoming more competitive.

(137)

The Commission considers in particular that no differentiation in support levels through green certificates may be applied unless a Member States demonstrates the need for a differentiation on the basis of the justifications set out in paragraph (126). The conditions set out in paragraphs (124) and (125) apply when technically possible. Any investment aid previously received must be deducted from the operating aid.

(138)

The Union set the objective of saving 20 % of the Union’s primary energy consumption by 2020. In particular the Union adopted the Energy Efficiency Directive, which establishes a common framework to promote energy-efficiency within the Union pursuing the overall objective of achieving the Union’s 2020 headline target on energy-efficiency and pave the way for further energy-efficiency improvement beyond 2020.

(139)

In order to ensure that aid contributes to a higher level of environmental protection, aid for district heating and district cooling and cogeneration of heat and electricity (‘CHP’) will only be considered compatible with the internal market if granted for investment, including upgrades, to high-efficient CHP and energy-efficient district heating and district cooling. For measures co-financed by the European Structural and Investments Funds, Member States may rely on the reasoning in the relevant Operational Programmes.

(140)

State aid for cogeneration and district heating installations using waste, including waste heat, as input fuel can make a positive contribution to environmental protection, provided that it does not circumvent the waste hierarchy principle (referred to in paragraph (118)).

(141)

To demonstrate the contribution of the aid towards an increased level of environmental protection, the Member State may use, as much as possible in quantifiable terms, a variety of indicators, in particular the amount of energy saved due to better, lower energy performance and higher energy productivity or the efficiency gains by reduced energy consumption and reduced fuel input.

(142)

Energy-efficiency measures target negative externalities as referred to in paragraph (35) by creating individual incentives to attain environmental targets for energy-efficiency and for the reduction of greenhouse gas emissions. In addition to the general market failures identified in Section 3.2, one example of a market failure that may arise in the field of energy-efficiency measures concerns energy-efficiency measures in buildings. When renovation works in buildings are considered, the benefits of energy efficiency measures do not typically accrue with the building owner, who generally bears the renovation costs, but with the tenant. The Commission therefore considers that State aid may be needed to promote investments in energy-efficiency in order to meet the targets of the EED.

(143)

The EED puts an obligation on Member States to achieve targets including in energy-efficient renovation of buildings and in final energy consumptions. However, the EED does not impose energy-efficient targets on undertakings and will on that point not prevent an aid in the field of energy-efficiency from having an incentive effect.

(144)

The incentive effect of the aid will be assessed on the basis of the conditions set out in Section 3.2.4 of these Guidelines.

(145)

State aid may be considered an appropriate instrument to finance energy-efficiency measures, independently of the form in which it is granted.

(146)

For energy efficiency measures, a repayable advance may be considered as an appropriate State aid instrument in particular if the revenues from the energy-efficiency measure are uncertain.

(147)

When assessing State aid granted for in particular the energy-efficient renovation of buildings, a financial instrument set up by the Member State to finance renovation works may be considered as an appropriate instrument for the granting of State aid.

(148)

The eligible costs are determined as the extra investment costs as established in paragraph (73). For energy-efficiency measures, the counterfactual scenario can be difficult to establish particularly in case of integrated projects. For such projects, the Commission is amenable to consider a proxy for determining the eligible costs as set out in paragraph (75).

(149)

The aid intensities set out in Annex 1 apply.

(150)

The Commission will consider operating aid for energy-efficiency to be proportionate only if the following cumulative conditions are met:

(151)

Operating aid for high energy efficient cogeneration plants may be granted on the basis of the conditions applying to operating aid for electricity from renewable energy sources as established in Section 3.3.2.1 and only:

(152)

The Europe 2020 flagship initiative for ‘Resource Efficient Europe’ aims for sustainable growth by identifying and creating new business opportunities, inter alia, through new and innovative means of production, business models and product design. It sets out how such growth can be decoupled from the use of resources and its overall environmental impact.

(153)

Market failures as identified in paragraph (35) are particularly relevant for resource efficiency. In addition, market failures in that area are not often addressed by other policies and measures, such as taxation or regulation. State aid may in such cases be necessary.

(154)

For individual measures, Member States need to demonstrate quantifiable benefits in this policy area, particularly the amount of resources saved or the resource efficiency gains.

(155)

The Commission recalls in view of the close ties with new innovative production means that measures promoting resource efficiency may benefit, once the relevant criteria are fulfilled, from an additional eco-innovation bonus as referred to in paragraph (78).

(156)

More specifically, and in line with the waste hierarchy principle (referred to in paragraph (118)), the Union’s Seventh Environment Action Programme identifies the prevention, re-use and recycling of waste as one of its top priorities. Member States are required to establish waste management plans (71) and should respect this hierarchy and design state aid measures that are be coherent with implementation of these plans. Another key concept which inspires Union legislation in the environmental field is the ‘polluter pays principle’, described in paragraph (44).

(157)

State aid for the management of waste, in particular for activities aimed at the prevention, re-use and recycling of waste, can make a positive contribution to environmental protection, provided that it does not circumvent the principles referred to in previous paragraph. This includes the re-use or recycling of water or minerals that would otherwise be unused as waste. In particular, in light of the PPP, undertakings generating waste should not be relieved of the costs of its treatment. Moreover, the normal functioning of the secondary materials market should not be negatively impacted.

(158)

The Commission will consider aid for waste management to serve an objective of common interest in accordance with the principles of waste management set out above if the following cumulative conditions are met:

(159)

Aid which, contrary to what is specified in paragraph (158)(a), is intended for the management of the beneficiary’s own waste will be assessed on the basis of the general criteria in Section 3.2 applicable to aid for undertakings going beyond Union standards or increasing environmental protection in the absence of Union standards pursuant to paragraph (25)(c).

(160)

As recognised by Directive 2009/31/EC (73) (‘the CCS Directive’) and the Commission Communication on the future of CCS in Europe (74), CCS is a technology that can contribute to mitigating climate change. In the transition to a fully low-carbon economy, CCS technology can reconcile the demand for fossil fuels, with the need to reduce greenhouse gas emissions. In some industrial sectors, CCS may currently represent the only technology option able to reduce process-related emissions at the scale needed in the long term. Given that the cost of capture, transport and storage is an important barrier to the uptake of CCS, State aid can contribute to fostering the development of this technology.

(161)

In order to promote the long term decarbonisation objectives, the Commission considers that the aid for CCS contributes to the common objective of environmental protection.

(162)

The Union has taken several initiatives to address negative externalities. In particular the Union ETS ensures the internalisation of the costs of GHG emissions, which however may not, yet, ensure the achievement of the Union’s long term decarbonisation objectives. The Commission therefore presumes that aid for CCS addresses a residual market failure, unless it has evidence that such remaining market failure no longer exists.

(163)

Without prejudice in particular to Union’s regulations in that field, the Commission presumes the appropriateness of aid provided all other conditions are met. Both operating and investment aid is permitted.

(164)

The aid may be provided to support fossil fuel and, or biomass power plants (including co-fired power plants with fossil fuels and biomass) or other industrial installations equipped with CO2 capture, transport and storage facilities, or individual elements of the CCS chain. However, aid to support CCS projects does not include aid for the CO2 emitting installation (industrial installations or power plants) as such, but aid for the costs resulting from the CCS project.

(165)

The aid is limited to the additional costs for capture, transport and storage of the CO2 emitted. It is generally accepted that the counterfactual scenario would consist in a situation where the project is not carried out as CCS is similar to additional infrastructure which is not needed to operate an installation. In view of this counterfactual scenario, the eligible costs are defined as the funding gap. All revenues, including for instance cost savings from a reduced need for ETS allowances, NER300 funding and EEPR funding are taken into account (75).

(166)

The Commission assesses the distortive effects of the aid on the basis of the criteria laid down in Section 3.2.6, taking into account whether any knowledge sharing arrangements are in place, whether the infrastructure is open to third parties and whether the support to individual elements of the CCS chain has a positive impact on other fossil fuel installations owned by the beneficiary.

(167)

Environmental taxes are imposed in order to increase the costs of environmentally harmful behaviour, thereby discouraging such behaviour and increasing the level of environmental protection. In principle, environmental taxes should reflect the overall costs to society, and correspondingly, the amount of tax paid per unit of emission should be the same for all emitting firms. While reductions in or exemptions from environmental taxes may adversely impact that objective (76), such an approach may nonetheless be needed where the beneficiaries would otherwise be placed at such a competitive disadvantage that it would not be feasible to introduce the environmental tax in the first place.

(168)

Indeed, granting a more favourable tax treatment to some undertakings may facilitate a higher general level of environmental taxes. Accordingly, reductions in or exemptions from environmental taxes (77), including tax refunds, can at least indirectly contribute to a higher level of environmental protection. However, the overall objective of the environmental tax to discourage environmentally harmful behaviour should not be undermined. The tax reductions should be necessary and based on objective, transparent and non-discriminatory criteria, and the undertakings concerned should make a contribution towards increasing environmental protection. That could be achieved by granting compensation in the form of tax refunds, whereby undertakings are not exempted from the tax as such but receive a fixed annual compensation for the anticipated increase in the tax amount payable

(169)

The Commission will authorise aid schemes for maximum periods of 10 years, after which a Member State can re-notify the measure if the Member State re-evaluates the appropriateness of the aid measures concerned.

(170)

The Commission will consider that tax reductions do not undermine the general objective pursued and contribute at least indirectly to an increased level of environmental protection, if a Member State demonstrates that (i) the reductions are well targeted to undertakings being mostly affected by a higher tax and (ii) that a higher tax rate is generally applicable than would be the case without the exemption.

(171)

For this purpose, the Commission will assess the information provided by Member States. Such information should include, on the one hand, the respective sector(s) or categories of beneficiaries covered by the exemptions or reductions and, on the other hand, the situation of the main beneficiaries in each sector concerned and how the taxation may contribute to environmental protection. The exempted sectors should be properly described and a list of the largest beneficiaries for each sector should be provided (considering notably turnover, market shares and size of the tax base).

(172)

When environmental taxes are harmonised, the Commission can apply a simplified approach to assess the necessity and proportionality of the aid. In the context of Directive 2003/96/EC (78) (‘ETD’), the Commission can apply a simplified approach for tax reductions respecting the Union minimum tax level. For all other environmental taxes, an in depth assessment of the necessity and proportionality of the aid is needed.

(173)

The Commission will consider aid in the form of tax reductions necessary and proportional provided (i) the beneficiaries pay at least the Union minimum tax level set by the relevant applicable Directive; (ii) the choice of beneficiaries is based on objective and transparent criteria; and (iii) the aid is granted in principle in the same way for all competitors in the same sector, if they are in a similar factual situation.

(174)

Member States can grant the aid in the form of a reduction of the tax rate or as a fixed annual compensation amount (tax refund), or as a combination of the two. The advantage of the tax refund approach is that undertakings remain exposed to the price signal, which the environmental tax gives. Where used, the amount of the tax refund should be calculated on the basis of historical data, i.e. the level of production, and the consumption or pollution observed for the undertaking in a given base year. The level of the tax refund must not go beyond the Union minimum tax amount that would result for the base year.

(175)

If the beneficiaries pay less than the Union minimum tax level set by the relevant applicable Directive, the aid will be assessed on the basis of the conditions for non-harmonised environmental taxes as set out in paragraphs (176) to (178).

(176)

For all other non-harmonised environmental taxes and in the case of harmonised taxes below the Union minimum levels of the ETD (see paragraph (172)) and in order to demonstrate the necessity and proportionality of the aid, a Member State should clearly define the scope of the tax reductions. For that purpose, a Member State should provide information specified in paragraph (171). Member States may decide to grant aid beneficiaries aid in the form of a tax refund, (referred to in paragraph (174)). This approach continues to expose aid beneficiaries to the price signal, which the environmental tax intends to give, while limiting the anticipated increase in the tax amount payable.

(177)

The Commission will consider the aid to be necessary if the following cumulative conditions are met:

(178)

The Commission will consider the aid to be proportionate if one of the following conditions is met:

(179)

In case of a carbon tax levied on energy products used for electricity production, the electricity supplier is liable to pay the tax. Such carbon tax can be designed in a way that supports and is directly linked to the Union ETS allowance price by taxing carbon. However, the electricity price increases if those costs are passed on to the electricity consumer. In that case, the effect of the carbon tax is similar to the effect of ETS allowance costs being passed on and included in the electricity price, indirect emissions costs.

(180)

Therefore, if the tax referred to in paragraph (179) is designed in a way that it is directly linked to the EU ETS allowance price and aims to increase the allowance price, compensation for those higher indirect costs may be considered. The Commission will consider the measure compatible with the internal market only if the following cumulative conditions are met:

(181)

The funding of support to energy from renewable sources through charges does as such not target a negative externality and accordingly has no direct environmental effect. Those charges are, therefore, fundamentally different from the indirect taxes on electricity set out in paragraph (167) even if they may also result in higher electricity prices. The increase in electricity costs may be explicit through a specific charge which is levied from electricity consumers on top of the electricity price or indirect through additional costs faced by electricity suppliers due to obligations to buy renewable energy which are subsequently passed on to their customers, the electricity consumers. A typical example would be the mandatory purchase by electricity suppliers of a certain percentage of renewable energy through green certificates for which the supplier is not compensated.

(182)

In principle and to the extent that the costs of financing renewable energy support are recovered from energy consumers, they should be recovered in a way that does not discriminate between consumers of energy. However, some targeted reductions in these costs may be needed to secure a sufficient financing base for support to energy from renewable sources and hence help reaching the renewable energy targets set at EU level (82). On the one hand, in order to avoid that undertakings particularly affected by the financing costs of renewable energy support are put at a significant competitive disadvantage, Member States may wish to grant partial compensation for these additional costs. Without such compensation the financing of renewable support may be unsustainable and public acceptance of setting up ambitious renewable energy support measures may be limited. On the other hand, if such compensation is too high or awarded to too many electricity consumers, the overall funding of support to energy from renewable sources might be threatened as well and the public acceptance for renewable energy support may be equally hampered and distortions of competition and trade may be particularly high.

(183)

For the assessment of State aid to compensate for the financing of support to energy from renewable sources, the Commission will only apply the conditions set out in this Section and in Section 3.2.7.

(184)

In order to ensure that the aid serves to facilitate the funding of support to energy from renewable sources, Member States will need to demonstrate that the additional costs reflected in higher electricity prices faced by the beneficiaries only result from the support to energy from renewable sources. The additional costs cannot exceed the funding of support to energy from renewable sources (83).

(185)

The aid should be limited to sectors that are exposed to a risk to their competitive position due to the costs resulting from the funding of support to energy from renewable sources as a function of their electro-intensity and their exposure to international trade. Accordingly, the aid can only be granted if the undertaking belongs to the sectors listed in Annex 3 (84). This list is intended to be used only for eligibility for this particular form of compensation.

(186)

In addition, to account for the fact that certain sectors might be heterogeneous in terms of electro-intensity, a Member State can include an undertaking in its national scheme granting reductions from costs resulting from renewable support if the undertaking has an electro-intensity of at least 20 % (85) and belongs to a sector with a trade intensity of at least 4 % at Union level, even if it does not belong to a sector listed in Annex 3 (86). For the calculation of the electro-intensity of the undertaking, use is to be made of standard electricity consumption efficiency benchmarks for the industry where available.

(187)

Within the eligible sector, Member States need to ensure that the choice of beneficiaries is made on the basis of objective, non-discriminatory and transparent criteria and that the aid is granted in principle in the same way for all competitors in the same sector if they are in a similar factual situation.

(188)

The Commission will consider the aid to be proportionate if the aid beneficiaries pay at least 15 % of the additional costs without reduction.

(189)

However, given the significant increase of renewable surcharges in recent years, an own contribution of 15 % of the full renewable surcharge might go beyond what undertakings particularly affected by the burden can bear. Therefore, when needed, Member States have the possibility to further limit the amount of the costs resulting from financing aid to renewable energy to be paid at undertaking level to 4 % of the gross value added (87) of the undertaking concerned. For undertakings having an electro-intensity of at least 20 %, Member States can limit the overall amount to be paid to 0,5 % of the gross value added of the undertaking concerned.

(190)

When Member States decide to adopt the limitations of respectively 4 % and 0,5 % of gross value added, these limitations must apply to all eligible undertakings.

(191)

Member States may take measures to ensure that gross value added data used for the purpose of this Section cover all the relevant labour costs.

(192)

Member States can grant the aid in the form of a reduction from charges, or as a fixed annual compensation amount (tax refund), or as a combination of the two (88). Where the aid is granted in the form of a reduction from charges, an ex post monitoring mechanism needs to be put in place to ensure that any over-payment of aid will be repaid before 1 July of the following year. Where the aid is granted in the form of a fixed annual compensation amount, it must be calculated on the basis of historical data, i.e. the observed levels of electricity consumption and the gross value added in a given base year. The amount of compensation shall not exceed the aid amount the undertaking would have received in the base year, applying the parameters set out in this Section.

(193)

Member States are to apply eligibility and proportionality criteria set out in Section 3.7.2 at the latest by 1 January 2019. Aid granted in respect of a period before that date will be considered compatible if it satisfies the same criteria.

(194)

In addition, the Commission considers that all aid granted to reduce the burden related to funding support for electricity from renewable sources in respect of the years preceding 2019 can be declared compatible with the internal market to the extent that it complies with an adjustment plan.

(195)

To avoid abrupt disruption for individual undertaking, such adjustment plan shall entail progressive adjustment to the aid levels resulting from the application of the eligibility and proportionality criteria set out in section 3.7.2.

(196)

To the extent that aid was granted in respect of a period before the date of application of these Guidelines, the plan shall also provide for a progressive application of the criteria for that period.

(197)

To the extent that aid in the form of reduction or exemption from the burden related to funding support for electricity from renewable sources was granted before the date of application of these Guidelines to undertakings that are not eligible under Section 3.7.2, such aid can be declared compatible provided that the adjustment plan foresees a minimum own contribution of 20 % of the additional costs of the surcharge without reduction, to be established progressively and at the latest by 1 January 2019.

(198)

The adjustment plan shall take all relevant economic factors linked to the renewable policy into account.

(199)

The adjustment plan shall be approved by the Commission.

(200)

The adjustment plan shall be notified to the Commission at the latest 12 months after the date of application of these Guidelines.

(201)

A modern energy infrastructure is crucial for an integrated energy market, which is key to ensuring energy security in the Union, and to enable the Union to meet its broader climate and energy goals. The Commission has estimated total investment needs in energy infrastructures of European significance until 2020 at about EUR 200 billion (89). That assessment was based on an evaluation of the infrastructure needed to allow the Union to meet the overarching policy objectives of completing the internal energy market, ensuring security of supply and enabling the integration of renewable sources of energy. Where market operators cannot deliver the infrastructure needed, State aid may be necessary in order to overcome market failures and to ensure that the Union’s considerable infrastructure needs are met. This is particularly true for infrastructure projects having a cross-border impact or contributing to regional cohesion. Aid to energy infrastructure should in principle be investment aid, including its modernisation and upgrade.

(202)

Energy infrastructure is a precondition for a functioning energy market. Aid to energy infrastructure therefore strengthens the internal energy market. It enhances system stability, generation adequacy, integration of different energy sources and energy supply in under-developed networks. The Commission therefore considers that aid to energy infrastructure is beneficial to the internal market and thus contributes to an objective of common interest.

(203)

Energy infrastructure investments are often characterised by market failures. A market failure that may arise in the field of energy infrastructure is related to problems of coordination. Diverging interests among investors, uncertainty about the collaborative outcome and network effects may prevent the development of a project or its effective design. At the same time, energy infrastructure may generate substantial positive externalities, whereby the costs and benefits of the infrastructure may occur asymmetrically among the different market participants and Member States.

(204)

To address the market failures referred to in paragraph (203), energy infrastructure is typically subjected to tariff and access regulation and to unbundling requirements according to internal energy market legislation (90).

(205)

In terms of financing, the granting of State aid is a way of overcoming the market failure other than by means of compulsory user tariffs. Therefore, to demonstrate of the need of State aid in the field of energy infrastructure, the principles described in paragraphs (206) and (207) apply.

(206)

The Commission considers that for Projects of Common Interest as defined in Regulation (EC) No 347/2013 (91), for smart grids, and for infrastructure investments in assisted areas, the market failures in terms of positive externalities and coordination problems are such that financing by means of tariffs may not be sufficient and State aid may be granted.

(207)

For energy infrastructure projects falling under paragraph (206) and partially or wholly exempted from internal energy market legislation, and for projects not falling under paragraph (206), the Commission will carry out a case-by-case assessment of the need for State aid. In its assessment, the Commission will consider the following factors: (i) to what extent a market failure leads to a sub-optimal provision of the necessary infrastructure; (ii) to what extent the infrastructure is open to third party access and subject to tariff regulation; and (iii) to what extent the project contributes to the Union’s security of energy supply.

(208)

For oil infrastructure projects, the Commission presumes that there is no need for State aid. However, Member States may grant State aid in exceptional circumstances where duly justified.

(209)

The Commission considers that tariffs (92) are the appropriate primary means to fund energy infrastructure. However, in the case of Projects of Common Interest, smart grids and infrastructure investments in assisted areas, State aid may be considered an appropriate instrument to partially or wholly finance that infrastructure. In such cases, market failures often prevent the full implementation of, the ‘user pays’ principle, on which tariff regulation is based, for example, because the tariff increase to finance new infrastructure investment would be so substantial as to deter investments or potential customers from using the infrastructure.

(210)

The incentive effect of the aid will be assessed on the basis of the conditions set out in Section 3.2.4.

(211)

The aid amount must be limited to the minimum needed to achieve the infrastructure objectives sought. For aid to infrastructure, the counterfactual scenario is presumed to be the situation in which the project would not take place. The eligible cost is therefore the funding gap.

(212)

Aid measures in support of infrastructure should not exceed an aid intensity of 100 % of the eligible costs.

(213)

The Commission will require Member States to clearly and separately identify any other aid measure, which might impact on the aid measures for infrastructure.

(214)

In view of the existing requirements under the internal energy market legislation, which are aimed at strengthening competition, the Commission will consider that aid for energy infrastructure subject to internal market regulation does not have undue distortive effects.

(215)

In the case of infrastructure partially or wholly exempted from, or not subject to, internal energy market legislation and in the case of underground gas storage facilities, the Commission will carry out a case-by-case assessment of the potential distortions of competition taking into account, in particular, the degree of third party access to the aided infrastructure, access to alternative infrastructure and the market share of the beneficiary.

(216)

With the increasing share of renewable energy sources, electricity generation is in many Member States shifting from a system of relatively stable and continuous supply towards a system with more numerous and small-scale supply of variable sources. The shift raises new challenges for ensuring generation adequacy.

(217)

Moreover, market and regulatory failures may cause insufficient investment in generation capacity, for example, in a situation where wholesale prices are capped and electricity markets fail to generate sufficient investment incentives.

(218)

As a result, some Member States consider the introduction of measures to ensure generation adequacy, typically by granting support to generators for the mere availability of generation capacity (93).

(219)

Measures for generation adequacy can be designed in a variety of ways, in the form of investment and operating aid (in principle only rewarding the commitment to be available to deliver electricity), and can pursue different objectives. They may for example aim at addressing short-term concerns brought about by the lack of flexible generation capacity to meet sudden swings in variable wind and solar production, or they may define a target for generation adequacy, which Member States may wish to ensure regardless of short-term considerations.

(220)

Aid for generation adequacy may contradict the objective of phasing out environmentally harmful subsidies including for fossil fuels. Member States should therefore primarily consider alternative ways of achieving generation adequacy which do not have a negative impact on the objective of phasing out environmentally or economically harmful subsidies, such as facilitating demand side management and increasing interconnection capacity.

(221)

The precise objective, at which the measure is aimed, should be clearly defined, including when and where the generation adequacy problem is expected to arise. The identification of a generation adequacy problem should be consistent with the generation adequacy analysis carried out regularly by the European Network of Transmission Operators for electricity in accordance with the internal energy market legislation (94).

(222)

The nature and causes of the generation adequacy problem, and therefore of the need for State aid to ensure generation adequacy, should be properly analysed and quantified, for example, in terms of lack of peak-load or seasonal capacity or peak demand in case of failure of the short-term wholesale market to match demand and supply. The unit of measure for quantification should be described and its method of calculation should be provided.

(223)

The Member States should clearly demonstrate the reasons why the market cannot be expected to deliver adequate capacity in the absence of intervention, by taking account of on-going market and technology developments (95).

(224)

In its assessment, the Commission will take account, among others and when applicable, of the following elements to be provided by the Member State:

(225)

The aid should remunerate solely the service of pure availability provided by the generator, that is to say, the commitment of being available to deliver electricity and the corresponding compensation for it, for example, in terms of remuneration per MW of capacity being made available. The aid should not include any remuneration for the sale of electricity, that is to say, remuneration per MWh sold.

(226)

The measure should be open and provide adequate incentives to both existing and future generators and to operators using substitutable technologies, such as demand-side response or storage solutions. The aid should therefore be delivered through a mechanism which allows for potentially different lead times, corresponding to the time needed to realise new investments by new generators using different technologies. The measure should also take into account to what extent interconnection capacity could remedy any possible problem of generation adequacy.

(227)

The incentive effect of the aid will be assessed on the basis of the conditions set out in Section 3.2.4 of these Guidelines.

(228)

The calculation of the overall amount of aid should result in beneficiaries earning a rate of return, which can be considered reasonable.

(229)

A competitive bidding process on the basis of clear, transparent and non-discriminatory criteria, effectively targeting the defined objective, will be considered as leading to reasonable rates of return under normal circumstances.

(230)

The measure should have built-in mechanisms to ensure that windfall profits cannot arise.

(231)

The measure should be constructed so as to ensure that the price paid for availability automatically tends to zero when the level of capacity supplied is expected to be adequate to meet the level of capacity demanded.

(232)

The measure should be designed in a way so as to make it possible for any capacity which can effectively contribute to addressing the generation adequacy problem to participate in the measure, in particular, taking into account the following factors:

(233)

The measure should:

(234)

Tradable permit schemes can be set up to reduce emissions from pollutants, for instance to reduce NOx emissions (98). They can involve State aid, in particular when Member States grant permits and allowances below their market value. If the global amount of permits granted by the Member State is lower than the global expected needs of undertakings, the overall effect on the level of environmental protection will be positive. At the level of each individual undertaking, if the allowances granted do not cover the totality of expected needs of the undertaking, the undertaking must either reduce its pollution, therefore contributing to the improvement of the level of environmental protection, or buy supplementary allowances on the market, therefore paying a compensation for its pollution.

(235)

Tradable permit schemes are considered to be compatible with the internal market if the following cumulative conditions are met:

(236)

The Commission will assess the necessity and the proportionality of State aid involved in a tradable permit scheme according to the following criteria:

(237)

The aim of investment aid for the relocation of undertakings is to create individual incentives to reduce negative externalities by relocating undertakings that create major pollution to areas where such pollution will have a less damaging effect, which will reduce external costs. The aid may therefore be justified if the relocation is made for environmental reasons, but it should be avoided that aid is granted for relocation for any other purpose.

(238)

Investment aid for the relocation of undertakings to new sites for environmental protection reasons is considered compatible with the internal market if the conditions laid down in Sections 3.2.4 and 3.2.7 and the following cumulative conditions are met:

(239)

The beneficiary can be:

(240)

In order to determine the amount of eligible costs in the case of relocation aid, the Commission will take into account, in particular:

(241)

The aid intensities are laid down in Annex 1.

(242)

To further ensure that distortion of competition is limited, the Commission may require that certain aid schemes are subject to a time limitation (of normally 4 years or less) and to the evaluation referred to in paragraph (28). Evaluations will be carried out for schemes where the potential distortion of competition is particularly high, that is to say, that may risk to significantly restrict or distort competition if their implementation is not reviewed in due time.

(243)

Given its objectives, and in order not to put disproportionate burden on Member States and on smaller aid projects, evaluation only applies for aid schemes with large aid budgets, containing novel characteristics or when significant market, technology or regulatory changes are foreseen. The evaluation must be carried out by an expert independent from the aid granting authority on the basis of a common methodology provided by the Commission. It must be made public. The Member State must notify, together with the aid scheme, a draft evaluation plan, which will be an integral part of the Commission’s assessment of the scheme.

(244)

In the case of aid schemes excluded from the scope of the General Block Exemption Regulation exclusively by reason of their large budget, the Commission will assess compatibility of the aid scheme, with the exception of the evaluation plan, on the basis of the criteria defined in that Regulation instead of these Guidelines.

(245)

The evaluation must be submitted to the Commission in due time to allow for the assessment of the possible prolongation of the aid scheme and in any case upon its expiry. The precise scope and modalities of each evaluation will be defined in the decision approving the aid scheme. Any subsequent aid measure with a similar objective (including any alteration of schemes referred in paragraph (244) must take into account the results of the evaluation.

(246)

These Guidelines will be applied from 1 July 2014 and replace the Guidelines on State aid for environmental protection published on 1 April 2008 (101). They will be applicable until 31 December 2020.

(247)

The Commission will apply these Guidelines to all notified aid measures in respect of which it is called upon to take a decision after their applicability, even where the projects were notified prior to that date. However, individual aid granted under approved aid schemes and notified to the Commission pursuant to an obligation to notify such aid individually will be assessed under the Guidelines that apply to the approved aid scheme on which the individual aid is based.

(248)

Unlawful environmental aid or energy aid will be assessed in accordance with the rules in force on the date on which the aid was granted in accordance with the Commission notice on the determination of the applicable rules for the assessment of unlawful State aid (102) with the following exception:

Unlawful aid in the form of reductions in funding support for energy from renewable sources will be assessed in accordance with the provisions of Sections 3.7.2 and 3.7.3.

As from 1 January 2011, the adjustment plan foreseen in paragraph (194) shall also foresee a progressive application of the criteria of section 3.7.2 and of the own contribution foreseen in paragraph (197). Prior to that date, the Commission considers that all aid granted in the form of reductions in funding support for electricity from renewable sources can be declared compatible with the internal market (103).

(249)

Individual aid granted under an unlawful aid scheme will be assessed under the Guidelines that apply to the unlawful aid scheme at the time the individual aid was granted. If the beneficiary of such individual aid has received confirmation from a Member State that it will benefit from operating aid in support of energy from renewable sources and cogeneration under an unlawful scheme for a predetermined period, such aid can be granted for the entire period under the conditions laid down in the scheme at the time of the confirmation to the extent that the aid is compatible with the rules applying at the time of the confirmation.

(250)

The Commission herewith proposes to Member States, on the basis of Article 108(1) of the Treaty, the following appropriate measures concerning their respective existing environmental or energy aid schemes:

Member States should amend, where necessary, such schemes in order to bring them into line with these Guidelines no later than 1 January 2016, with the following exceptions:

Where necessary, existing aid schemes within the meaning of Article 1(b) of Council Regulation (EC) No 659/1999 (104) concerning operating aid in support of energy from renewable sources and cogeneration only need to be adapted to these Guidelines when Member States prolong their existing schemes, have to re-notify them after expiry of the 10 years-period or after expiry of the validity of the Commission decision or change (105) them.

Whenever a beneficiary has received confirmation from a Member State that it will benefit from State aid under such a scheme for a predetermined period, such aid can be granted under the entire period under the conditions laid down in the scheme at the time of the confirmation

(251)

Member States are invited to give their explicit unconditional agreement to the proposed appropriate measures within two months from the date of publication of these Guidelines in the Official Journal of the European Union. In the absence of any reply, the Commission will assume that the Member State in question does not agree with the proposed measures.

(252)

In accordance with Council Regulation (EC) No 659/1999 and Commission Regulation (EC) No 794/2004 (106) and their subsequent amendments, Member States must submit annual reports to the Commission.

(253)

Member States must ensure that detailed records regarding all measures involving the granting of aid are maintained. Such records must contain all information necessary to establish that the conditions regarding, where applicable, eligible costs and maximum allowable aid intensity have been observed. These records must be maintained for 10 years from the date on which the aid was granted and be provided to the Commission upon request.

(254)

The Commission may decide to review or amend these Guidelines at any time if this should be necessary for reasons associated with competition policy or in order to take account of other Union policies and international commitments.