52020SC0192

Annex 1: Procedural Information

1.Lead DG, Decide Planning/CWP references

Lead DG: European Commission Directorate-General for Competition (DG COMP)

Decide Planning Reference: PLAN/2018/4137

2.Organisation and timing

The Inter-Service Steering Group (ISSG) was set up in November 2018 and gathered representatives from the Commission's Secretariat General, Legal Service, Joint Research Centre (JRC), and the following Directorates-General: CLIMA, ENER, ENV, ECFIN, EMPL, GROW, JUST, MOVE, REGIO, RTD, TAXUD and TRADE 1 . The ISSG was consulted on the Inception Impact Assessment, the Consultation Strategy, the intervention logic and main policy options, the questionnaire for the public consultation, the summary report of the open public consultation, the interim and final study.

DG COMP organized eight ISSG meetings on 5 December 2018, 29 April 2019, 11 July 2019, 13 September 2019, 21 October 2019, 7 and 20 May 2020, and 23 July 2020. On a number of deliverables, the group was consulted in writing. The members of the group were invited to all events organised in the context of the consultation process described in Annex 2.

The Inception Impact Assessment was published in December 2018. It set out the context, purpose and scope of the evaluation exercise as well as objectives of the intervention and policy options. It also contained information on the planned open public consultation, the data collection and methodology.

The back-to-back Evaluation and Impact Assessment were also supported by an external study. The purpose of the study was to provide information enabling the Commission to update section 3.5 "Support for indirect CO2 costs" of the existing evaluation conducted by the Commission in the context of the adoption of the ETS Directive, and to provide an update of available literature on carbon leakage risk. In addition, the study focused on assessing how the different policy options as regards sectoral eligibility and as regards proportionality will impact a range of economic sectors. Also, the evaluation activity was supported by a study prepared by the JRC.

Table 1: Overview of the timing

Date	Description of the activities
5 December 2018	Announcement of the launch of the back-to-back Evaluation and Impact Assessment
5 December 2018	1st ISSG meeting: -general overview of the initiative, presentation of key features of the existing 2012 ETS Guidelines -explanation of the back-to-back procedure -presentation of the intervention logic and the main policy options -discussion on Inception Impact Assessment, Consultation Strategy, the draft questionnaire for the public consultation, and Technical Specifications for the external study
20 December 2018 - 17 January 2019	Publication of the Inception Impact Assessment
29 April 2019	2nd ISSG meeting: -debrief about the feedback to the consultation on the Inception impact assessment and the targeted consultation to sectors -discussion on the Inception Report of the external consultant
21 February 2019 - 16 May 2019	Open public consultation
13 February 2019 – 09 April 2019	Targeted consultation of interested sectors ( https://ec.europa.eu/competition/consultations/2019_ets_guidelines/index_en.html )
27 February 2019 – 16 May 2019	Targeted consultation of Member States
4 April 2019	Upstream meeting with the Regulator Scrutiny Board (RSB)
11 July 2019	3rd ISSG meeting: -debrief about the results of the targeted consultation of Member States and of the public consultation -discussion on the Intermediate Report of the consultant, to inform the ISSG about the ongoing work of the consultant, the methodology applied as well as preliminary results of the qualitative assessment of sectors -memo prepared by the consultant on indirect cost compensation schemes among Member States and a literature review on theory and evidence of carbon leakage.
13 September 2019	4th ISSG meeting: -discussion on the Draft Final Report submitted by the consultant, the draft Evaluation and chapters 1-4 of the draft Impact Assessment Report
21 October 2019	5th ISSG meeting: -discussion on the remaining chapters of the draft Impact Assessment Report
14 January 2020 – 10 March 2020	Targeted consultation on the draft Guidelines of Member States and interested stakeholders ( https://ec.europa.eu/competition/consultations/2020_ets_stateaid_guidelines/index_en.html )
11 February 2020	Multilateral meeting with the Member States
7 May 2020	6th ISSG meeting: -debrief about the results of the targeted consultation on the draft Guidelines -presentation of the draft final version of the evaluation, including the draft final JRC report -discussion on the draft final version of the Impact Assessment Report
20 May 2020	7th ISSG meeting: -discussion on the draft final version of the Impact Assessment Report incorporating comments of the services
24 June 2020	Meeting with the RSB
23 July 2020	8th ISSG meeting: -debrief about the meeting with the RSB and presentation on how the Impact Assessment Report will incorporate the RSB recommendations.

No exceptions were made to the Better Regulation Guidelines 2 during this back-to-back evaluation and impact assessment.

3.Consultation of the Regulatory Scrutiny Board

An upstream meeting with the Regulatory Scrutiny Board (RSB) took place on 4 April 2019 to discuss the DG's evaluation/impact assessment of the EU Emission Trading System (ETS) State aid guidelines. The RSB members and DG-COMP discussed difficulties of obtaining reliable empirical evidence about the impact of the guidelines on carbon leakage. RSB members stressed that the evaluation and the impact assessment should be transparent about the degree of uncertainty of the analysis. With regard to methodology, RSB members recommended that the intervention logic more clearly reflect the trade-offs between the various objectives. RSB members also stressed that the various sources of evidence should be checked against each other (triangulated) to test their reliability and gain additional insights. The report should not report stakeholder feedback uncritically. RSB members suggested that the impact assessment pay attention to issues of future-proofing. Policy options should consider the need for the new guidelines to build in flexibility to adapt to future changes, such as new technologies or carbon price evolutions.

The RSB meeting took place on 24 June 2020. The opinion of the Board was positive with reservations. The Board expects the report to be rectified with respect to the following aspects:

1.The report is not sufficiently explicit about relevant on-going policy developments in the context of the European Green Deal. It is not clear about the possible temporary nature of the proposal, as a stopgap to bridge the period between January 2021 and new proposals.

2.The impact assessment is not clear on how the proposal can address the problem of indirect carbon leakage. It does not recognise that some of the parameters to determine allowed state aid relate only loosely to the indirect carbon leakage risk and their values are ad hoc choices.

3.The report does not group the large number of options in packages to help the reader understand the political decision that needs to be taken.

The Board made a number of key recommendations to improve the report with respect to the following aspects:

RSB comment

Action taken

The impact assessment should acknowledge future policy initiatives, announced as part

of the Green Deal, that will potentially change the premises for the state aid guidelines. It

should reflect on the forthcoming revision of the ETS Directive and the envisaged carbon

border adjustment measures. It should clarify whether this initiative is a stopgap or whether

the foreseen periodic updates of the parameters are sufficient to adapt to future

developments. The report should also address possible future developments in the context

of COVID-19.

Section 1.3. of the report has been added to recognise that this initiative is a stop-gap measure and that the Commission plans to align the future Guidelines with the new policy context as soon as it materialises.

Section 2.4. has been amended to expand the description of the implications of the Green Deal for the present initiative

Recent market analyses and comments on expected future developments of ETS price following the COVID-19 crisis have been added to section 2.4.

The State aid formula should be better explained (including the units of its parameters).

The report should recognise that the parameters in the central formula are weak proxies for

indirect carbon leakage. It should clarify whether “aid intensity” which excludes full

compensation for carbon expenditure in electricity prices aims to induce technical change

or to account for market power. The report should explain better that the carbon leakage

problem encompasses both imports and exports. It should also focus more on the market

structures of the sectors, the possibility to pass-on the costs to the end consumer (price-taker

vs. price- maker), and the risk of substitution by goods from non-EU countries; all of

which are at the basis of the carbon leakage problem.

Section 1.2 has been amended to explain the components of the formula and to include the units of its parameters. The report has also been improved to clarify the role of the formula as a tool allowing Member States to calculate the individual aid amount to be granted to a specific aid beneficiary. The report clarifies that the purpose of this formula is therefore not to calculate the total compensation granted on a Member State or EU-level or its impact.

Section 6.1.1.1 of the report has been improved to explain that trade intensity could sometimes be related to exports and not imports and what are the consequences of that on the Indirect Carbon Leakage Indicator.

Box 3 in section 6.1.1.2 has been improved to provide more details on the four qualitative assessment criteria within “market characteristics”. Where relevant, the description of specific market characteristics of some sectors has been expanded in section 6.1.2.

The report should correct and improve the comparison of options. It should use

quantified impacts for the selection of the preferred options when possible. The 24 options

are currently analysed separately, making it difficult to understand how the preferred option

is arrived at. Options should be grouped and their combined impact analysed. The baseline

should be the point of comparison and be scored as 0.

The assessment has been improved by adding a quantification of the budget, as well as the environmental impact of the various options and packages on eligibility and proportionality. This is reflected in sections 6.1. and 6.3. and the new Appendix 7, as well as in section 7.

The Impact Assessment Report has been improved by presenting packages of options related to the estimation of indirect ETS costs in section 5.2.2. and to the “maximum aid intensity” in section 5.2.3. Their combined impact is analysed in section 6.

Section 7 of the Impact Assessment Report and the scoring of the baseline and other options have been amended accordingly.

Only 12 Member States and Norway currently implement a national compensation

scheme. The report should look into implications for the internal market caused by this uneven implementation at Member State level. It should recognise the consumption

distortion created by the scheme between eligible and non-eligible sectors in both national

markets and the single market.

A more detailed description of intra-sector and inter-sector completion distortions has been added in section 2.1.

The report should properly reflect the ownership by the Commission services of its

content.

The entirety of the report (in particular section 6), has been redrafted to better reflect the ownership of the content of the assessment.

Some more technical comments have been also addressed in the Report.

4.Evidence, sources and quality

The back-to-back Evaluation and Impact Assessment on the revision of ETS State-aid Guidelines was supported by an external study. The study was procured under the Framework contract COMP/2017/013 for the provision of support studies for evaluations and impact assessments in the area of State aid policy signed on 24 May 2018. The request for services was accepted by a consortium led by Aide à la Décision Economique – ADE s.a., who made an offer on 30 January 2019. The contract was awarded and signed on 13 March 2019. In particular, the study performed the assessment of carbon leakage risk due to indirect costs for several sectors, to determine the geographic zones to be used when establishing the CO2 factors, and for the evaluation of current schemes in place. The support study sufficiently satisfies the necessary quality requirements. In addition, the evaluation activity was supported by a study prepared by the Joint Research Centre (JRC).

The project was also supported by several consultation activities, including a multilateral meeting with Member States and EEA States (see Annex 2).

For the quantitative assessment, data on imports, exports and turnover are extracted from the Eurostat Comext database. Gross Value Added is available from Eurostat Structural Business Statistics (SBS). Eurostat is involved in addition in case of data confidentiality issues. Direct emission data, i.e. verified direct emissions per installation are taken from the European Union Transaction Log (EUTL) database. The electricity consumption data at sectoral level (NACE 4) is not officially available at Eurostat and has therefore been collected from Member States and EEA countries via a data collection exercise.

(1)

Other four Directorate-Generals asked to be kept informed but did not actively participate: REGIO, JUST, EMPL, RTD.

(2)

https://ec.europa.eu/info/better-regulation-guidelines-and-toolbox_en

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