European Commission approves €1.4 billion Czech scheme to compensate energy-intensive companies for indirect emission costs

The European Commission has approved, under EU State aid rules, a Czech scheme to partially compensate energy-intensive companies for higher electricity prices resulting from indirect emission costs under the EU Emission Trading System (‘ETS’).

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “This €1.4 billion measure will allow Czechia to reduce the risk of carbon leakage for its energy-intensive industries. At the same time, the incentives for a cost-effective decarbonisation of its economy will be maintained, in line with the Green Deal objectives, and undue competition distortions will be limited.”

The Czech measure

The scheme notified by Czechia, with a total estimated budget of €1.4 billion, will cover part of the higher electricity prices arising from the impact of carbon prices on electricity generation costs (so-called ‘indirect emission costs’) incurred between 2021 and 2030. The support measure is aimed at reducing the risk of ‘carbon leakage’, where companies relocate their production to countries outside the EU with less ambitious climate policies, resulting in less economic activity in the EU and no reduction in greenhouse gas emissions globally.

The measure will benefit companies active in sectors at risk of carbon leakage listed in Annex I to the Guidelines on certain State aid measures in the context of the greenhouse gas emission allowance trading scheme post-2021 (‘ETS State aid Guidelines’). Those sectors face significant electricity costs and are particularly exposed to international competition.

The compensation will be granted to eligible companies through a partial refund of the indirect emission costs incurred in the previous year, with the final payment to be made in 2031. The maximum aid amount will be equal to 75 % of the indirect emission costs incurred. The aid amount is calculated based on electricity consumption efficiency benchmarks, which ensure that the beneficiaries are encouraged to save energy.

In order to qualify for compensation, companies will have to either (i) implement certain energy audit recommendations or (ii) cover at least 30% of their electricity consumption with carbon-free sources (through on-site renewable energy generation facilities, carbon-free power purchase agreements or guarantees of origin).

The Commission’s assessment

The Commission assessed the measure under EU State aid rules, and in particular the ETS State aid Guidelines.

The Commission found that the scheme is necessary and appropriate to support energy-intensive companies to cope with the higher electricity prices and to avoid that companies relocate to countries outside the EU with less ambitious climate policies, resulting in an increase in global greenhouse gas emissions. Moreover, the Commission found that the scheme complies with the requirements on energy audits and management systems set out in the ETS State aid Guidelines. It therefore supports the EU’s climate and environmental objectives and the goals set in the European Green Deal. Furthermore, the Commission concluded that the aid granted is limited to the minimum necessary and will not have undue negative effects on competition and trade in the EU. On this basis, the Commission approved the scheme under EU State aid rules.