Greek energy-intensive companies will be partially compensated for higher electricity prices related to the EU Emissions Trading System.
The European Commission has given the green light to a €1.36bn scheme designed to stop energy-intensive Greek businesses from relocating outside the bloc to countries with less stringent climate regimes.
The scheme, which the commission said complies with EU state aid rules, will partially compensate relevant companies for higher electricity prices linked to “indirect emission costs” under the EU Emissions Trading System as the economy is under broader energy pressures.
Indirect emission costs refer to the impact of the EU carbon pricing mechanism on electricity production costs and, ultimately, on prices.
The ETS sets an annual cap limiting the amount of greenhouse gases emitted by the companies operating under its scope, from sectors including energy, manufacturing and airlines. These companies can buy and receive emissions allowances according to their CO₂ emissions, which can then be traded. The cap is gradually reduced over time in order to lower overall emissions.
The European Commission has, however, recognised that energy-intensive companies need support during a period of generally higher electricity prices. Otherwise, they could move out of the EU to countries with weaker climate commitments, and thereby contribute to increased global emissions – a phenomenon known as ‘carbon leakage’.
European Commission executive vice-president for competition policy Margrethe Vestager said: “The scheme maintains the incentives for a cost-effective decarbonisation of Greece’s economy, in line with the European Green Deal objectives, while ensuring that competition distortions are kept to the minimum.”
However, European Policy Centre policy analyst Philipp Lausberg expressed concerns that the scheme could create a precedent for similar initiatives elsewhere in the EU, disincentivising companies from reducing their emissions.
“You could say that it’s a bad idea because it undermines the very raison d’être of the ETS system,” he said. “They need to provide incentives for companies to reduce carbon emissions.”
A short-term fix?
The announcement, made on February 7, follows the launch of the EU Green Deal Industrial Plan, which has made available €250bn in financing that member states can use for subsidies and tax breaks to support net zero technologies.
The Greek initiative will partly cover higher electricity prices resulting from the impact of carbon prices on electricity generation costs – known as ‘indirect emission costs’ – generated between 2021 and 2030. The last payment under this scheme will be made in 2031. In most cases, a maximum of 75 per cent of indirect emission costs incurred by a beneficiary will be covered.
The European Commission said companies looking to qualify for support will either have to: carry out certain energy audit recommendations; ensure that at least 30 per cent of their electricity consumption is covered by renewable energy sources; or spend at least half of the aid amount on projects “leading to substantial reductions of the installation’s greenhouse gas emissions”. They will have to meet one of these requirements within three years of receiving the aid.
While Lausberg acknowledged the short-term merits of the Greek scheme during the current energy crisis, ensuring that companies remain competitive in the absence of available green energy alternatives, he said: “This money would be much better invested in boosting renewable energy production in Greece directly.”
The initiative should be a short-term solution and not run until the end of the decade, he said, adding that the scheme also overcomplicates the existing Green Deal architecture.
However, Kristian Ruby, secretary general of regional sector association Eurelectric, supported the idea of a scheme that could help industries cope with very high energy costs that they have no influence over while retaining their competitiveness.
“It makes sense for countries especially operating on the borders of the EU where there is arguably a direct, let’s say, threat of relocation,” he said.
Albéric Mongrenier, director at the Centre on Regulation in Europe think-tank, told Sustainable Views: “We can expect more of this in the coming months.” However, state aid was not a “silver bullet”, he said, and it would not be possible for the entire European industry to be kept under state support for life.
Mongrenier added he would “rather see this type of one-time or temporary move to compensate [for] the high carbon price than European-wide attempts to cap or meddle with the ETS system, which could have long-lasting consequences”.