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Germany can refund industry of CO2 costs from energy bills

17 Jul 2013 19:38:17 | edcm

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Germany may compensate energy-intensive users for CO2 costs stemming from higher electricity prices as a result of the EU Emissions Trading System (ETS) as of 2013, after the European Commission decided on Wednesday that a scheme proposed by the country is in line with EU state aid rules.

The Commission in 2012 passed framework guidelines regulating how EU countries can put in place schemes to compensate sectors considered at risk of carbon leakage - including producers of aluminium, copper, fertilisers, steel, paper, cotton, chemicals and some plastic - for expected electricity bill increases caused by the 20% emissions reduction target for 2020 (see EDCM 22 May 2013).

"The Commission's investigation found that the scheme, in applying the harmonised methodology of the ETS guidelines, would effectively prevent carbon leakage while keeping competition distortions to a minimum," the EU executive said in a statement on Wednesday. "Since the aid will progressively be reduced, the scheme ensures that the beneficiaries have an incentive to further reduce emissions."

The German federal ministry of economics did not provide details of the compensation programme to ICIS by press time. The Commission said that the plan's details are yet to become public and that Germany has not provided a figure for how much electricity prices have increased. The ETS Directive does not require European countries to provide such an additional cost prior to compensation, according to the Commission, as it already assumes a Europe-wide carbon leakage risk for specific sectors and subsectors as of 2013.

The EU rules allow subsidies equivalent to 85% of the cost increase that the most efficient companies face in each sector from 2013 to 2015, a cap that will gradually fall to 75% in 2019-2020.

The UK government, similarly, has earmarked £250m (€295m) until a spending review in April 2015 to help energy-intensive sectors offset increases in electricity prices from the carbon floor price and the EU ETS - £100m for the first and £110m for the latter (see EDCM 20 May 2013).

A second scheme under which Germany wanted to grant €40m to compensate non-ferrous metal producers for a large part of the CO2 costs included in their electricity prices in the second half of 2009 was rejected by the Commission on Wednesday, because it would have caused "serious distortions" in competition.

"After an in-depth investigation, the Commission has concluded that the scheme would favour very selectively only eleven German beneficiaries to the detriment of competitors in the internal market," the Commission said. It added that Germany had also failed to demonstrate that these companies were indeed at risk of carbon leakage.

Besides the possible compensation for higher electricity prices, sectors deemed at risk of carbon leakage also receive a higher share of allowances for free. Silvia Molteni

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