European Commission approves UK compensation for indirect costs of carbon price floor

The European Commission has found UK plans to compensate certain energy-intensive users from higher electricity costs triggered by a mandatory carbon price floor to be in line with EU state aid rules. The UK carbon price floor, a tax on carbon-intensive fuels, is aimed at reducing the use of electricity produced by fossil fuels. The compensation partially offsets the higher electricity costs, similarly to what is done for the costs of the EU Emission Trading Scheme (ETS). The Commission concluded that the measure would further EU energy objectives without unduly distorting competition in the Single Market. In a press release, the Commission explained:

As part of its Electricity Market Reform, the UK introduced a tax, which is levied on high-carbon fuels - i.e. coal, gas and oil - used to produce electricity, and commonly referred to as the "carbon price floor". It is aimed at incentivising low-carbon electricity generation, multiplying the price signal provided by the EU's ETS carbon allowance.

On 11 February the UK notified plans to compensate certain energy-intensive users for the indirect costs they incur as a result of higher electricity prices. The Commission assessed the measure under Article 107(3)(c) of the Treaty on the Functioning of the European Union (TFEU) that allows the grant of aid to facilitate the development of economic activities, in particular when those activities pursue objectives of common European interest.

The Commission's investigation has found that the measure is fully in line with the principles set out in the new Environmental and Energy Aid Guidelines adopted on 9 April (see IP/14/400). Taking inspiration from the ETS State aid Guidelines  (see IP/12/498), the new rules allow Member States to partially compensate large electricity users for the indirect costs of taxes on energy products, when those taxes have the same aim and effect as the ETS carbon allowance price, and when the criteria for choosing beneficiaries and for calculating compensation levels are the same as those of the ETS State aid Guidelines.

The non-confidential version of this decision will be made available under the case number SA.35449 in the State Aid Register on the competition website once any confidentiality issues have been resolved.

This decision will no doubt be welcomed by the UK cement industry, which applauded the government’s announcement in the Budget but was then disappointed to find that Brussels did not support the initiative.

Adapted from press release by Katherine Guenioui

Read the article online at: https://www.worldcement.com/europe-cis/22052014/ec_approves_uk_support_of_energy_intensive_industries_234/