ENERGY TAXATION AND COMPETITIVENESS: COST MITIGATION THROUGH TAX EXEMPTIONS EU STATE AID LIMITS

ENERGY TAXATION AND COMPETITIVENESS: COST MITIGATION THROUGH TAX EXEMPTIONS EU STATE AID LIMITS

PICTURE THE SITUATION A MS considers whether to impose an environmental/energy tax on domestic polluters/domestic consumption If the tax is imposed some industries may face a heavy tax burden with a consequent loss of competitiveness: Improvement of environmental protection and efficient use of energy But risk of relocation of certain tax subjects (loos of jobs, tax profit; carbon leakage, ) If the tax is not imposed: Less tax profit Less environmental protection and efficient energy use What should the State do? Look for exemptions possibilities under EU State aid law?

MITIGATING COST THROUGH TAX EXEMPTIONS AND STATE AID LAW Aim of EU State aid law < > Aim of providing State aid Promote effective competition Protect domestic production/companies; Promote an internal market Promote environmental protection; Preserve jobs; promote R&D&I;. Promote a level playing field for business Result: creates an artificial market; activities inside the EU creates market barriers Arguing for allowing State aid to protect the competitiveness of particular national industries = arguing against the very essence of State aid law

STARTING POINT In general: Providing State aid with the aim of protecting competitiveness Not a justification/ excuse under Article 107 TFEU The level playing field created between the regulatory systems of the MS is not protected by State aid law only discrimination within the system of a particular MS No compensation for general policy-induced costs that distort competition Risk of subsidy race within which MS would engage depending on their financial resources Inefficient industries would continue to be on the market

Eg: Case C-382/99, Netherlands v. Commission 2002 ECR I-5163 Subsidies payable to Dutch service stations located near the German border as a result of an increase in national fuel prices following a rise in excise duties in the Netherlands, purpose was to mitigate the disparity between the level of excise duty levied on light oils in Germany.

EXPLORING POSSIBILITIES FOR MAINTAINING COMPETITIVENESS UNDER EU STATE AID LAW Two perspectives/dimensions: 1) MS < > MS Loss of national/domestic competitiveness 2) EU MS < > Third countries Loss of EU competitiveness globally Manufacturing in the EU becomes unsustainable

EXEMPTION POSSIBILITIES UNDER ART. 107(3) Individual exemption - Environmental and energy guidelines: Acknowledges the dilemma while reductions in or exemptions from environmental taxes may adversely impact that objective, such an approach may nonetheless be needed where the beneficiaries would otherwise be placed at such a competitive disadvantage that it would not be feasible to introduce the environmental tax in the first place. (para. 167) indirectly contribute to a higher level of environmental protection (para. 168) MS demonstrate (para. 170): Reductions are well targeted to undertakings being mostly affected by a higher tax A higher tax rate is generally applicable than would be the case without the exemption Max. 10 years of authorisation re-notification (para169)

EXEMPTION POSSIBILITIES UNDER ART. 107(3) Special issue: Reduction of levies in support of green electricity (para. 181ff.) Special levies on the consumption of electricity to generate revenue used to support the production of electricity from renewable sources of energy Energy-intensive industries cannot bear the extra electricity costs because they face international competition possibility of aid in the form of a reduction of green levies Beneficiaries: Sectors listed in Annex 4: Assumed to have electro intensity of 10% + trade intensity of 10% Sectors with an electro intensity of at least 20% and trade intensity of at least 4% Commission Decision of 25.11.2014 German aid scheme for the support of renewable electricity and of energy-intensive users

EXEMPTION POSSIBILITIES UNDER ART. 107(3) Pay at least 15% of the levy However may be limited to 0.5% of their Gross Value Added, if their electro-intensity exceeds 20% Result: the most energy-intensive users which often are the biggest polluters will end up paying hardly anything Is the competitiveness of the beneficiaries really harmed by a levy that would exceed just 0.5% of their GVA?

CONCLUDING REMARKS MS have the possibility under certain conditions to exempt energy intensive companies with reference to the loss of competitiveness Alternatives to mitigating costs through tax exemptions under Article 107(3): Activity = service of a general economic interest (SGEI): the MS may provide a compensation to the company for providing the service The Altmark-criteria must be fulfilled (outside the scope of Article 107(1)) Or if not the compensation may be exempted under Article 106(2) Loosen the strict interpretation, application and enforcement of EU State aid law?

Eg: Broad interpretation of the selectivity criteria in Article 107(1): Selectivity = are undertakings in a comparable legal and factual situation treated equally in the light of the objective pursued by the measure? In relation to environmental taxes encompasses: Exemptions/derogations from the tax Too narrow a tax base If more State interventions are brought into the scope of Article 107(1), there may also be a need for exempting more aid but can they be justified?

EU MS < > THIRD COUNTRIES The strict interpretation, application and enforcement of EU State aid law and policy affects EU global competitiveness Risk of loosing jobs; carbon leakage relocation of EU industries to countries outside the EU; Should EU competition policy look at the global competition and not just on the distortions within the internal market? Should specific measures for industrial energy users be allowed until a level global energy playing field is restored? (globally competitive energy costs) Should the eligibility criteria for exemption regimes be less strict? Should the definition and interpretation of fundamental concepts be revised?