Environmental Law Service

Climate Law Database

EU competition rules in relation to CCA

The primary obligation of Member States, in the area of economic competition, is to refrain from any actions which may disrupt it. In relation to Climate Change Acts, Articles 107 through 109 TFEU forbidding state aid by Member States might be of particular importance. It will be relevant namely in connection with specific measures to reduce GHG emissions that might be brought up by Member States based on the Climate Change Act. State aid is generally deemed as incompatible with the internal market and thus unacceptable. Article 107 paragraph 1 TFEU contains no legal definition of “state aid” as such; it only reiterates its characteristics. State support may have any form, either direct (e.g. subsidies or subventions) or indirect (e.g. tax relief). It must be provided by the state and must influence trade between Member States. State aid must not affect the competition. It is enough that such action merely bears a risk of such effect. The last characteristic is that state aid provides an advantage to specific companies or specific fields. It is obvious that the core of a Climate Change Act (setting a long term GHG emission reduction target as a legal duty to Government) impacts the entire economy, not only specific businesses or fields and, therefore, one of the main terminological characteristics of “state aid” (selectivity) is unfulfilled. Similarly in case a Climate Change Act will introduce a strict measure of general nature for reduction of GHG emissions (e.g. establishment of a system of emission allowances trading parallel to ETS, by establishment of a tax scheme for CO2 emissions, establishment of energy efficiency requirements for certain sectors etc.), it generally cannot be categorized as state aid. Additionally, such measures, in its entirety, do not advantage, but rather disadvantage domestic businesses compared to the same businesses in other Member States not needing to maintain such strict obligations. Such a disadvantage, however (as it implies from the very term “state aid”) is not forbidden by the EU competition rules. However, should it be possible to define certain parts of a Climate Change Act as state support, the Member States can still try to argue for an individual exception from the general ban on state aid, based on Article 107 paragraph 3 TFEU.