The European Commission has adopted two new annexes to the EU Emission Trading System State aid Guidelines (the ‘ETS Guidelines’). The new annexes supplement the ETS Guidelines and define the applicable efficiency benchmarks and CO2 factors. The ETS Guidelines aim at reducing the risk of ‘carbon leakage’, where companies move production to countries outside the EU with less ambitious climate policies, leading to less economic activity in the EU and no reduction in greenhouse gas emissions globally. In particular, the Guidelines enable member states to compensate sectors at risk of relocation for part of the higher electricity prices resulting from the carbon price signals created by the EU ETS (so-called ‘indirect emission costs’).
When the revised ETS Guidelines were adopted in September 2020, the Commission signalled that the two annexes on ‘Efficiency Benchmarks’ and on ‘CO2 factors’ would be published at a later stage. The efficiency benchmarks represent the quantity of electricity involved in the most efficient production process for each product. The CO2 factors, which are based on the mix of fossil-fuel power generation in each country or region, reflect the extent to which the wholesale price of the electricity consumed by the beneficiary is influenced by ETS costs in the relevant price zones.
The Commission has today adopted a Communication supplementing the ETS Guidelines, introducing the outstanding annexes. The efficiency benchmarks and the CO2 factors defined in the annexes are based on expert input, previous practice and statistical data. More specifically, the efficiency benchmarks were set on the basis of an expert study by an external consultant. The methodology to establish the applicable CO2 factors is similar to the one applied in the previous Guidelines, and is based on Eurostat data.
The new efficiency benchmarks and CO2 factors will enter in the calculation of the compensation amount for indirect costs incurred by the beneficiaries as from 2021, and are therefore important elements to ensure the proportionality of the aid measures granted under the ETS Guidelines.