State aid for recovery is either green or illegal – ClientEarth lawyers

Media release

01 October 2020

Money granted to industry to aid a post-Covid-19 recovery cannot legally be granted if it fuels climate change, according to environmental lawyers ClientEarth.

In a new report, co-authored with think tank Agora Energiewende and two lawyers from Redeker Sellner Dahs, the energy and State aid experts warn that improper allocation of aid in the wake of the pandemic could give a turbo boost to climate change – and de facto cancel the European Green Deal.

The lawyers highlight several central principles of the EU Treaties, which govern the behaviour of the EU institutions, and override all other law: one is environmental protection and another is consistency between policies.

The introduction of the European Green Deal and other climate-orientated policies and legislation therefore mean the EU and its institutions are legally bound by carbon reduction objectives.

This means that the EU cannot legitimately allow Member States to grant public money to fossil fuels, or other carbon-intensive activity, and all State aid payments – whether or not they are explicitly environmentally-focused – would need to be screened to ensure the minimisation of climate harm.

ClientEarth State aid lawyer and report co-author Juliette Delarue said: “At this moment in the fight against climate change, the way public money is allocated could be make or break. According to fundamental law, the EU can only approve State aid that is compliant with the EU’s environmental laws and climate commitments. Granting funds to companies and industries fuelling climate change is not only irrational – it’s now legally indefensible.”

The lawyers’ findings come as the EU’s competition officials actively seek ways to ensure State aid rules are fit to facilitate the green transition.

Delarue said: “We welcome the fresh comments and commitment made by the EU’s competition authorities to ensure the recovery from Covid-19 is green. But many of the necessary rules are already there. Commissioner Vestager must not forget that the EU institutions are first and foremost bound by the EU Treaties and multiple clauses within these treaties mean that the EU already has a legal obligation to impose ‘carbon screening’ on State aid.”

Agora Energiewende’s Matthias Buck, co-author of the report, said: “The next ten years are decisive in the fight against the climate crisis. The technologies to rapidly reduce greenhouse gas emissions are available and affordable and investing in the energy transition creates jobs and lasting economic value. Our analysis shows that the European Commission has a clear responsibility under the treaties to push governments to design national recovery programmes so that these meet the dual objectives of tackling the economic crisis and the climate crisis at the same time.”

In their report, the authors recommend that the EU’s State aid authority implement a new rule, a “compatibility assessment criterion” to systematically ensure that national aid measures are consistent with national and EU climate objectives and the EU’s transition to a climate-neutral economy

Delarue said: “Member States have long been allowed to bail out carbon-intensive industry with no climate conditions attached and some have continued to do this through the Covid-19 crisis – if they continue, the EU will run into major problems meeting its crucial climate objectives.

“Our analysis shows that the Commission has the obligation to push Member States to design economic recovery programmes that are consistent with climate goals. What we now need is a legal clarification from the Commission to help Member States avoid falling foul of the rules.

“Clear guidance from DG Competition now could stop us steering from one crisis into another.”

DG Competition is currently seeking input on “how competition rules and sustainability policies work together”. ClientEarth and Agora Energiewende are publishing their report as input to this important debate, together with a call for immediate action.

ENDS

Notes to editors

Read the report: A State aid framework for a green recovery: Mainstreaming climate protection in State aid law.

Legal details:

The articles named in the report that prevent State aid being granted to environmentally harmful practices are:

Article 11 TFEU (integration of environmental protection into Union’s policies) in combination with Article 3 TFEU which gives exclusive competence to the EU to define competition and internal market policies, supported by Article 7 TFEU (‘coherence principle’) and Article 4(3) subparagraph 3 TFEU (‘duty of cooperation’).

The report lays out the following ‘tests’ to establish whether a State aid would be compatible with the achievement of climate progress:

  • The more an aid measure increases –  or does not mitigate – negative environmental or climate effects (e.g. in terms of biodiversity or greenhouse gas emissions),
  • the more long-term the negative environmental or climate effects of an aid measure (e.g. because of the life-time or persisting pollution of the supported investment or activity),
  • the more alternative measures exist that would be less harmful to the environment or avoid negative environmental effects altogether, and
  • the less ‘safeguards’ for mitigating negative environmental effects are proposed by the beneficiary of the aid, then
  • the less an aid measure can be considered to be in line with sustainable development in the internal market and the more restrictive the compatibility conditions should be.

Other background:

The report notes that EU policy has referred to the European Green Deal as “the compass” of our recovery, “ensuring that the economy serves people and society and gives back to nature more than it takes away”.

Competition Commissioner Margrethe Vestager gave a speech on 22 September 2020, doubling down on her department’s commitment to green the recovery.

She said (emphasis added):

“we could look at the possibility of firm rules, requiring that aid mustn’t undermine the Green Deal. We might refuse to approve aid that would harm the environment, or would keep polluting factories or power plants operating. Obviously, that would have to happen within the limits of the Treaty, and in line with the rights of Member States’.”

ClientEarth argues these firm rules are absolutely necessary and are actually facilitated by the stipulations of the EU Treaties – which need to be clearly enforced.

Vestager talked about the need for investment in cleaner projects: but said that:

“competition policy is not going to take the place of environmental laws or green investment”.

However, ClientEarth says that State aid policy does significantly contribute to the likelihood of green investment, by giving legal certainty to investors as to whether Member States can unlock public funding and how much.

In a statement in EurActiv on the bloc’s Covid-19 recovery, Commission Vice President Frans Timmermans and the IEA’s Fatih Birol said: “We need to make sure that we don’t come out of the lockdown and sleepwalk into a harmful ‘lock-in’ of the obsolete, polluting technologies and outdated business models of the past century. If we are going to unleash trillions of euros for the recovery, let’s spend it right and invest in a clean, competitive, resilient and inclusive economy for the 21st century.”

About ClientEarth

ClientEarth is a charity that uses the power of the law to protect people and the planet. We are international lawyers finding practical solutions for the world’s biggest environmental challenges. We are fighting climate change, protecting oceans and wildlife, making forest governance stronger, greening energy, making business more responsible and pushing for government transparency. From our offices in London, Brussels, Warsaw, Berlin and Beijing, we work on laws throughout their lifetime, from the earliest stages to implementation. And when those laws are broken, we go to court to enforce them.

About Agora Energiewende

Agora Energiewende develops scientifically based and politically feasible approaches for ensuring the success of the energy transition. We see ourselves as a think-tank and policy laboratory, centred around dialogue with energy policy stakeholders. Together with participants from public policy, civil society, business and academia, we develop a common understanding of the energy transition, its challenges and courses of action. This we accomplish with a maximum of scientific expertise, oriented towards goals and solutions, and devoid of any ideological agenda. Agora Energiewende is a joint initiative of the Mercator Foundation and the European Climate Foundation.

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