Annex 2: Synopsis report 1.Introduction The consultation work was launched to collect information and data for the revision of the Guidelines on State aid measures in the context of the greenhouse gas emission allowance trading scheme (ETS Guidelines). The Guidelines date from 2012 and will expire on 31 December 2020. The revision focuses on the compensation of indirect ETS costs with the aim of preventing carbon leakage in the relevant sectors exposed to such risk. 2.Outline of the consultation strategy The Commission created a specific web page for the initiative: https://ec.europa.eu/competition/state_aid/legislation/ets_en.html . The aim of the consultation activities was to collect supporting information, data and knowledge on the decisions of the Commission on schemes implemented by Member States to compensate indirect ETS costs, and publicly available literature on the ETS and carbon leakage in particular with a view to fill any potential information/data gaps in the course of the evaluation and inform the analysis of the evaluation questions and to support the impact assessment of the future ETS Guidelines. In particular, the consultation activities were designed to allow interested parties to provide their feedback and experiences of (i) implementing the State aid rules related to ETS and (ii) as regards the potential policy options. a.Stakeholders The main stakeholders identified were the Member States, businesses exposed to a risk of carbon leakage or those which compete with such businesses, and civil society: ·National and regional competent authorities involved in the granting of aid (high interest); ·Businesses and SMEs, in particular industries exposed to ETS indirect emission costs such as the sectors included in the Carbon Leakage List (high interest); ·Trade associations representing businesses (high interest); ·Interest groups who professionally deal with adaptation to climate change, e.g. academia, think tanks, green NGOs (high interest). b.Methods of engagement The consultation strategy used the following methods to involve and interact with stakeholders; all of them were applied: ·Four week feedback period on the Inception Impact Assessment (“IIA”); ·Public consultation (12 weeks) through a questionnaire available on the European Commission’s public consultation portal “Have your say”: https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/2041-Revision-of-the-ETS-State-aid-Guidelines/public-consultation ·Targeted consultation (8 weeks) through a sector specific questionnaire for any interested stakeholders regarding sectors’ eligibility, available on DG Competition’s consultation website: https://ec.europa.eu/competition/consultations/2019_ets_guidelines/index_en.html ·Targeted consultation (8 weeks) to national and regional competent authorities involved in the granting of aid, to gather information on the implementation of State aid schemes addressing indirect emission costs. The questionnaire was officially sent to all Member States through the Permanent Representations. ·Four interviews with stakeholders based on the outcome of the public consultation organised by a consultant.

·Meeting with the Member States on 11 February 2020 before the launching of the targeted consultation on the proposed ETS Guidelines Draft. ·Targeted consultation (8 weeks) to any interested stakeholder on the draft revised Guidelines. Stakeholders were informed of the consultation on DG Competition’s consultation website: https://ec.europa.eu/competition/consultations/2020_ets_stateaid_guidelines/index_en.html All consultation activities have been promoted via DG Competition’s “State Aid Weekly e-News” Newsletter and the DG Competition’s Twitter account. In addition, the Commission informed the Economic and Monetary Affairs Committee and the Committee on Industry, Research and Energy of the European Parliament of the launch of the consultation activities on 27 February 2019 and 22 January 2020. Table 1: Overview on consultation activities by stakeholder groups and timing Consultation activity Public consultation on inception IA Public consultation Targeted consultation to sectors Targeted consultation to MS Targeted consultation on draft Guidelines Meeting with MS Consultation by external consultant Meetings with interested parties Timing Targeted stakeholders 20/12/18 – 17/01/19 21/02/19 – 16/05/19 13/02/19 – 09/04/19 21/02/19 – 16/05/19 Q1/20 11/02/20 January-July 19 2018-2020 Member States authorities X X X X X X Businesses X X X X X X Trade associations X X X X X X NGOs/ Interest groups X X X Others X X X 3.Methodology and tools used to process the data The Commission used a combination of questionnaires, interviews of interested stakeholders, public consultations and working groups with Member States, to ensure a transparent and comprehensive methodology on the assessment of the data collected as regards the ETS Guidelines review. In particular, one public consultation and three targeted consultations were launched within two years, to provide all stakeholders the possibility to contribute to the ETS Guidelines review submitting backward-looking data and forward-looking feedback, namely concerning phase IV of the EU ETS. More specifically, the feedbacks from the public consultation and from the targeted consultation of sectors were analysed with the support of an external consultant, whereas the Commission internally assessed the feedback to the Inception Impact Assessment, to the targeted consultation to Member States and to the targeted consultation on the draft Guidelines. 4.The results of the stakeholder consultations This chapter summarises the views and evidence collected from the different categories of stakeholders during the public consultation activities. The circumstance that for all consultation activities a large share of the replies comes from businesses and business associations has significantly affected the representativeness of the outcome. The nature of these replies indeed reveals a consistent bias towards a wider scope and increased level of ETS indirect cost compensation by the likely affected stakeholders. To this extent, Member States, NGOs and universities provided alternative insights, albeit outnumbered by the former categories. a.The feedback on the Inception Impact Assessment (“IIA”) From 20 December 2018 until 17 January 2019 the Commission published the IIA on the revision of the ETS Guidelines, in order to allow stakeholders to provide their feedback on the intended initiative. 53 stakeholders submitted a response, all of them being sectorial trade associations and industrial undertakings, mostly energy intensive user related. No NGO, public authority nor other categories of stakeholders provided feedback. For this reason, the results were fully biased towards the views of this category. The relevance of the ETS guidelines was not questioned. Moreover, the respondents welcomed the revision of the ETS Guidelines and the objectives of avoiding carbon leakage and promoting a cost-effective decarbonisation of the economy, while minimising competition distortions. To this extent, it was pointed out that carbon leakage would be a sensitive objective in the next trading period, since CO2 prices are expected to increase. More concretely, a significant number of respondents favoured the use of the Carbon Leakage List parameters to determine sectors eligibility for indirect compensation and highlighted the importance of the trade intensity indicator. The submissions leant towards adopting a generous method for costs compensation, opposing degressivity as in the current ETS guidelines. They also argued that the CO2 emission factor should remain regional. Finally, some respondents believed that efficiency benchmarks should be reassessed, to be consistent with the approach taken in the revised ETS directive which foreseen their revision after 5 years. b.The public consultation Afterwards, the Commission launched the public consultation, in the form of a questionnaire composed of 28 open questions. The questionnaire was made available to stakeholders from 21 February to 16 May 2019 on the “Have your say” portal in English, French and German, whereas replies could be made in any of the EU 24 official languages. The Commission received 132 replies, of which 87% accounted for industrial stakeholders (businesses and business associations).

As for the feedback to the Inception Impact Assessment, the Figure above shows that the results of the public consultation also need to be assessed taking into account that the views of industrial stakeholders are proportionally overrepresented. It is also to be noted that, within this category, around 70% of the contributions came from sectors which did not receive indirect emission cost compensation during phase III of the EU ETS. The geographical representation of the respondents was rather balanced, with a large proportion of sector representatives at EU level indicating their location in Belgium. The aim of the consultation was to allow interested parties to provide their feedback and experiences in the implementation of the State aid rules related to the EU ETS, as well as their views regarding the design of the future ETS Guidelines. Throughout the consultation, 75% of the replies coming from all categories of stakeholders sustained the usefulness of the ETS Guidelines designed by the Commission rather than foreseeing each Member States designing the mechanism on their own, showing a wide degree of support. On substance, half of the respondents pointed out that they could recognise concrete examples of carbon leakage related to indirect costs, identifying the underlying causes as the limited possibility to pass on indirect emission costs to final consumers and the absence of a compensation scheme implemented by the Member State. This result is in line with the fact that, as already mentioned, the largest majority of respondents belong to industrial sectors not having received compensation. However, only some sectors attempted to provide concrete examples, but most referred to relocation decisions without providing evidence that they are related to indirect ETS costs. When replying on market distortion, the consultation also provided mixed results depending on the category of stakeholder. The 30% of the respondents (mostly industrial stakeholders in sectors not having received compensation and NGOs) argued that compensation for indirect emission costs brought forth unfair competition within the market, pointing at the absence of compensation schemes in some Member States as the main reason. However, other 30% (mostly industrial stakeholders) stated that no market distortion was created due to indirect cost compensation. Overall, due to the fact that the majority of respondents were industrial stakeholders, the replies to this consultation revealed a significant bias in favour of the maximum compensation of indirect ETS, as 42% of the submission claims that the compensations provided for under the 2012 ETS guidelines were not sufficient to prevent carbon leakage risk. Moreover, the 49% of the respondents underline the inadequacy of the formula proposed to calculate compensations. To this extent, contributions also provided inputs to its implementation, suggesting one mid-term review of the efficiency benchmarks to in 2025, maintaining regional CO2 factors, and supporting the forward price of the EU allowances on year t-1 as a proxy to calculate the maximum amount of compensation. Finally, a majority of the replies advocated for future guidelines without conditionality and degressivity. On the other hand, two NGOs argued that eligible sectors were not sufficiently exposed to a risk of carbon leakage to justify a compensation of indirect ETS costs and that the compensation in phase III of the EU ETS has been too generous. c.The targeted consultation to sectors The Commission launched on 13 February 2019 until 9 April 2019 the targeted consultation, receiving 92 replies from 31 different sectors. The target group was composed of businesses and trade associations representing businesses exposed to ETS indirect emission costs, as well as any stakeholder willing to provide economic data on specific sectors. The aim of this consultation was to gather information on two interrelated scopes: determine sectors’ exposure to carbon leakage risk due to the indirect emission costs and assess the level of compensation that should be granted. The questionnaire was composed of 18 open questions and it was published in English on the Commission’s website. The filled in questionnaire could be sent by email in any of the EU official languages. The sectors representatives provided argumentations supporting their inclusion in the eligibility list entitling compensation for indirect costs within phase IV of the EU ETS. In particular, they provided data on market characteristics of the sector, including its ability to pass on higher carbon costs on to customers; Profit margins of EU undertakings active in the sector; Scope for energy efficiency investments in the sector; Inter- and intra-sectors competition; and Diversity of production processes within the sector with some processes implying higher shares of indirect emissions costs. To this extent, the main concerns underlined were the lack of competitiveness vis-à-vis third countries producers and the global market extent of some sectors. Finally, it is worth noting that all sectors considered that full compensation of the costs incurred was necessary to avoid the risk of carbon leakage. An external consultant contacted twelve sector representatives that did not reply to the targeted consultation . Out of these sectors, six did not reply to the targeted information request made by the consultant either , whereas three sectors’ representatives replied but did not submit relevant material, either referring to their similar submission to other consultations, to their ineligibility as regards indirect costs compensation or to themselves as a scientific association rather than a business association representing the sector’s interest . On the other hand, the consultant succeeded to organise a phone call to obtain additional information to the assessment with four different sectors’ representatives . d.The ad hoc targeted consultation to Member States The Commission also sent information letters to Member States and to the European Free Trade Association on 22 February 2019 to inform them about the existence of the public and of the targeted consultations. These letters contained five targeted questions for Member States and the competent authorities involved in the granting of aid, to gather information on State aid schemes compensating for CO2 indirect emissions costs. Twenty Member States replied, as well as Norway. One of the main objectives of this targeted consultation was to gather Member States’ view on the reasons to implement an ETS compensation scheme. Out of the ten respondents without compensation scheme in place at the time of the consultation, four of them reported that the main reason was budgetary constraints, as funds related to the auctioning of free allowances would have been deployed for other purposes. Among this category of Member States some provided other reasons, varying from the lack of beneficiaries within their national borders, to the fallacy of the ETS scheme as a tool, either for its inconsistency with the aim, or for its empirical ineffectiveness to prevent carbon leakage.

On the other hand, among the respondents with a scheme in place, the main reason underlying the implementation was to avoid carbon leakage. Member States also referred to geographical location, possible distortion within the European market and low administrative burdens. At the time, two Member States were considering introducing a scheme, due to neighbouring countries implementation and/or CO2 prices rising. Members States were also asked on the expenditures they had to grant under the scheme: Germany reported the highest amount of annual aid expenditure, and the highest number of beneficiaries in the scheme. A majority of Member States reported expenses ranging from EUR 25 million to EUR 150 million approximately, with a lesser amount of beneficiaries. Only two Member States reported less than EUR 5 million in aid, due to few undertakings covered by the scheme. Members States also provided their view on the CO2 factor. Eight respondents agreed on the regional approach, based on the market coupling criteria. To this extent, Norway stressed out the need to factor in the actual price increase of electricity due to the ETS, as well as the interdependency and complexity of European energy market, especially in the Nordic region. Conversely, another relevant share of respondents preferred a national approach, due the mix of their energy market and the limited integration. Finally, only two Member States suggested an EU-wide CO2 carbon factor. Few Member States implemented some form of conditionality in their schemes, adding requirements for beneficiaries such as mandatory energy-efficiency audit or energy management system, whereas other Member State have either introduced conditionality on similar schemes to the ETS, or are planning to introduce it. Only one Member State argued against conditionality and degressivity. Member States also added spontaneous comments. The Netherlands and Norway were concerned about the affordability of scheme implementation. The latter mainly referred to the uselessness of the cap on Member States budget and the need to provide companies with equal treatment as regards carbon leakage risk. Moreover, Norway sustained the historic baseline output, but agreed on the proposed periodical review of aid intensity and the usefulness of efficiency benchmarks. Additionally, some Member States asked for specific addition to the list of sectors, without providing any data for the assessment nevertheless. Finally, only one Member State explained that it had conducted an evaluation of the national scheme. e.The targeted consultation on the draft Guidelines On 14 January the Commission launched a public consultation until 10 March 2020 with the aim to gather feedback from all interested parties on a proposed draft of the ETS State aid Guidelines. This public consultation was launched after the announcement of the European Green Deal , which set the EU’s ambitious objective to become the first climate neutral economy by 2050. The Commission received more than 400 contributions submitted from a multitude of stakeholders involved. Compared to the previous consultations, the consultation attracted a larger number of stakeholders, covering a more representative variety of stakeholders. 21 Member States plus Norway replied and regional authorities of two Member States also provided their view. More than 23 sectors were concerned, sustained by businesses or/and business associations and Member States. Several NGOs, consumers associations, universities and private citizens also participated to the public consultation. From a geographic perspective, a large proportion of respondents (mostly companies and citizens employed in certain sectors) was located in Poland (approximately 25%). The consultation was based on the following proposed combination of options: -A proposed list of eight eligible sectors -The aid intensity at 75%, with the possibility for Member States to further limit the exposure of beneficiaries to indirect ETS cost as a function of their gross value added (“GVA”) -Stable aid intensity combined with a mid-term update of the electricity consumption efficiency benchmarks -Regional CO2 factors -Actual output -Conditionality upon decarbonisation efforts by companies Overall, the contributions vary greatly among stakeholders’ categories. Two general trends can be identified. The first trend considered the proposal too strict or that more flexible and generous conditions should be applicable for Member States located at the EU border and is supported by some Member States and public authorities, as well as the overwhelming majority of industrial stakeholders and citizens employed in the affected sectors. The second trend considered the approach adequate or even too generous and is mostly supported by some other Member States and environmental NGOs. A large majority of Member States argued in favour of the inclusion of specific sectors or sub-sectors (i.e. at Prodcom level) based on qualitative considerations, which however often differed based on regional specificities. Sectors not included in the list of eligible sectors in the draft Guidelines provided different suggestions, mainly referring to changes to the quantitative parameters of the formula used to determine sectors’ inclusion, and arguments presenting possible risks due to lack of compensation. One of the main reasons put forward by both those Member States and industrial stakeholders excluded from the list is the need to ensure the sectors decarbonisation through electrification, which would be discouraged if the sector receives free allowances for direct emissions. This would be particularly the case for sectors manufacturing products with fuel/electricity substitutability. Some Member States agreed that the aid intensity at 75% and stable (with the mid-term update of the efficiency benchmarks in 2025) is adequate, however some of them would only agree if the Guidelines allow capping the indirect costs of single undertakings particularly affected at 0.5% of their GVA or 1.5% of their GVA. While some industrial stakeholders in eligible sectors agreed with that position as long as the GVA cap is set at 0.5%, the majority of industrial stakeholders in both eligible and non-eligible sectors, still consider that the aid intensity should be higher. On the other hand, other Member States considered 75% excessive and that it should be degressive to be phased out in 2030 or reduced in 2025. Environmental NGOs also advocated for degressivity and a sunset clause.