COMMUNICATION FROM THE COMMISSION –

Guidelines on State aid for climate, environmental protection and energy 2022

(2022/C 80/01)

Table of Contents

1. INTRODUCTION 8

2. SCOPE AND DEFINITIONS 9

2.1 Scope 9

2.2 Aid measures covered by these guidelines 10

2.3 Structure of the guidelines 11

2.4 Definitions 11

3. COMPATIBILITY ASSESSMENT UNDER ARTICLE 107(3), POINT (C), OF THE TREATY 21

3.1 Positive condition: the aid must facilitate the development of an economic activity 22

3.1.1 Identification of the economic activity which is being facilitated by the measure, its positive effects for society at large and, where applicable, its relevance for specific policies of the Union 22

3.1.2 Incentive effect 22

3.1.3 No breach of any relevant provision of Union law 23

3.2 Negative condition: the aid measure must not unduly affect trading conditions to an extent contrary to the common interest 23

3.2.1 Minimisation of distortions of competition and trade 23

3.2.1.1 Necessity of the aid 23

3.2.1.2 Appropriateness 24

3.2.1.2.1 Appropriateness among alternative policy instruments 25

3.2.1.2.2 Appropriateness among different aid instruments 25

3.2.1.3 Proportionality 25

3.2.1.3.1 Cumulation 27

3.2.1.4 Transparency 27

3.2.2 Avoidance of undue negative effects on competition and trade 28

3.3 Weighing the positive effects of the aid against the negative effects on competition and trade 29

4. CATEGORIES OF AID 30

4.1 Aid for the reduction and removal of greenhouse gas emissions including through support for renewable energy and energy efficiency 30

4.1.1 Rationale 30

4.1.2 Scope and supported activities 31

4.1.2.1 Aid for renewable energy 31

4.1.2.2 Other aid for the reduction and removal of greenhouse gas emissions and energy efficiency 31

4.1.3 Minimisation of distortions of competition and trade 32

4.1.3.1 Necessity of the aid 32

4.1.3.2 Appropriateness 32

4.1.3.3 Eligibility 32

4.1.3.4 Public consultation 33

4.1.3.5 Proportionality 34

4.1.4 Avoidance of undue negative effects on competition and trade and balancing 37

4.2 Aid for the improvement of the energy and environmental performance of buildings 40

4.2.1 Rationale for the aid 40

4.2.2 Scope and supported activities 40

4.2.3 Incentive effect 41

4.2.4 Minimisation of distortions of competition and trade 41

4.2.4.1 Appropriateness 41

4.2.4.2 Proportionality 41

4.2.4.3 Avoidance of undue negative effects on competition and trade and balancing 42

4.3 Aid for clean mobility 43

4.3.1 Aid for the acquisition and leasing of clean vehicles and clean mobile service equipment and for the retrofitting of vehicles and mobile service equipment 43

4.3.1.1 Rationale for the aid 43

4.3.1.2 Scope and supported activities 44

4.3.1.3 Incentive effect 44

4.3.1.4 Minimising distortions of competition and trade 44

4.3.1.4.1 Appropriateness 44

4.3.1.4.2 Proportionality 44

4.3.1.5 Avoidance of undue negative effects on competition and trade and balancing 46

4.3.2 Aid for the deployment of recharging or refuelling infrastructure 47

4.3.2.1 Rationale for the aid 47

4.3.2.2 Scope and supported activities 47

4.3.2.3 Minimisation of distortions of competition and trade 47

4.3.2.3.1 Necessity of the aid 47

4.3.2.3.2 Appropriateness 48

4.3.2.3.3 Proportionality 48

4.3.2.4 Avoidance of undue negative effects on competition and trade and balancing 49

4.4 Aid for resource efficiency and for supporting the transition towards a circular economy 51

4.4.1 Rationale for the aid 51

4.4.2 Scope and supported activities 51

4.4.3 Incentive effect 52

4.4.4 Minimisation of distortions on competition and trade 53

4.4.4.1 Necessity of the aid 53

4.4.4.2 Appropriateness 53

4.4.4.3 Proportionality 53

4.4.5 Avoidance of undue negative effects on competition and trade 55

4.5 Aid for the prevention or the reduction of pollution other than from greenhouse gases 55

4.5.1 Rationale for the aid 55

4.5.2 Scope and supported activities 55

4.5.3 Incentive effect 56

4.5.4 Minimisation of distortions on competition and trade 56

4.5.4.1 Necessity of the aid 56

4.5.4.2 Proportionality 57

4.5.5 Avoidance of undue negative effects on competition and trade 57

4.6 Aid for the remediation of environmental damage, the rehabilitation of natural habitats and ecosystems, the protection or restoration of biodiversity and the implementation of nature-based solutions for climate change adaptation and mitigation 58

4.6.1 Rationale for the aid 58

4.6.2 Scope and supported activities 58

4.6.3 Incentive effect 59

4.6.4 Proportionality 59

4.7 Aid in the form of reductions in taxes or parafiscal levies 59

4.7.1 Aid in the form of reductions in environmental taxes and parafiscal levies 60

4.7.1.1 Rationale for the aid 60

4.7.1.2 Scope and supported activities 60

4.7.1.3 Minimisation of distortions of competition and trade 60

4.7.1.3.1 Necessity 61

4.7.1.3.2 Appropriateness 61

4.7.1.3.3 Proportionality 61

4.7.2 Aid for environmental protection in the form of reductions in taxes or parafiscal levies 62

4.7.2.1 Rationale for the aid 62

4.7.2.2 Scope and supported activities 62

4.7.2.3 Incentive effect 62

4.7.2.4 Proportionality 63

4.7.2.5 Avoidance of undue negative effects on competition and trade 63

4.8 Aid for the security of electricity supply 63

4.8.1 Rationale for the aid 63

4.8.2 Scope and supported activities 63

4.8.3 Incentive effect 64

4.8.4 Minimisation of distortions of competition and trade 64

4.8.4.1 Necessity 64

4.8.4.2 Appropriateness 65

4.8.4.3 Eligibility 65

4.8.4.4 Public consultation 66

4.8.4.5 Proportionality 67

4.8.5 Avoidance of undue negative effects on competition and trade and balancing 67

4.9 Aid for energy infrastructure 69

4.9.1 Rationale for the aid 69

4.9.2 Scope and supported activities 70

4.9.3 Minimisation of distortions of competition and trade 71

4.9.3.1 Necessity and appropriateness 71

4.9.3.2 Proportionality of the aid 71

4.9.4 Avoidance of undue negative effects on competition and trade and balancing 71

4.10 Aid for district heating and cooling 72

4.10.1 Rationale for the aid 72

4.10.2 Scope and supported activities 72

4.10.3 Necessity and appropriateness 73

4.10.4 Proportionality of the aid measure 73

4.10.5 Avoidance of undue negative effects on competition and trade and balancing 74

4.11 Aid in the form of reductions from electricity levies for energy-intensive users 74

4.11.1 Rationale for the aid 74

4.11.2 Scope: Levies from which reductions can be granted 75

4.11.3 Minimisation of distortions on competition and trade 75

4.11.3.1 Eligibility 75

4.11.3.2 Proportionality of the aid measure 76

4.11.3.3 Form of State aid 76

4.11.3.4 Energy Audits and Management Systems 77

4.11.3.5 Transitional rules 77

4.12 Aid for the closure of power plants using coal, peat or oil shale and of mining operations relating to coal, peat or oil shale extraction 78

4.12.1 Aid for the early closure of profitable coal, peat and oil shale activities 78

4.12.1.1 Rationale for the aid 78

4.12.1.2 Scope and supported activities 79

4.12.1.3 Incentive effect 79

4.12.1.4 Necessity and appropriateness 79

4.12.1.5 Proportionality 79

4.12.1.6 Avoidance of undue negative effects on competition and trade 80

4.12.2 Aid for exceptional costs in relation to the closure of uncompetitive coal, peat and oil shale activities 80

4.12.2.1 Rationale for the aid 80

4.12.2.2 Scope and supported activities 80

4.12.2.3 Necessity and appropriateness 80

4.12.2.4 Incentive effect and proportionality 80

4.12.2.5 Avoidance of undue negative effects on competition and trade 81

4.13 Aid for studies or consultancy services on matters relating to climate, environmental protection and energy 81

4.13.1 Scope and supported activities 81

4.13.2 Incentive effect 81

4.13.3 Proportionality 82

5. EVALUATION 82

6. REPORTING AND MONITORING 83

7. APPLICABILITY 83

8. REVISION 83

1. INTRODUCTION

1. The Commission has made the European Green Deal a top political priority, with the aim of transforming the Union into a fair and prosperous society with a modern, resource-efficient and competitive economy, where there are no net emissions of greenhouse gases in 2050 and where economic growth is decoupled from resource use, while leaving no one behind. The climate ambitions of the Commission were reinforced in 2019 with the European Green Deal Communication ( 1 ) , setting an objective of no net emissions of greenhouse gases by 2050. In order to set our economy and society on a fair, green and prosperous path to becoming climate neutral by 2050, the Commission has also proposed to reduce net greenhouse gas emissions by at least 55 % by 2030 compared to 1990 levels ( 2 ) . Those ambitious targets have been enshrined in the European Climate Law ( 3 )

2. The ‘Fit for 55’ package of legislative proposals supports the achievement of those targets ( 4 ) and puts the Union on track to climate neutrality by 2050.

3. Delivering on the objectives of climate neutrality, climate change adaptation, resource and energy efficiency and the ‘Energy Efficiency First’ principle, circularity, zero pollution and recovery of biodiversity and accompanying that green transition will require significant efforts and adequate support. To achieve the ambition set out in the European Green Deal Communication, significant investment, including in renewable energy sources, will be required. The Commission has estimated that achieving the newly increased 2030 climate, energy and transport targets will require EUR 390 billion of additional annual investment compared to the levels in 2011-2020 ( 5 ) , with a further EUR 130 billion a year for the other environmental objectives estimated previously ( 6 ) . The magnitude of this investment challenge requires mobilising both the private sector and public funds in a cost-effective manner. This will affect all sectors and therefore the Union economy as a whole.

4. Competition policy, and State aid rules in particular, has an important role to play in enabling and supporting the Union in fulfilling its Green Deal policy objectives. The European Green Deal Communication specifically states that the State aid rules will be revised to take into account those policy objectives, to support a cost-effective and just transition to climate neutrality, and to facilitate the phasing out of fossil fuels, while at the same time ensuring a level-playing field in the internal market. These guidelines reflect that revision.

5. To prevent State aid from distorting or threatening to distort competition in the internal market and affecting trade between Member States, Article 107(1) of the Treaty on the Functioning of the European Union lays down the principle that State aid is prohibited. In certain cases, however, such aid may be compatible with the internal market on the basis of Article 107(2) and (3) of the Treaty.

6. Member States must notify State aid pursuant to Article 108(3) of the Treaty, with the exception of measures that fulfil the conditions laid down in a block exemption Regulation adopted by the Commission, pursuant to Article 1 of Council Regulation (EU) 2015/1588 ( 7 )

7. These guidelines provide guidance on how the Commission will assess the compatibility of environmental protection, including climate protection, and energy aid measures which are subject to the notification requirement under Article 107(3), point (c), of the Treaty. Any reference to ‘environmental protection’ in these guidelines should be understood as a reference to environmental protection, including climate protection.

8. Under Article 107(3), point (c), of the Treaty, an aid measure may be declared compatible with the internal market provided that two conditions, one positive, one negative, are fulfilled. The positive condition is that the aid must facilitate the development of an economic activity. The negative condition is that the aid must not adversely affect trading conditions to an extent contrary to the common interest.

9. It is generally accepted that competitive markets tend to bring about efficient results in terms of prices, output and use of resources. However, State intervention may be necessary to facilitate the development of certain economic activities that would not develop at all or would not develop at the same pace or under the same conditions in the absence of aid. The intervention thereby contributes to smart, sustainable and inclusive growth.

10. In the context of environmental protection, environmental externalities, information imperfections and coordination failures mean that the costs and benefits of an economic activity might not fully be taken into account by market participants when taking consumption, investment and production decisions, in spite of regulatory interventions. Those market failures, that is to say, situations in which markets, if left to their own devices, are unlikely to produce efficient outcomes, do not lead to optimal welfare for consumers and society at large, resulting in insufficient levels of environmental protection in relation to the economic activities conducted in the absence of State support.

11. Member State authorities should ensure that the aid measure, the conditions attached to it, the procedures for adopting it and the supported activity do not contravene Union environmental law. Member State authorities should also ensure that the public concerned has the opportunity to be consulted in decision-making on aids. Finally, individuals and organisations should be given the opportunity to challenge the aid or measures implementing the aid before national courts where they can adduce evidence that the Union environmental laws are not complied with ( 8 )

2. SCOPE AND DEFINITIONS

2.1 Scope

12. These guidelines apply to State aid granted to facilitate the development of economic activities in a manner that improves environmental protection, as well as activities in the energy sector that are governed by the Treaty, insofar as those aid measures are covered by Section 2.2 of these guidelines. These guidelines therefore also apply to those sectors which are subject to specific Union rules on State aid, unless those specific Union rules state otherwise or contain provisions on aid for environmental protection or aid in the energy sector applying to the same measure, in which case the sector specific rules prevail. These guidelines prevail over point 17(b) of the Aviation Guidelines ( 9 ) with regard to environmental aid measures in favour of large airports with a passenger volume of over 5 million per annum.

13. These guidelines do not apply to: (a) State aid for the design and manufacture of environmentally-friendly products, machinery, equipment or means of transport with a view to operating with fewer natural resources and action taken within plants or other production units with a view to improving safety or hygiene (10); (b) State aid for research, development and innovation which is subject to the rules set out in the Framework for State aid for research and development and innovation (11); (c) State aid covered by the rules on State aid in the agriculture and forestry sector (12) or in the fishery and aquaculture sector (13); (d) State aid for nuclear energy.

14. Aid for environmental protection and energy must not be awarded to undertakings in difficulty as defined by the Commission Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty ( 14 )

15. When assessing aid in favour of an undertaking that is subject to an outstanding recovery order following a previous Commission decision declaring an aid illegal and incompatible with the internal market, the Commission will take account of the amount of aid still to be recovered ( 15 )

2.2 Aid measures covered by these guidelines

16. The Commission has identified a number of categories of environmental protection and energy measures in respect of which State aid may be compatible with the internal market under Article 107(3), point (c), of the Treaty under certain conditions: (a) aid for the reduction and removal of greenhouse gas emissions, including through support for renewable energy and energy efficiency; (b) aid for the improvement of the energy and environmental performance of buildings; (c) aid for the acquisition and leasing of clean vehicles (used for air, road, rail, inland waterway and maritime transport) and clean mobile service equipment and for the retrofitting of vehicles and mobile service equipment; (d) aid for the deployment of recharging or refuelling infrastructure for clean vehicles; (e) aid for resource efficiency and for supporting the transition towards a circular economy; (f) aid for the prevention or the reduction of pollution other than from greenhouse gases; (g) aid for the remediation of environmental damage, the rehabilitation of natural habitats and ecosystems, the protection or restoration of biodiversity and the implementation of nature-based solutions for climate change adaptation and mitigation; (h) aid in the form of reductions in taxes or parafiscal levies; (i) aid for the security of electricity supply; (j) aid for energy infrastructure; (k) aid for district heating and cooling; (l) aid in the form of reductions from electricity levies for energy-intensive users; (m) aid for the closure of power plants using coal, peat or oil shale and of mining operations relating to coal, peat or oil shale extraction; (n) aid for studies or consultancy services on matters relating to climate, environmental protection and energy.

2.3 Structure of the guidelines

17. Chapter 3 sets out the compatibility criteria that apply generally to the various categories of aid covered by these guidelines. Section 3.2.1.3.1 on cumulation applies to all categories of aid covered by these guidelines. Chapter 4 sets out specific compatibility criteria that apply to the aid measures covered by the various sections of that chapter. The compatibility criteria in Chapter 3 apply unless there are more specific provisions laid down in the dedicated specific sections in Chapter 4.

18. The conditions set out in these guidelines apply to aid schemes and individual aid, whether based on an aid scheme or granted ad hoc, unless otherwise specified.

2.4 Definitions

19. For the purposes of these guidelines, the following definitions apply: (1) ‘ad hoc aid’ means aid not granted on the basis of an aid scheme; (2) ‘aid intensity’ means the gross aid amount expressed as a percentage of the eligible costs. All figures used must be taken before any deduction of tax or other levies. Where aid is awarded in a form other than a grant, the aid amount must be the gross grant equivalent of the aid. Aid payable in several installments must be calculated at its value at the moment of granting. The interest rate to be used for discounting purposes and for calculating the aid amount in a soft loan (16) must be the reference rate applicable at the time of grant. The aid intensity is calculated per beneficiary; (3) ‘assisted areas’ means areas which at the time of the granting of the aid are designated in an approved regional aid map in application of Article 107(3), points (a) and (c), of the Treaty; (4) ‘balancing’ for electricity means balancing as defined in Article 2, point (10), of Regulation (EU) 2019/943 of the European Parliament and of the Council (17); (5) ‘balance responsible party (BRP)’ means balance responsible party as defined in Article 2, point (14), of Regulation (EU) 2019/943; (6) ‘biodiversity’ means biodiversity as defined in Article 2, point (15), of Regulation (EU) 2020/852 of the European Parliament and of the Council (18); (7) ‘biofuels’ means biofuels as defined in Article 2, point (33), of Directive (EU) 2018/2001 of the European Parliament and of the Council (19); (8) ‘biogas’ means biogas as defined in Article 2, point (28), of Directive (EU) 2018/2001; (9) ‘bioliquids’ means bioliquids as defined in Article 2, point (32), of Directive (EU) 2018/2001; (10) ‘biomass’ means the biodegradable fraction of products, waste and residues from biological origin, as defined in Article 2, point (24), of Directive (EU) 2018/2001; (11) ‘biomass fuels’ means biomass fuels as defined in Article 2, point (27), of Directive (EU) 2018/2001; (12) ‘capacity mechanism’ means capacity mechanism as defined in Article 2, point (22), of Regulation (EU) 2019/943; (13) ‘carbon capture and storage’ (CCS) means a set of technologies that make it possible to capture the carbon dioxide (CO2) emitted from industrial plants, including process-inherent emissions, or to capture it directly from ambient air, to transport it to a storage site and inject it in suitable underground geological formations for the purpose of permanent storage; (14) ‘carbon capture and use’ (CCU) means a set of technologies that make it possible to capture the CO2 emitted from industrial plants, including process-inherent emissions, or to capture it directly from ambient air, and to transport it to a CO2 consumption or utilisation site for full usage of that CO2; (15) ‘CO2 removal’ means anthropogenic activities removing CO2 from the atmosphere and durably storing it in geological, terrestrial, or ocean reservoirs, or in products. It includes existing and potential anthropogenic enhancement of biological or geochemical sinks and direct air capture and storage, but excludes natural CO2 uptake not directly caused by human activities; (16) ‘supplier obligation scheme’ means a scheme in which value is created for providing goods or services by certifying those goods or services and imposing an obligation on suppliers or consumers to buy certificates; (17) ‘clean mobile groundhandling equipment’ means mobile equipment used in service activities incidental to air or maritime transport that has zero direct (tailpipe) CO2 emissions; (18) ‘clean mobile service equipment’ means clean mobile terminal equipment and clean mobile groundhandling equipment; (19) ‘clean mobile terminal equipment’ means mobile equipment used for the loading, unloading and transhipment of goods and intermodal loading units, and for moving cargo within a terminal area, that has zero direct (tailpipe) CO2 emissions or, in the absence of zero direct (tailpipe) CO2 emission alternatives, that has significantly lower direct (tailpipe) CO2 emissions than conventional terminal equipment; (20) ‘clean vehicle’ means: (a) concerning two- and three-wheel vehicles and quadricycles: (i) a vehicle falling within the scope of Regulation (EU) No 168/2013 that has zero tailpipe CO2 emissions, calculated in accordance with the requirements laid down in Article 24 of and Annex V to that Regulation; (b) concerning light-duty road vehicles: (i) a vehicle of category M1, M2 or N1 that has zero tailpipe CO2 emissions, as determined in accordance with Commission Regulation (EU) 2017/1151 (20); (ii) a clean vehicle as defined in Article 4, point (4)(a), of Directive 2009/33/EC of the European Parliament and of the Council (21); (c) concerning heavy-duty road vehicles: (i) a zero-emission heavy-duty vehicle as defined in Article 4(5) of Directive 2009/33/EC; (ii) until 31 December 2025, a low-emission heavy-duty vehicle as defined in Article 3, point (12), of Regulation (EU) 2019/1242 of the European Parliament and of the Council (22); (iii) until 31 December 2025, a clean vehicle as defined in Article 4, point (4)(b), of Directive 2009/33/EC and not falling within the scope of Regulation (EU) 2019/1242; (d) concerning inland waterway vessels: (i) an inland vessel for passenger or freight transport that has zero direct (tailpipe/exhaust) CO2 emissions; (ii) an inland vessel for passenger transport that has a hybrid or dual fuel engine deriving at least 50 % of its energy from zero direct (tailpipe) CO2 emission fuels or plug-in power for its normal operation; (iii) an inland vessel for freight transport that has direct (tailpipe) emissions of CO2 per tonne kilometre (gCO2/tkm), calculated (or estimated in case of new vessels) using the International Maritime Organization Energy Efficiency Operational Indicator (EEOI), that are 50 % lower than the average reference value for emissions of CO2 determined for heavy-duty vehicles (vehicle subgroup 5-LH) in accordance with Article 11 of Regulation (EU) 2019/1242; When assessing whether a vessel qualifies as a clean vehicle, the Commission will take into account evolutions in the sector concerned, including by referring to the technical screening criteria under which an activity qualifies as contributing substantially to climate change mitigation, as set out in the relevant delegated act under Regulation (EU) 2020/852; (e) concerning maritime vessels: (i) a sea and coastal vessel for passenger or freight transport, for port operations or for auxiliary activities that has zero direct (tailpipe) CO2 emissions; or (ii) a sea and coastal vessel for passenger, freight transport, for port operations or for auxiliary activities that has a hybrid or dual fuel engine deriving at least 25 % of its energy from zero direct (tailpipe) CO2 emission fuels or plug-in power for its normal operation at sea and in ports or that has an attained International Maritime Organization Energy Efficiency Design Index (EEDI) value 10 % below the EEDI requirements applicable on 1 April 2022 and that is able to run on zero direct (tailpipe) CO2 emission fuels or on fuels from renewable sources; or (iii) a sea and coastal vessel for freight transport that is used exclusively for operating coastal and short sea services designed to enable modal shift of freight currently transported by land to sea and that has direct (tailpipe) CO2 emissions, calculated using the EEDI, that are 50 % lower than the average reference CO2 emissions value defined for heavy-duty vehicles (vehicle sub group 5-LH) in accordance with Article 11 of Regulation 2019/1242; When assessing whether a vessel qualifies as a clean vehicle, the Commission will take into account evolutions in the sector concerned, including by referring to the technical screening criteria under which an activity qualifies as contributing substantially to climate change mitigation, as set out in the relevant delegated act under Regulation (EU) 2020/852; (f) concerning rail rolling stock: (i) rolling stock that has zero direct (tailpipe) CO2 emissions; (ii) rolling stock that has zero direct tailpipe CO2 emissions when operated on a track with necessary infrastructure and that uses a conventional engine where such infrastructure is not available (bimode); (g) concerning aircraft: (i) an aircraft that has zero direct (tailpipe) CO2 emissions; (ii) an aircraft with substantially improved environmental performance as compared to an aircraft of the same take-off mass corresponding to an alternative widely available on the market; (21) ‘cogeneration’ or combined heat and power means cogeneration as defined in Article 2, point (30), of Directive (EU) 2012/27 of the European Parliament and of the Council (23); (22) ‘contaminated site’ means a site where there is a confirmed presence, caused by human activity, of materials or substances of such a level that they pose a significant risk to human health or the environment, taking into account current and approved future use of the land, sea bed or rivers; (23) ‘demonstration project’ means demonstration project as defined in Article 2, point (24) of Regulation (EU) 2019/943; (24) ‘digitalisation’ means the adoption of technologies carried out by electronic devices and/or systems which make it possible to increase product functionality, develop online services, modernise processes, or migrate to business models based on the disintermediation of goods production and service delivery, eventually producing a transformative impact; (25) ‘disposal’ means disposal as defined in Article 3, point 19, of Directive 2008/98/EC of the European Parliament and of the Council (24); (26) ‘distribution system operator’ (DSO) means distribution system operator as defined in Article 2, point (29), of Directive (EU) 2019/944 of the European Parliament and of the Council (25); (27) ‘district heating’ or ‘district cooling’ means district heating or district cooling as defined in Article 2, point (19), of Directive (EU) 2010/31 of the European Parliament and of the Council (26); (28) ‘district heating and/or cooling systems’ means heating and or cooling generation facilities, thermal storage and distribution network, comprising both primary- transmission- and secondary network of pipelines, to supply heating or cooling to consumers. Reference to district heating is to be interpreted as district heating and/or cooling systems, depending on whether the networks supply heating or cooling jointly or separately; (29) ‘eco-innovation’ means all forms of innovative activities, including new production processes, new products or services, and new management and business methods, resulting in or aimed at significantly improving environmental protection and significantly reducing the environmental impacts of pollution. For the purposes of this definition, the following are not considered innovations: (a) activities leading only to minor changes or improvements on environmental protection; (b) an increase in production or service capabilities through the addition of manufacturing or logistical systems which are very similar to those already in use; (c) changes in business practices, workplace organisation or external relations that are based on organisational methods already in use in the undertaking; (d) changes in management strategy; (e) mergers and acquisitions; (f) ceasing to use a process; (g) simple capital replacement or extension; (h) changes resulting purely from changes in factor prices, customisation, regular seasonal and other cyclical changes; (i) trading of new or significantly improved products; (30) ‘ecosystem’ means ecosystem as defined in Article 2, point (13), of Regulation (EU) 2020/852; (31) ‘energy efficiency’ means energy efficiency as defined in Article 2, point 4, of Directive 2012/27/EU; (32) ‘energy storage’ means, energy storage in the electricity system, as defined in Article 2, point 59, of Directive (EU) 2019/944; (33) ‘energy storage facility’ means, energy storage facility in the electricity system, as defined in Article 2, point 60, of Directive (EU) 2019/944; (34) ‘efficient district heating and cooling’ means efficient district heating and cooling as defined in Article 2, point (41), of Directive 2012/27/EU of the European Parliament and of the Council; (35) ‘energy from renewable sources’ means energy produced by plants using only renewable energy sources as defined in Article 2, point (1), of Directive (EU) 2018/2001, as well as the share in terms of calorific value of energy produced from renewable energy sources in hybrid plants which also use conventional energy sources and includes renewable electricity used for filling storage systems connected behind-the-meter (jointly installed or as an add-on to the renewable installation), but excludes electricity produced as a result of storage systems; (36) ‘energy infrastructure’ (27) means any physical equipment or facility which is located within the Union or linking the Union to one or more third countries and falling under the following categories: (a) concerning electricity: (i) transmission and distribution systems, where ‘transmission’ means the transport of electricity onshore as well as offshore on the extra high-voltage and high-voltage interconnected system with a view to its delivery to final customers or to distributors, but does not include supply and ‘distribution’ means the transport of electricity onshore as well as offshore on high-voltage, medium-voltage and low-voltage distribution systems with a view to its delivery to customers, but does not include supply; (ii) any equipment or installation essential for the systems referred to in point (i) to operate safely, securely and efficiently, including protection, monitoring and control systems at all voltage levels and substations; (iii) fully integrated network components as defined in Article 2, point (51), of Directive (EU) 2019/944; (iv) smart electricity grids, which means systems and components integrating information and communication technologies, through operational digital platforms, control systems and sensor technologies both at transmission and distribution level, aiming at a more secure, efficient and intelligent electricity transmission and distribution network, increased capacity to integrate new forms of generation, storage and consumption and facilitating new business models and market structures; (v) off-shore electricity grids, which means any equipment or installation of electricity transmission or distribution infrastructure, as defined in point (i), which has dual functionality: interconnection and transmission or distribution of offshore renewable electricity from the offshore generation sites to two or more countries. This also includes smart grids as well as any offshore adjacent equipment or installation essential to operate safely, securely and efficiently, including protection, monitoring and control systems, and necessary substations if they also ensure technology interoperability and among other interface compatibility between different technologies; (b) concerning gas (natural gas, biogas – including biomethane – and/or renewable gas of non-biological origin): (i) transmission and distribution pipelines for the transport of gas that form part of a network, excluding high-pressure pipelines used for upstream distribution of natural gas; (ii) underground storage facilities connected to the high-pressure gas pipelines mentioned in point (i); (iii) reception, storage and regasification or decompression facilities for liquefied or compressed gas; (iv) any equipment or installation essential for the system to operate safely, securely and efficiently or to enable bi-directional capacity, including compressor stations; (v) smart gas grids, which means any of the following equipment or installation aiming at enabling and facilitating the integration of renewable and low-carbon gases (including hydrogen or gases of non-biological origin) into the network: digital systems and components integrating information and communication technologies, control systems and sensor technologies to enable the interactive and intelligent monitoring, metering, quality control and management of gas production, transmission, distribution and consumption within a gas network. Furthermore, smart grids may also include equipment to enable reverse flows from the distribution to the transmission level and related necessary upgrades to the existing network; (c) concerning hydrogen (28): (i) transmission pipelines, for the high-pressure transport of hydrogen, as well as distribution pipelines for the local distribution of hydrogen, giving access to multiple network users on a transparent and non-discriminatory basis; (ii) storage facilities, which means facilities used for the stocking of hydrogen of a high grade of purity, including the part of a hydrogen terminal used for storage but excluding the portion used for production operations, and including facilities reserved exclusively for hydrogen network operators in carrying out their functions. Hydrogen storage facilities include underground storage facilities connected to the high-pressure hydrogen transmission or distribution pipelines referred to in point (i); (iii) dispatch, reception, regasification or decompression facilities for hydrogen or hydrogen embedded in other chemical substances with the objective of injecting the hydrogen into the grid either for gas or dedicated to hydrogen; (iv) terminals, which means installations used for the transformation of liquid hydrogen into gaseous hydrogen for injection into the hydrogen network. Terminals include ancillary equipment and temporary storage necessary for the transformation process and subsequent injection into the hydrogen network, but does not include any part of the hydrogen terminal used for storage; (v) interconnectors, which means a hydrogen network (or part thereof) which crosses or spans a border between Member States, or between a Member State and a third country up to the territory of the Member States or the territorial sea of that Member State; (vi) any equipment or installation essential for the hydrogen system to operate safely, securely and efficiently or to enable bi-directional capacity, including compressor stations; (d) concerning carbon dioxide (29): (i) pipelines, other than upstream pipeline networks, used to transport carbon dioxide from more than one source, that is to say, industrial installations (including power plants) that produce carbon dioxide gas from combustion or other chemical reactions involving fossil or non-fossil carbon-containing compounds, for the purpose of permanent geological storage of carbon dioxide pursuant to Article 3 of Directive 2009/31/EC of the European Parliament and of the Council (30) or for the purpose of using carbon dioxide as feedstock or to enhance the yields of biological processes; (ii) facilities for liquefaction and storage of carbon dioxide in view of its transport or storage; (iii) infrastructure within a geological formation used for the permanent geological storage of carbon dioxide pursuant to Article 3 of Directive 2009/31/EC and associated surface and injection facilities; (iv) any equipment or installation essential for the system in question to operate properly, securely and efficiently, including protection, monitoring and control systems. This may include dedicated mobile assets for the transport and storage of carbon dioxide, provided that such mobile assets fulfil the definition of a clean vehicle; (e) infrastructure used for transmission or distribution of thermal energy in the form of steam, hot water or chilled liquids from multiple producers/users, based on use of renewable energy or waste heat from industrial applications; (f) projects of common interest as defined in Article 2, point (4) of Regulation (EU) No 347/2013 of the European Parliament and of the Council (31) and projects of mutual interest referred to in Article 171 of the Treaty; (g) other infrastructure categories, concerning infrastructure that enables physical or wireless connection of renewable or carbon-free energy between producers and users from multiple access and exit points and which are open to access by third parties not belonging to the infrastructure owner/manager undertakings; (37) ‘energy performance’ means energy performance of a building as defined in Article 2, point (4), of Directive 2010/31/EU; (38) ‘energy savings’ means energy savings as defined in Article 2, point (5), of Directive 2012/27/EU; (39) ‘environmental protection’ means any action or activity designed to reduce or prevent pollution, negative environmental impacts or other damage to physical surroundings (including to air, water and soil), ecosystems or natural resources by human activities, including to mitigate climate change, to reduce the risk of such damage, to protect and restore biodiversity or to lead to more efficient use of natural resources, including energy-saving measures and the use of renewable sources of energy and other techniques to reduce greenhouse gas emissions and other pollutants, as well as to shift to circular economy models to reduce the use of primary materials and increase efficiencies. It also covers actions that reinforce adaptive capacity and minimise vulnerability to climate impacts; (40) ‘environmental tax or parafiscal levy’ means a tax or levy applied on a specific tax base, products or services that have a clear negative effect on the environment or which seeks to charge certain activities, goods or services so that the environmental costs may be included in their price or so that producers and consumers are oriented towards activities which better respect the environment; (41) ‘evaluation plan’ means a document covering one or more aid schemes and containing at least the following minimum aspects: (a) the objectives to be evaluated, (b) the evaluation questions, (c) the result indicators, (d) the envisaged method to conduct the evaluation, (e) the data collection requirements, (f) the proposed timing of the evaluation including the date of submission of the interim and the final evaluation reports, (g) the description of the independent body that will carry out the evaluation or the criteria that will be used for its selection and the modalities for making the evaluation publicly available; (42) ‘extended producer responsibility scheme’ means extended producer responsibility scheme as defined in Article 2, point (21), of Directive 2008/98/EC; (43) ‘generator’ means an undertaking which produces electrical power for commercial purposes; (44) ‘greenhouse gas’ means any gas that contributes to the greenhouse effect by absorbing infrared radiation, including carbon dioxide, methane, nitrous oxide and fluorinated gases such as hydrofluorocarbons; (45) ‘high-efficiency cogeneration’ means high-efficiency cogeneration as defined in Article 2, point (34), of Directive 2012/27/EU; (46) ‘hydrogen network operator’ means a natural or legal person who carries out the function of hydrogen network transport and is responsible for operating, ensuring the maintenance of, and, if necessary, developing the hydrogen network in a given area and, where applicable, its interconnections with other hydrogen networks, and for ensuring the long-term ability of the system to meet reasonable demands for the transport of hydrogen; (47) ‘imbalance’ means means imbalance as defined in Article 2, point (8) of Commission Regulation (EU) 2017/2195; (48) ‘imbalance settlement’ means imabalance settlement as defined in Article 2, point (9) of Commission Regulation (EU) 2017/2195; (49) ‘imbalance settlement period’ means imbalance settlement period as defined in Article 2, point (15), of Regulation (EU) 2019/943; (50) ‘individual aid’ means ad hoc aid and notifiable awards of aid on the basis of an aid scheme; (51) ‘interruptibility scheme’ means a measure for security of electricity supply designed to ensure a stable frequency in the electricity system or address short term security of supply problems, including by interrupting load; (52) ‘microenterprise’, means an undertaking that fulfils the conditions for microenterprises laid down in the Commission Recommendation concerning the definition of micro, small and medium-sized enterprises (32); (53) ‘nature-based solution’ means a solution that is inspired and supported by nature, which is cost-effective, simultaneously provides environmental, social and economic benefits and helps build resilience, and that brings more, and more diverse, nature and natural features and processes into cities, landscapes and seascapes, through locally adapted, resource-efficient and systemic interventions; (54) ‘network congestion measure’ means a measure for security of electricity supply designed to compensate for insufficiency in the electricity transmission or distribution network; (55) ‘pollutant’ means pollutant as defined in Article 2, point (10), of Regulation (EU) 2020/852; (56) ‘polluter’ means polluter as defined in the Annex, point 3 of the Council Recommendation 75/436/Euratom, ECSC, EEC (33); (57) ‘pollution’ means pollution as defined in Article 3, point 2 of Directive 2010/75/EU of the European Parliament and of the Council (34); (58) ‘polluter pays principle’ means that the costs of measures to deal with pollution should be borne by the polluter who causes the pollution; (59) ‘preparing for reuse’ means preparing for reuse as defined in Article 3, point 16, of Directive 2008/98/EC; (60) ‘recharging infrastructure’ means a fixed or mobile infrastructure supplying clean vehicles or clean mobile service equipment with electricity; (61) ‘recovery’ means recovery as defined in Article 3, point 15, of Directive 2008/98/EC; (62) ‘recycling’ means recycling as defined in Article 3, point 17, of Directive 2008/98/EC; (63) ‘reference project’ means an example project that is representative of the average project in a category of eligible beneficiaries for an aid scheme; (64) ‘refuelling infrastructure’ means fixed or mobile infrastructure for the provision of hydrogen, natural gas, in gaseous form (compressed natural gas (CNG)) and liquefied form (liquefied natural gas (LNG)), biogas and biofuels including advanced biofuels, or synthetic fuels produced from renewable or low-carbon energy; (65) ‘rehabilitation’ means environmental management actions that aim to reinstate a level of ecosystem functioning on degraded sites, where the goal is renewed and ongoing provision of ecosystem services rather than the biodiversity and integrity of a designated natural or semi-natural reference ecosystem; (66) ‘remediation’ means environmental management actions, such as the removal or detoxification of contaminates or excess nutrients from soil and water, that aims to remove sources of degradation; (67) ‘renewable electricity’ means electricity generated from renewable sources, as defined in Article 2, point (1), of Directive (EU) 2018/2001; (68) ‘renewable energy community’ means renewable energy community as defined in Article 2, point (16), of Directive (EU) 2018/2001; (69) ‘renewable energy’ means energy from renewable sources or renewable energy as defined in Article 2, point (1), of Directive (EU) 2018/2001; (70) ‘renewable hydrogen’ means hydrogen produced from renewable energy in accordance with the methodologies set out for renewable liquid and gaseous transport fuels of non-biological origin in Directive (EU) 2018/2001; (71) ‘renewable liquid and gaseous transport fuels of non-biological origin’ means renewable liquid gaseous transport fuels of non-biological origin as defined in Article 2, point (36), of Directive (EU) 2018/2001; (72) ‘resource adequacy’ means a level of generated capacity which is deemed to be adequate to meet demand levels in a bidding zone in any given period, based on the use of a conventional statistical indicator used by organisations which the Union institutions recognise as performing an essential role in the creation of a single market in electricity, for example the European Network of Transmission System Operators for Electricity (ENTSO-E); (73) ‘resource efficiency’ means reducing the quantity of inputs needed to produce a unit of output or substituting primary inputs with secondary inputs; (74) ‘restoration’ means the process of assisting the recovery of an ecosystem as a means of conserving biodiversity and increasing ecosystem resilience, notably to climate change. The restoration of ecosystems includes measures taken for the improvement of the condition of an ecosystem and the recreation or re-establishment of an ecosystem where that condition was lost and the improvement of ecosystem resilience and adaptation to climate change; (75) ‘reuse’ means reuse as defined in Article 3, point (13), of Directive 2008/98/EC and includes any operation by which products or components that are not waste are used again for purposes other than those for which they were conceived; (76) ‘small enterprise’, means an undertaking that fulfils the conditions laid down for small enterprises in the Commission Recommendation concerning the definition of micro, small and medium-sized enterprises; (77) ‘small and medium-sized enterprise’ (SME), means an undertaking that fulfils the conditions laid down in the Commission Recommendation concerning the definition of micro, small and medium-sized enterprises; (78) ‘small mid-cap’ means an undertaking that is not an SME and whose number of employees does not exceed 499, calculated in accordance with Articles 3 to 6 of Annex I to Commission Regulation (EU) No 651/2014 (35), and the annual turnover of which does not exceed EUR 100 million or the annual balance sheet of which does not exceed EUR 86 million. Several entities will be considered as one undertaking if any of the conditions listed in Article 3, point (3) of Annex I to Regulation (EU) No 651/2014 are fulfilled; (79) ‘smart recharging’ means a recharging operation in which the intensity of electricity delivered to the battery is adjusted in real-time, based on information received through electronic communication; (80) ‘smart readiness’ means the capability of buildings or building units to adapt their operation to the needs of the occupant, including optimising energy efficiency and overall performance, and to adapt their operation in response to signals from the grid; (81) ‘standard balancing responsibilities’ means non-discriminatory balancing responsibilities across technologies which do not exempt from balance responsibility any generator as set out in Article 5 of Regulation (EU) 2019/943; (82) ‘start of works’ means the first firm commitment (for example, to order equipment or start construction) that makes an investment irreversible. The buying of land and preparatory works such as obtaining permits and conducting preliminary feasibility studies are not considered as start of works. For take-overs, ‘start of works’ means the moment of acquiring the assets directly linked to the acquired establishment; (83) ‘strategic reserve’ means a capacity mechanism in which electricity capacity, such as generation, storage or demand response, is held outside the electricity market and only dispatched in specific circumstances; (84) ‘total cost of ownership’ means the total cost of acquiring and owning a vehicle for its lifetime, including the costs of acquiring or leasing the vehicle, fuel costs, mantainance and repair costs, insurance costs, finance costs, and taxes; (85) ‘transmission system operator’ (TSO) means transmission system operator as defined in Article 2, point (35), of Directive (EU) 2019/944; (86) ‘vehicle’ means any of the following: (a) a road vehicle of category M1, M2, N1, M3, N2, N3 or L; (b) an inland or a sea and coastal vessel for passenger or freight transport; (c) rolling stock; (d) an aircraft; (87) ‘treatment’ means treatment as defined in Article 3, point 14, of Directive 2008/98/EC; (88) ‘Union minimum tax level’ means the minimum level of taxation provided for in Union law; with respect to energy products and electricity, it means the minimum level of taxation laid down in Annex I to Council Directive 2003/96/EC (36); (89) ‘Union standard’ means: (a) a mandatory Union standard setting the levels to be attained in environmental terms by individual undertakings, excluding standards or targets set at Union level which are binding for Member States but not for individual undertakings; (b) the obligation to use the best available techniques (BAT), as defined in Directive 2010/75/EU, and to ensure that emission levels do not exceed those that would be achieved when applying BAT; where emission levels associated with the BAT (37) have been defined in implementing acts adopted under Directive 2010/75/EU or under other applicable directives, those levels will be applicable for the purpose of these guidelines; where those levels are expressed as a range, the limit for which the BAT is first achieved for the undertaking concerned will be applicable; (90) ‘waste’ means waste as defined in Article 3, point (1), of Directive 2008/98/EC; (91) ‘waste heat’ means waste heat as defined in Article 2, point (9), of Directive (EU) 2018/2001.

3. COMPATIBILITY ASSESSMENT UNDER ARTICLE 107(3), POINT (C), OF THE TREATY

20. These guidelines lay down the criteria for compatibility, under Article 107(3), point (c), of the Treaty, of aid measures for environmental protection, including climate protection, and energy objectives which are subject to the notification requirement in Article 108(3) of the Treaty.

21. On the basis of Article 107(3), point (c), of the Treaty, the Commission may consider compatible with the internal market State aid to facilitate the development of certain economic activities within the Union (positive condition), where such aid does not adversely affect trading conditions to an extent contrary to the common interest (negative condition).

22. When assessing whether environmental protection and energy aid can be considered compatible with the internal market under Article 107(3), point (c) of the Treaty, the Commission will analyse the following aspects: (a) as regards the first (positive) condition, that the aid facilitates the development of an economic activity: (i) identification of the economic activity which is being facilitated by the measure, its positive effects for the society at large and, where applicable, its relevance for specific policies of the Union (see Section 3.1.1); (ii) incentive effect of the aid (see Section 3.1.2); (iii) absence of breach of any relevant provision of Union law (see Section 3.1.3). (b) as regards the second (negative) condition that the aid does not unduly affect trading conditions to an extent contrary to the common interest: (i) the need for State intervention (see Section 3.2.1.1); (ii) the appropriateness of the aid (see Section 3.2.1.2); (iii) the proportionality of the aid (aid limited to the minimum necessary to attain its objective) including cumulation (see Section 3.2.1.3); (iv) the transparency of the aid (see Section 3.2.1.4); (v) avoidance of undue negative effects of the aid on competition and trade (see Section 3.2.2); (vi) weighing up the positive and negative effects of the aid (see Section 3.3).

3.1 Positive condition: the aid must facilitate the development of an economic activity

3.1.1 Identification of the economic activity which is being facilitated by the measure, its positive effects for society at large and, where applicable, its relevance for specific policies of the Union

23. When notifying aid, Member States must identify the economic activities that will be facilitated as a result of the aid and how the development of those activities is supported.

24. Aid to prevent or reduce the negative effects of economic activities on climate or the environment can facilitate the development of economic activities by increasing the sustainability of the economic activity concerned. The aid can also ensure that the activity can continue in the future without creating disproportionate environmental damage and by supporting the creation of new economic activities and services (supporting the development of the so-called ‘green economy’).

25. Member States must also describe if and how the aid will contribute to the achievement of objectives of Union climate policy, environmental policy and energy policy and more specifically, the expected benefits of the aid in terms of its material contribution to environmental protection, including climate change mitigation, or the efficient functioning of the internal energy market.

3.1.2 Incentive effect

26. Aid can be considered as facilitating an economic activity only if it has an incentive effect. An incentive effect occurs when the aid induces the beneficiary to change its behaviour, to engage in additional economic activity or in more environmentally-friendly economic activity, which it would not carry out without the aid or would carry out in a restricted or different manner.

27. The aid must not support the costs of an activity that the aid beneficiary would anyhow carry out and must not compensate for the normal business risk of an economic activity ( 38 )

28. Proving an incentive effect entails the identification of the factual scenario and the likely counterfactual scenario in the absence of aid ( 39 ) . The Commission will examine this based on the quantification referred to in Section 3.2.1.3.

29. The Commission considers that aid does not have an incentive effect for the beneficiary in cases where the start of works on the project or activity took place prior to a written aid application by the beneficiary to the national authorities. In cases where the beneficiary starts implementing a project before applying for aid, any aid granted in respect of that project will, in principle, not be considered compatible with the internal market.

30. The aid application may take various forms, including for example a bid in a competitive bidding process. Any application must at least include the applicant’s name, a description of the project or activity, including its location, and the amount of aid needed to carry it out.

31. In certain exceptional cases, aid can have an incentive effect even for projects which started before the aid application. In particular, aid is considered to have an incentive effect in the following situations: (a) the aid is granted automatically in accordance with objective and non-discriminatory criteria and without further exercise of discretion by the Member State, and the measure has been adopted and is in force before work on the aided project or activity has started, except in the case of fiscal successor schemes, where the activity was already covered by the previous schemes in the form of tax advantages; (b) the national authorities have published, before the start of works, a notice of their intention to establish the proposed aid measure, conditional upon the Commission’s approval of the measure as required by Article 108(3) of the Treaty. That notice must be made available on a public website or other publicly accessible media with comparably broad and easy access and clearly state the type of projects that the Member State proposes to be eligible and the point in time from which the Member State intends to consider such projects eligible. The proposed eligibility must not be unduly limited. The beneficiary must have informed the granting authority prior to the start of works that the proposed aid measure was considered as a condition for the investment decisions taken. Where it relies upon such a notice to demonstrate an incentive effect, the Member State must provide, as part of its State aid notification, a copy of the notice and a link to the website on which it was published or respective proof of its availability to the public; (c) operating aid granted to existing installations for environmentally-friendly production where there is no ‘start of works’ because there is no significant new investment. In these cases, the incentive effect can be demonstrated by a change to operate the installation in an environmentally-friendly way rather than an alternative cheaper mode of operation that is less environmentally friendly.

32. The Commission considers that aid granted merely to cover the cost of adapting to Union standards has, in principle, no incentive effect. As a general rule, only aid to go beyond Union standards can have an incentive effect. However, in cases where the relevant Union standard has already been adopted but is not yet in force, aid can have an incentive effect if it incentivises the investment to be implemented and finalised at least 18 months before the standard enters into force, unless otherwise indicated in the Sections 4.1 to 4.13. In order not to discourage Member States from setting mandatory national standards that are more stringent or ambitious than the corresponding Union standards, aid measures may have an incentive effect irrespective of the presence of such national standards. The same is true of aid granted in the presence of mandatory national standards adopted in the absence of Union standards.

3.1.3 No breach of any relevant provision of Union law

33. If the supported activity, or the aid measure or the conditions attached to it, including its financing method when it forms an integral part of the measure, entail a violation of relevant Union law, the aid cannot be declared compatible with the internal market. This may be the case, for instance, where the aid is subject to clauses conditioning it directly or indirectly on the origin of products or equipment, such as requirements for the beneficiary to purchase domestically-produced products.

3.2 Negative condition: the aid measure must not unduly affect trading conditions to an extent contrary to the common interest

3.2.1 Minimisation of distortions of competition and trade

3.2.1.1 Necessity of the aid

34. The proposed State aid measure must be targeted towards a situation where it can bring about a material development that the market alone cannot deliver, for example by remedying market failures in relation to the projects or activities for which the aid is awarded. Whilst it is generally accepted that competitive markets tend to bring about efficient results in terms of development of economic activities, prices, output and use of resources, in the presence of market failures, public intervention in the form of State aid may improve the efficient functioning of markets and thereby contribute to the development of an economic activity to the extent that the market on its own fails to deliver an efficient outcome. The Member State should identify the market failures preventing the achievement of a sufficient level of environmental protection or an efficient internal energy market. The main market failures related to environmental protection and energy which can prevent the optimal outcome and can lead to an inefficient outcome are: (a) Negative externalities: they are most common for environmental aid measures and arise when pollution is not adequately priced, that is to say, the undertaking concerned does not face the full cost of pollution. In this case, undertakings acting in their own interest may have insufficient incentives to take the negative externalities arising from their economic activity into account either when they choose a particular technology or when they decide on the output level. In other words, the costs that are borne by the undertaking do not fully reflect the costs borne by consumers and society at large. Therefore undertakings typically have insufficient incentive to reduce their level of pollution or to take individual measures to protect the environment. (b) Positive externalities: the fact that part of the benefit from an investment will accrue to market participants other than the investor, may lead undertakings to underinvest. Positive externalities may occur for instance in the case of investments in eco-innovation, system stability, new and innovative renewable technologies and innovative demand-response measures or in the case of energy infrastructures or security of electricity supply measures that benefit many Member States or a wider number of consumers. (c) Asymmetric information: this typically arises in markets where there is a discrepancy between the information available to one side of the market and the information available to the other side of the market. This could, for instance, occur where external financial investors have a lack of information about the likely returns and risks of a project. It may also come up in cross-border infrastructure collaboration where one party has an information disadvantage compared to the other party. Although risk or uncertainty do not in themselves lead to the presence of a market failure, the problem of asymmetric information is linked to the degree of such risk and uncertainty. Both tend to be higher for environmental investments with a typically longer amortisation period, reinforcing a focus on a short-term horizon that could be aggravated by financing conditions for such investments in particular for SMEs. (d) Coordination failures: this may prevent the development of a project or its effective design due to diverging interests and incentives among investors, so called ‘split incentives’, the costs of contracting or liability insurance arrangements, uncertainty about the collaborative outcome and network effects, for example uninterrupted supply of electricity. These coordination failures can arise, for example, in the relationship between a building owner and a tenant in respect of energy efficient solutions. Coordination failures may be further exacerbated by information problems, in particular those related to asymmetric information. Coordination failures may also stem from the need to reach a certain critical mass before it is commercially attractive to start a project, which may be a particularly relevant aspect in (cross-border) infrastructure projects.

35. The mere existence of market failures in a certain context is, however, not sufficient to prove the necessity of State aid. Other policies and measures may already be in place to address some of the identified market failures. Examples include sectorial regulation, mandatory Union pollution standards, supply obligations, pricing mechanisms such as the Union’s Emissions Trading System (ETS) and carbon taxes. Additional measures, including State aid, may only be directed at residual market failures, that is to say those that remain unaddressed by such other policies and measures. It is important also to show how State aid reinforces other policies and measures in place that aim at remedying the same market failures. Therefore, demonstrating that State aid is necessary is more difficult if it counteracts other policies targeted at the same market failures. The Member State should therefore also identify any existing policies and measures that already target the identified regulatory or market failures.

36. The Commission will consider that aid is necessary if the Member State demonstrates that it effectively targets residual market failures, also taking into account any other policies and measures already in place to address some of the market failures identified.

37. Where State aid is awarded for projects or activities which, with respect to their technological content, level of risk and size, are similar to those already delivered within the Union at market conditions, the Commission will, in principle, presume that no market failure is present and will require further evidence to demonstrate the need for State aid.

38. To demonstrate the necessity of aid, the Member State must show that the project, or in the case of schemes, the reference project, would not be carried out without the aid. The Commission will assess this based on the quantification referred to in Section 3.2.1.3 or specific evidence-based analysis submitted by the Member State showing the necessity of the aid.

3.2.1.2 Appropriateness

39. The proposed aid measure must be an appropriate policy instrument to achieve the intended objective of the aid, that is to say there must not be a less distortive policy and aid instrument capable of achieving the same results.

3.2.1.2.1 Appropriateness among alternative policy instruments

40. State aid is not the only policy instrument available to Member States to promote increased levels of environmental protection or to ensure an efficient internal energy market. There may be other, more appropriate instruments available, such as market-based instruments or demand-side measures involving regulation, compliance with the energy efficiency first principle ( 40 ) , public procurement or standardisation, as well as an increase in funding of public infrastructure and general fiscal measures. Soft instruments, such as voluntary eco-labels and the dissemination of environmentally-friendly technologies may also play an important role in achieving a higher level of environmental protection ( 41 )

41. Different measures to remedy the same market failure may counteract each other. This is the case where an efficient, market-based mechanism has been put in place to specifically counter the problem of externalities, as for instance the Union’s ETS. An additional support measure to address the same market failure risks undermining the efficiency of the market-based mechanism. Therefore, when an aid scheme aims at addressing residual market failures, the aid scheme must be designed in such a way as to not undermine the efficiency of the market-based mechanism.

42. Compliance with the ‘polluter pays’ principle through environmental legislation aims at ensuring that a market failure linked to negative externalities will be rectified. Therefore, State aid is not an appropriate instrument and cannot be granted insofar as the beneficiary of the aid could be held liable for the pollution under existing Union or national law.

3.2.1.2.2 Appropriateness among different aid instruments

43. State aid for environmental protection and energy can be awarded in various forms. The Member State should, however, ensure that the aid is awarded in the form that is likely to generate the least distortion of trade and competition.

44. In that respect, the Member State is required to demonstrate why other potentially less distortive forms of aid are less appropriate, such as: repayable advances as compared to direct grants; tax credits as compared to tax reductions; or forms of aid that are based on financial instruments, such as debt as compared to equity instruments, including, for example, low-interest loans or interest rebates, State guarantees, or an alternative provision of financing on favourable terms.

45. The choice of the aid instrument should be appropriate to the market failure that the aid measure aims to address. Where the actual revenues are uncertain, for instance in the case of energy saving measures, a repayable advance may constitute the most appropriate instrument.

46. The Member State must demonstrate that the aid and its design are appropriate to achieve the objective of the measure at which the aid is targeted.

3.2.1.3 Proportionality

47. Aid is considered to be proportionate if the aid amount per beneficiary is limited to the minimum needed for carrying out the aided project or activity.

48. As a general principle, aid will be considered as limited to the minimum needed for carrying out the aided project or activity if the aid corresponds to the net extra cost (‘funding gap’) necessary to meet the objective of the aid measure, compared to the counterfactual scenario in the absence of aid. The net extra cost is determined by the difference between the economic revenues and costs (including the investment and operation) of the aided project and those of the alternative project which the aid beneficiary would credibly carry out in the absence of aid.

49. A detailed assessment of the net extra cost will not be required if the aid amounts are determined through a competitive bidding process, because it provides a reliable estimate of the minimum aid required by potential beneficiaries ( 42 ) . Therefore, the Commission considers that the proportionality of the aid is ensured if the following criteria are fulfilled: (a) the bidding process is competitive, namely: it is open, clear, transparent and non-discriminatory, based on objective criteria, defined ex ante in accordance with the objective of the measure and minimising the risk of strategic bidding; (b) the criteria are published sufficiently far in advance of the deadline for submitting applications to enable effective competition (43); (c) the budget or volume related to the bidding process is a binding constraint in that it can be expected that not all bidders will receive aid, the expected number of bidders is sufficient to ensure effective competition, and the design of undersubscribed bidding processes during the implementation of a scheme is corrected to restore effective competition in the subsequent bidding processes or, failing that, as soon as appropriate; (d) ex post adjustments to the bidding process outcome (such as subsequent negotiations on bid results or rationing) are avoided as they may undermine the efficiency of the process’s outcome.

50. The selection criteria used for ranking bids and, ultimately, for allocating the aid in the competitive bidding process should as a general rule put the contribution to the main objectives of the measure in direct or indirect relation with the aid amount requested by the applicant. This may be expressed, for example, in terms of aid per unit of environmental protection or aid per unit of energy ( 44 ) . It may also be appropriate to include other selection criteria that are not directly or indirectly related to the main objectives of the measure. In such cases, these other criteria must account for not more than 30 % of the weighting of all the selection criteria. The Member State must provide reasons for the proposed approach and ensure it is appropriate to the objectives pursued.

51. Where the aid is not granted under a competitive bidding process, the net extra cost must be determined by comparing the profitability of the factual and counterfactual scenarios. To determine the funding gap in such cases, the Member State must submit a quantification, for the factual scenario and a credible counterfactual scenario, of all main costs and revenues, the estimated weighted average cost of capital (WACC) of the beneficiaries to discount future cash flows, as well as the net present value (NPV) for the factual and counterfactual scenarios, over the lifetime of the project. The Commission will verify whether this counterfactual is realistic ( 45 ) . The Member State must provide reasons for the assumptions used for each aspect of the quantification, and explain and justify any methodologies applied. The typical net extra cost can be estimated as the difference between the NPV for the factual scenario and for the counterfactual scenario over the lifetime of the reference project.

52. A counterfactual scenario may consist in the beneficiary not carrying out an activity or investment, or continuing its business without changes. Where evidence supports that this is the most likely counterfactual, the net extra cost may be approximated by the negative NPV of the project in the factual scenario without aid over the lifetime of the project (hence, implicitly assuming that the NPV of the counterfactual is zero) ( 46 ) . In particular, this can be the case for infrastructure projects.

53. For cases of individual aid and schemes benefitting a particularly limited number of beneficiaries, the calculations and projections in point 51 need to be presented at the level of the detailed project business plan, and for aid schemes on the basis of one or more reference projects. Similarly, if point 52 applies, the supporting evidence needs to be presented at the level of the detailed project business plan, and for aid schemes on the basis of one or more reference projects.

54. In certain circumstances, it may be difficult to fully identify the benefits and costs to the beneficiary and hence to quantify the NPV in the factual and counterfactual scenarios. Alternative approaches for those cases may be applied, as detailed in Chapter 4 for specific types of aid. In those cases, aid may be deemed proportionate where the aid amount does not exceed the maximum aid intensity.

55. Where a competitive bidding process is not used and future developments in costs and revenues are surrounded by a high degree of uncertainty and there is a strong asymmetry of information, the Member State may be required to introduce compensation models that are not entirely ex ante . Instead, these models will be a mix of ex ante and ex post or introduce ex post claw-back or cost monitoring mechanisms, while keeping incentives for the beneficiaries to minimise their costs and develop their business in a more efficient manner over time.

3.2.1.3.1 Cumulation

56. Aid may be awarded concurrently under several aid schemes or cumulated with ad hoc or de minimis aid in relation to the same eligible costs, provided that the total amount of aid for a project or an activity does not lead to overcompensation or exceed the maximum aid amount allowed under these guidelines. If the Member State allows aid under one measure to be cumulated with aid under other measures, then it must specify, for each measure, the method used for ensuring compliance with the conditions set out in this point.

57. Centrally managed Union funding that is not directly or indirectly under the control of the Member State, does not constitute State aid. Where such Union funding is combined with State aid, it has to be ensured that the total amount of public funding granted in relation to the same eligible costs does not lead to overcompensation.

3.2.1.4 Transparency

58. To reduce negative effects by ensuring competitors have access to relevant information about supported activities, the Member State concerned must ensure the publication, in the Commission’s transparency award module ( 47 ) or on a comprehensive State aid website, at national or regional level, of: (a) the full text of the approved aid scheme or the individual aid granting decision and its implementing provisions, or a link to it; (b) information on each individual aid award granted ad hoc or under an aid scheme approved on the basis of these guidelines and exceeding EUR 100 000 (48).

59. Member States must organise their comprehensive State aid websites, on which the information required by this Section is to be published, in such a way as to allow easy access to the information. Information must be published in a non-proprietary spreadsheet data format, which allows data to be effectively searched, extracted, downloaded and easily shared on the internet, for instance in CSV or XML format. The general public must have access to the website without restrictions. No prior user registration must be required to access the website.

60. For schemes in the form of tax or parafiscal levy advantages, the conditions set out in point 58(b) will be considered to be fulfilled if Member States publish the required information on individual aid amounts in the following ranges (in EUR million): 0,1-0,5; 0,5-1; 1-2; 2-5; 5-10; 10-30; 30-60; 60-100; 100-250; 250 and more.

61. ex post within 6 months from the date of the Commission’s decision declaring the aid compatible. In order to allow the enforcement of State aid rules under the Treaty, the information must be available for at least 10 years from the date on which the aid was granted. The information referred to in point 58(b) must be published within 6 months from the date the aid was granted, or for aid in the form of tax advantages, within 1 year from the date the tax declaration is due ( 49 ) . In the case of unlawful but compatible aid, Member States will be required to ensure the publication of this informationwithin 6 months from the date of the Commission’s decision declaring the aid compatible. In order to allow the enforcement of State aid rules under the Treaty, the information must be available for at least 10 years from the date on which the aid was granted.

62. The Commission will publish on its website the links to the State aid websites referred to in point 59.

3.2.2 Avoidance of undue negative effects on competition and trade

63. Article 107(3), point (c), of the Treaty allows the Commission to declare aid to facilitate the development of certain economic activities or of certain economic areas compatible, but only ‘where such aid does not adversely affect trading conditions to an extent contrary to the common interest’.

64. The application of this negative condition requires, first, an assessment of the distortive effect of the aid in question on trading conditions. By its very nature, any aid measure will generate or threaten to generate distortions of competition and have an effect on trade between Member States as it reinforces the competitive position of the beneficiaries, even if the aid measure is necessary, appropriate, proportionate and transparent.

65. Aid for environmental purposes will, by its very nature, tend to favour environmentally-friendly products and technologies at the expense of other, more polluting ones and that effect of the aid will, in principle, not be viewed as an undue distortion of competition, since it addresses market failures that make the aid necessary. In addition, support for climate friendly products and technologies are conducive to the achievement of the European Climate Law objectives for 2030 and 2050. For measures for environmental protection, the Commission will therefore consider the distortive effects on competitors that likewise operate on an environmentally-friendly basis, even without aid.

66. The Commission considers that schemes open to a broader range of potential beneficiaries have or are likely to have a more limited distortive effect on competition than support targeted at a limited number of specific beneficiaries only, in particular where the scope of the aid measure includes all competitors willing to deliver the same service, product or benefit.

67. State aid for environmental and energy objectives may have the unintended effect of undermining market rewards to the most efficient, innovative producers as well as incentives for the least efficient ones to improve, restructure or exit the market. This may also result in inefficient barriers to the entry of more efficient or innovative potential competitors. In the long term, such distortions may stifle innovation, efficiency and the adoption of cleaner technologies. These distortive effects can be particularly important when the aid is granted to projects that provide a limited transitory benefit but lock out cleaner technologies for a longer term, including those necessary to achieve the medium-term and long-term climate targets enshrined under the European Climate Law. This can, for example, be the case for support to certain activities using fossil fuels that provide an immediate reduction of greenhouse gas emissions, but lead to slower emissions reductions in the long term. All other things being equal, the closer the aided investment is in time to the relevant target date, the greater the likelihood that its transitory benefits may be outweighed by the possible disincentives for cleaner technologies. The Commission will therefore take into account these possible short and long-term negative effects on competition and trade in its assessment.

68. Aid may also distort competition by strengthening or maintaining substantial market power of the beneficiary. Even where aid does not strengthen substantial market power directly, it may do so indirectly, by discouraging the expansion of existing competitors or inducing their exit or discouraging the entry of new competitors. This needs to be taken into account, in particular where the support measure is targeted at a limited number of specific beneficiaries or where incumbents gained market power prior to market liberalisation, as is for instance sometimes the case in energy markets. This is also relevant in competitive bidding processes in nascent markets, when there is a risk that a player with a strong market position succeeds in most bids and prevents significant new entry.

69. Apart from distortions on the product markets, aid may also give rise to effects on trade and location choice. Those distortions can arise across Member States, either when undertakings compete across borders or when they consider different locations for investment. Aid aimed at preserving economic activity in one region or attracting it away from other regions within the internal market may displace activities or investments from one region into another without any net environmental impact. The Commission will verify that the aid does not result in any manifestly negative effects on competition and trade. For example, aid for environmental and energy objectives that merely leads to a change in location of the economic activity without improving the existing level of environmental protection in the Member States will not be considered compatible with the internal market.

70. The Commission will approve measures under these guidelines for a maximum period of 10 years, though this may be further limited in some cases (see point 76). If a Member State wishes to extend the duration of the measure beyond that maximum period, it can renotify the measure. That means aid could be granted under approved measures within a maximum period of 10 years from the date of the notification of the Commission’s decision declaring the aid compatible.

3.3 Weighing the positive effects of the aid against the negative effects on competition and trade

71. As a final step, the Commission will balance the identified negative effects on competition and trading conditions of the aid measure with the positive effects of the planned aid on the supported economic activities, including its contribution to environmental protection and objectives of energy policy and, more particularly, to transition towards environmentally-sustainable activities and to the achievement of the legally binding targets under the European Climate Law and the Union's 2030 targets for energy and climate .

72. In that balancing exercise, the Commission will pay particular attention to Article 3 of Regulation (EU) 2020/852, including the ‘do no significant harm’ principle ( 50 ) , or other comparable methodologies. Futhermore, as part of the assessment of the negative effects on competition and trade, the Commission will take into account, where relevant, negative externalities of the aided activity where such externalities adversely affect competition and trade between Member States to an extent contrary to the common interest by creating or aggravating market inefficiencies including in particular those externalities that may hinder the achievement of climate objectives set under Union law ( 51 )

73. The Commission will consider an aid measure compatible with the internal market only where the positive effects outweigh the negative effects. In cases where the proposed aid measure does not address a well-identified market failure in an appropriate and proportionate way, for example due to the transitory nature of the benefit and the long term distortions it entails as set out in point 67, the negative distortive effects on competition will tend to outweigh the positive effects of the measure. The Commission will therefore be likely to conclude that the proposed aid measure is incompatible.

74. Measures that directly or indirectly involve support to fossil fuels, in particular the most polluting fossil fuels, are unlikely to create positive environmental effects and often have important negative effects because they can increase the negative environmental externalities in the market. The same applies for measures involving new investments in natural gas, unless it is demonstrated that there is no lock-in effect ( 52 ) . This will in principle render a positive balancing for such measures unlikely, as further explained in Chapter 4.

75. The Commission will generally look favourably at measures’ features proposed by Member States to facilitate the participation of SMEs and, where relevant, renewable energy communities in competitive bidding processes, provided that the positive effects of ensuring participation and acceptance outweigh the possible distortive effects.

76. Further factors to be taken into account to determine the overall balance of certain categories of aid schemes in certain cases are: (a) a requirement of ex post evaluation as described in Chapter 5; in such cases, the Commission may limit the duration of the schemes (normally to 4 years or less) with a possibility to renotify their extension afterwards; (b) a requirement – in the absence of a competitive bidding process – to individually notify support projects of a certain size or presenting certain characteristics; (c) a requirement that aid measures be subject to a time limitation.

4. CATEGORIES OF AID

4.1 Aid for the reduction and removal of greenhouse gas emissions including through support for renewable energy and energy efficiency

4.1.1 Rationale

77. In the European Climate Law, the Union has set binding and ambitious greenhouse gas emissions reduction targets for 2030 and 2050. In Regulation (EU) 2018/1999, the Union has set out the Union’s 2030 targets for energy and climate. In the Energy Efficiency Directive, the Union has set binding energy efficiency targes for 2030. State aid may be necessary to contribute to the achievement of those Union targets and related national contributions.

4.1.2 Scope and supported activities

78. Section 4.1 lays down the compatibility rules for measures for energy from renewable sources, including aid for the production of renewable energy or synthetic fuels produced using renewable energy. It also lays down the compatibility rules for aid measures involving a wide range of other technologies primarily aimed at reducing greenhouse gas emissions ( 53 )

4.1.2.1 Aid for renewable energy

79. This Section lays down the compatibility rules for measures to support all types of renewable energy.

80. Support for biofuels, bioliquids, biogas (including biomethane) and biomass fuels can only be approved to the extent that the aided fuels are compliant with the sustainability and greenhouse gases emissions saving criteria in Directive (EU) 2018/2001 and its implementing or delegated acts.

81. Aid for energy generation from waste may be found compatible under this section to the extent it is limited to waste that falls under the definition of renewable energy sources.

82. Aid for the production of renewable hydrogen ( 54 ) may be assessed under this Section.

4.1.2.2 Other aid for the reduction and removal of greenhouse gas emissions and energy efficiency

83. All technologies that contribute to the reduction of greenhouse gas emissions are in principle eligible, including aid for the production of low-carbon energy or synthetic fuels produced using low-carbon energy, aid for energy efficiency including high-efficiency cogeneration, aid for CCS/CCU, aid to demand response and energy storage where this reduces emissions, and aid for the reduction or avoidance of emissions resulting from industrial processes, including the processing of raw materials. It also covers support for the removal of greenhouse gases from the environment. This Section does not apply to measures whose primary objective is not the reduction or removal of greenhouse gas emissions. Where a measure contributes to both the reduction of greenhouse gas emissions and the prevention or reduction of pollution other than from greenhouse gas emissions, the compatibility of the measure will be assessed on the basis of this Section or Section 4.5, depending on which of the two objectives is predominant.

84. This Section also covers dedicated infrastructure projects (including for hydrogen, other low-carbon gases and carbon dioxide for storage/use) that do not fall under the definition of energy infrastructure, as well as projects encompassing a dedicated infrastructure or energy infrastructure, or both, combined with either production or consumption/use.

85. To the extent that aid facilitates investments to improve the energy performance of industrial activities, this Section also applies to aid to SMEs and small mid-caps that are providers of energy performance improvement measures, for the facilitation of energy performance contracting within the meaning of Article 2, point (27), of Directive 2012/27/EU.

86. Aid for energy generation from waste may be found compatible under this Section to the extent it is limited to waste used to fuel installations that fall under the definition of high-efficiency cogeneration.

87. Aid for the production of low-carbon hydrogen may be assessed under this Section.

88. Aid to support electrification using renewable electricity and/or low-carbon electricity may also be assessed under this Section, including support for heating and industrial processes.

4.1.3 Minimisation of distortions of competition and trade

4.1.3.1 Necessity of the aid

89. Points 34 to 37 do not apply to measures for the reduction of greenhouse gas emissions. The Member State must identify the policy measures already in place to reduce greenhouse gas emissions. However, while the Union’s ETS and related policies and measures internalise some of the costs of greenhouse gas emissions, they may not yet fully internalise those costs.

90. The Member State should demonstrate that aid is needed for the proposed activities as required under point 38, taking into account the counterfactual situation ( 55 ) as well as relevant costs and revenues including those linked to the ETS and related policies and measures identified in point 89. Where there is significant uncertainty concerning future market developments related to a large part of the business case (as for example may be the case for renewable energy investments where electricity revenues are not coupled to input costs), support in the form of a certain guaranteed remuneration to limit exposure to negative scenarios may be considered necessary to ensure that the private investment takes place. In such cases, limits to profitability and/or clawbacks linked to possible positive scenarios may be required to ensure proportionality.

91. Where the Member State demonstrates that there is a need for aid under point 90, the Commission presumes that a residual market failure remains, which can be addressed through aid for decarbonisation, unless it has evidence to the contrary.

92. For schemes that run for more than 3 years the Member State must confirm that it will update its analysis of relevant costs and revenues at least every 3 years or, for schemes involving less frequent granting, before aid is granted, to ensure that aid remains necessary for each eligible category of beneficiary. Where aid is no longer required for a category of beneficiary, that category should be removed before further aid is granted ( 56 )

4.1.3.2 Appropriateness

93. Section 3.2.1.2 does not apply to measures for the reduction of greenhouse gas emissions. The Commission presumes that State aid can, in principle, be an appropriate measure in achieving decarbonisation goals, given that other policy instruments are typically not sufficient to achieve those goals, provided all other compatibility conditions are met. Given the scale and urgency of the decarbonisation challenge, a variety of instruments, including direct grants, may be used.

94. Aid for the facilitation of energy performance contracting, as referred to in point 85, may only take one of the following forms: (a) a loan or guarantee to the provider of the energy performance improvement measures under an energy performance contract; (b) a financial product aimed to refinance the respective provider (for example, factoring or forfaiting).

4.1.3.3 Eligibility

95. Decarbonisation measures targeting specific activities which compete with other unsubsidised activities can be expected to lead to greater distortions of competition, compared to measures open to all competing activities. Therefore, the Member State should give reasons for measures which do not include all technologies and projects that are in competition – for example all projects operating in the electricity market, or all undertakings producing substitutable products and which are technically capable of contributing efficiently to greenhouse gas emissions reductions ( 57 ) . These reasons should be based on objective considerations linked, for example, to efficiency or costs or other relevant circumstances. Such reasons may draw on evidence gathered in the public consultation referred to in Section 4.1.3.4 where applicable.

96. The Commission will assess the reasons given and will, for instance, consider that a more limited eligibility does not unduly distort competition where: (a) a measure targets a specific sectoral or technology based target established in Union law (58), such as a renewable energy or energy efficiency scheme (59); (b) a measure aims specifically to support demonstration projects; (c) a measure aims to address not only decarbonisation but also air quality or other pollution; (d) a Member State identifies reasons to expect that eligible sectors or innovative technologies have the potential to make an important and cost-effective contribution to environmental protection and deep decarbonisation in the longer term; (e) a measure is required to achieve diversification necessary to avoid exacerbating issues related to network stability (60); (f) a more selective approach can be expected to lead to lower costs of achieving environmental protection (for example through reduced system integration costs as a result of diversification, including between renewables, which could also include demand response and/or storage), and/or result in less distortion of competition; (g) a project has been selected following an open call to form part of a large integrated cross-border project, jointly designed by several Member States and which aims to have an important contribution to environmental protection in the Union’s common interest, and either it applies an innovative technology, which follows on from a research and development and innovation (R&D&I) activity conducted by the beneficiary or by another entity as long as the former acquires the rights to use the results of the previous R&D&I, or it is amongst the early adopters of an innovative technology in its sector.

97. Member States must regularly review eligibility rules and any rules related thereto to ensure that reasons provided to justify a more limited eligibility continue to apply for the lifetime of each scheme, that is to say, to ensure that any limitations on eligibility can still be justified when new technologies or approaches are developed or more data becomes available.

4.1.3.4 Public consultation

98. Section 4.1.3.4 applies from 1 July 2023.

99. Prior to the notification of aid, other than in duly justified exceptional circumstances, Member States must consult publicly on the competition impacts and proportionality of measures to be notified under this Section. The obligation to consult does not apply in respect of amendments to already approved measures that do not alter their scope or eligibility or extend their duration beyond 10 years of the notification of the original decision of the Commission finding the aid compatible, nor in respect of cases referred to in point 100. To determine whether a measure is justified, bearing in mind the criteria in these guidelines, the following public consultation is required ( 61 ) (a) for measures where the estimated average annual aid to be granted is at least EUR 150 million per year, a public consultation of at least 6 weeks’ duration, covering: (i) eligibility; (ii) method and estimate of subsidy per tonne of CO2 equivalent (62) emissions avoided (per project or reference project); (iii) proposed use and scope of competitive bidding processes and any proposed exceptions; (iv) main parameters for the aid allocation process (63) including for enabling competition between different types of beneficiary (64); (v) main assumptions informing the quantification used to demonstrate the incentive effect, necessity and proportionality; (vi) where new investments in natural gas based generation or industrial production may be supported, proposed safeguards to ensure compatibility with the Union’s climate targets (see point 129); (b) for measures where the estimated average annual aid to be granted is below EUR 150 million per year, a public consultation of at least 4 weeks’ duration, covering: (i) eligibility; (ii) proposed use and scope of competitive bidding processes and any proposed exceptions; (iii) where new investments in natural gas based generation or industrial production may be supported, proposed safeguards to ensure compatibility with the Union’s climate targets (see