Annex 4: Who is affected by the initiative and how?

Practical implications of the initiative. Who is affected?

The costs and benefits of the preferred set of options will be assessed compared to the baseline options and along three axes: addressing the risk of carbon leakage, avoiding competition distortion and having a positive environmental impact. The initiative will mainly impact European citizens, European undertakings, Member States (and EFTA states) and third countries.

European citizens – especially European workers - will benefit from the compensation to the sectors that are the most at risk of carbon leakage, as these companies will have less incentive to relocate in third countries, and will therefore have the incentives to preserve employment in Europe. If carbon leakage would materialize, there would be a risk of lower economic activity and lower employment. The compensation schemes will have a direct impact on workers from eligible sectors, but also on workers from undertakings integrated in the value chain of these sectors (indirect employment). In addition, as the initiative will avoid a global increase of CO2 emissions and will maintain the ETS incentives to decarbonise at the same time, European citizens will benefit from lower GHG pollution.

European undertakings (including SMEs) will benefit from the update of the list of eligible sectors to compensation, as the risk of carbon leakage will be addressed for the sectors the most at risk of carbon leakage.

The revised ETS Guidelines will imply significant economic and social impacts for both eligible sectors for compensation and of other sectors, which may compete with eligible sectors in certain product markets. In any eligible sector, European companies that do not receive compensation compete with companies that benefit from it. The fact that not all Member States grant indirect ETS costs compensation may impact the level playing field within a sector and thus risks distorting intra-sector competition. Moreover, inter-sector competition between companies active in sectors producing substitutable products might be distorted by the measure. By keeping the aid targeted and limited to the minimum necessary, those risks are minimised.

The initiative is also expected to positively stimulate energy efficiency investments, as it provides only partial compensation at the level of the most efficient undertaking in the eligible sector. The additional requirement on conditionality will not have any additional impact on SMEs, since the Guidelines do not introduce any additional requirements as compared to the Energy Efficiency Directive. Compliance costs should not be considered as additional costs, since the undertakings were already subject to these obligations under the Energy Efficiency Directive. Only additional compliance costs generated by the conditionality of the compensation should be taken into account when estimating the costs of the Guidelines.

Member States (and EFTA states) will have to take into consideration the updated rules in the revised ETS State aid Guidelines, in order to update their compensation schemes. Public authorities will have to comply with the information obligations stemming from policy options on sector eligibility, aid amount and conditionality. The revised ETS Guidelines will require the Member States and (and EFTA States) which introduced schemes to update the parameters of the compensation calculation. However, the initiative is not expected to create significant additional administrative burdens on authorities since the process remains the same as under previous Guidelines. Additional administrative costs may still arise, compared to the baseline option, since the revised ETS Guidelines introduce conditions that have to be fulfilled in order to receive the compensation. Member States (and EFTA States) will need to verify that the conditions are met. The other administrative costs are not expected to vary significantly, as the revised ES guidelines do not introduce any significant change in the application, reporting and monitoring processes. As regards the administrative burden linked to the obligation to notify to the Commission the new or updated schemes, this is an intrinsic feature of State aid control present in all options.

The revised ETS Guidelines will affect Member States budget allocated for compensation. However, it should be made clear that Member States (and EFTA States) have the choice whether to implement a compensation scheme, the revised ETS Guidelines do not introduce any mandatory costs. For the States deciding to implement a scheme, the overall budget spent on compensation will be different than under the baseline option, since several parameters (eligible sectors, aid intensity and CO2 factors) have been amended compared to the baseline.

The revised ETS Guidelines will benefit Member states (and EFTA States) because they introduce clarity and uniformity about the way national compensation schemes should be designed.

European authorities will support additional costs link to the establishment of revised efficiency benchmarks, for the purpose of the revised ETS Guidelines. These benchmarks will be computed by an external consultant and will be updated at Midterm. These costs are therefore to be spread over 5 years.

Third countries will be indirectly impacted, to the extent that the risk of carbon leakage due to indirect ETS costs is addressed with the preferred options. Consequently, there will be less chance that European companies with a significant risk of carbon leakage due to indirect ETS costs will relocate in third countries. The initiative has also a positive impact on the environment in third countries, which would be relevant for overreaching the EU objectives under the Paris Agreement.

Summary of costs and benefits

For the preferred set of options, the tables below presents the benefits (table I) and costs (table II) that have been identified and assessed during the impact assessment process.