The Hague, 6 March 2020
_______________________________________________________________________
Response of the Dutch authorities on the COMMUNICATION FROM THE
COMMISSION, draft Guidelines on certain State aid measures in the context of
the system for greenhouse gas emission allowance trading post 2021
HT.582
_______________________________________________________________________
This response reflects the views of the Dutch ‘Interdepartementaal Steun Overleg (ISO)’.
The ISO is a national State aid committee composed of all Dutch ministries and
representatives of the regional and local authorities.
1. General points
In Europe, following the introduction of the ETS, industrial sectors deemed at a risk of
carbon leakage are compensated for direct emission costs with free ETS allowances. On
top of the compensation for direct emission costs, the 2012 ETS Guidelines allowed
Member States to compensate some energy-intensive industries for the higher electricity
costs resulting from the EU ETS, also called indirect emission costs.
The purpose of the draft Guidelines is to address the risk of carbon leakage due to
indirect ETS costs while minimizing competition distortions and maintaining the
incentives for a cost-effective decarbonisation of the economy. The draft Guidelines take
into account the new provisions of the ETS Directive 2018, the evolution of market
conditions and the previous practices of Member States.
The Netherlands advocates 55% EU emissions reduction in 2030 (compared to 1990) to
reach the EU target to become climate neutral by 2050 cost effectively. The Netherlands
welcomes the green deal as an important framework to reach these targets. However we
do acknowledge that as long as there is no international shared approach with
international partners, there is a risk of carbon leakage. Therefore, we acknowledge that
the draft Guidelines need to address three specific objectives: minimising the risk of
carbon leakage, preserving the EU ETS objective to achieve cost-efficient decarbonisation
and minimising competition distortions in the internal market.
We welcome the approach proposed by the Commission, with stricter rules on how EU
Member States can compensate companies for indirect costs such as rising electricity
prices due to higher carbon prices. We support that targeted aid should only be possible
for the most exposed sectors and that compensation is conditional upon decarbonisation
efforts. However it is key that the compensation - allowed by this proposal - should not
result in distortions of competition in the internal market. In view of this the Netherlands
doesn’t support the introduction of a so called super cap. The Netherlands supports the
new geographical division of the relevant markets in order to determine the accurate CO2
emission factor because it suggests that the Commission uses a low estimate for the
emission factor to stimulate the further decarbonisation of the electricity sectors.
Finally, we would like to signal that future developments such as a foreseen revision of
the ETS Directive and a possible Carbon Border Adjustment Mechanism can make it
necessary to revise the proposed guidelines or even the indirect cost compensation as
such.
In the light of this context we have the following feedback.

2. The Dutch comments
2.1. Eligible sectors
First, compared to the 2012 ETS Guidelines, the proposal provides an updated and more
limited list of sectors eligible for compensation. This list includes eight sectors, which
have been identified as the sectors most exposed to an actual risk of carbon leakage.
The methodology used to establish the list of eligible sectors relies on the carbon leakage
indicator as defined in Article 10b of the revised ETS Directive, calculated based on
indirect cost only. The indirect carbon leakage indicator required for eligibility is 0.2. In
addition, eligible sectors need to have a trade intensity of at least 20% and an indirect
emission intensity of at least 1 kgCO2/EUR. These values are calculated at NACE code 4
level using the dataset also used for establishing the Carbon Leakage List used for the
allocation of free ETS allowances.
The Dutch authorities are in favour of the proposal of the European Commission for a
more limited list of sectors that are eligible for compensation. According to the
Netherlands, the Commission has accurately found that state aid should only be given to
those sectors that are actually exposed to carbon leakage. We believe that the European
Commission has identified the relevant variables to test this in the carbon emissions
associated with the industrial production and the exposure of sectors to global trade.
We do worry about the statement of the Commission that ‘The Commission may decide
to include additional sectors, in light of the feedback and evidence received in the public
consultation, based on qualitative considerations provided the sectors concerned have at
least an indirect carbon leakage indicator of 0.2 and that their carbon leakage risk as
evaluated by the consultant in the study is at least medium.’ The Netherlands is
concerned that this will lead to an undue increase in the amount of sectors eligible for
compensation. We support the idea of an evaluation during Phase 4. The Netherlands
suggests to take developments like a Carbon Border Adjustment Mechanism into account
in the evaluation.
2.2.

Aid intensity and degressivity

The draft Guidelines also establish the aid intensity, i.e. the maximum share of indirect
ETS costs that Member States can compensate. The proposal maintains this aid intensity
at 75%. This value is in line with the aid intensity applied at the end of the third ETS
trading period under the previous guidelines.
The draft Guidelines also introduce the possibility for Member States to further limit the
exposure of beneficiaries to indirect ETS cost as a function of their gross value added
(“GVA”). This new possibility is aimed at limiting the exposure to indirect ETS cost of
certain sectors for whom these costs, even after applying the 75% compensation, can
make up a disproportionate amount of their GVA. Stakeholders are invited to present
their views on this new possibility.
The Netherlands are not in favour of introducing this possibility, as it presents an undue
exception to the other criteria which are well-considered. In addition, the Netherlands is
concerned that this introduces a scope for discussion on how to determine the exact
gross value added at the level of the individual beneficiary. The Commission may have
been precise in outlining which factors to include in determining the GVA, but the
Netherlands is concerned that not all of these factors can be established on a wholly
objective basis.

The aid intensity would not be degressive but stable throughout the entire ETS trading
period. With a non degressive aid intensity however, it is key to conduct a mid-term
update of the electricity consumption efficiency benchmarks, based on the most
electricity-efficient methods of production for the product considered, to take into
account most recent data and production processes. We can follow the Commission in its
reasoning that that this update of the efficiency benchmarks is better suited to capture
any potential efficiency gains in the sectors concerned than a per-se reduction of the aid
intensity.
The Commission is considering aligning the methodology for updating the electricity
consumption efficiency benchmarks for the purposes of these Guidelines with the
methodology specified in Article 10a(2) of the EU ETS Directive (see point 14(13) of the
draft Guidelines proposed for consultation). Under this methodology, the Commission
would extrapolate an annual reduction rate for each benchmark based on past efficiency
improvements. Stakeholders are invited to present their views on the use of such
methodology in the future Guidelines. Member States should amend, where necessary,
their respective schemes in order to bring them into line of these updates.
The Netherlands supports this methodology as an effective way of limiting the state aid
given only to the actual expected additional costs for those sectors that run the risk of
carbon leakage.
2.3.

Aid amount calculation formula

The Commission proposes the estimated amount of indirect ETS costs and consequently
the maximum aid amount to be calculated on the basis of parameters comparable to
those used under the 2012 ETS Guidelines.
- Differentiated regional “CO2 emission factors”, which reflect the CO2 intensity of
electricity produced from fossils fuels in a given geographic area, will continue to apply.
For this purpose, the relevant geographical zones have been defined according to the
same methodology as was used under the 2012 ETS Guidelines, i.e. the development of
market coupling and the degree of actual price convergence, using updated economic
data.
- The baseline output used for the purposes of the calculation corresponds to the actual
production in the year preceding the granting of the aid. The impact assessment of the
2012 ETS Guidelines stated that such option would risk undoing the price signals and
incentives from the ETS to become more efficient in terms of electricity consumption.
However, as compensation of indirect ETS costs is only a partial compensation, an
increase of production leading to an increase of electricity consumption will always result
into increased electricity costs for the undertaking. Therefore, the Commission considers
that the reliance on actual output figures most accurately reflects the level of indirect
cost incurred by each beneficiary and maintains the incentive for energy efficiency. On
the contrary, as the historical output does not allow to calculate the actual indirect costs
faced by an individual undertaking, it does not fully maintain the incentive for the
undertaking to become more efficient. Indeed, in a situation where the historical output
value is higher than the actual output, using the historical output as the reference
parameter would reduce the price signal from the ETS and therefore undermine the
incentive to improve energy efficiency.
It is important that the reference output is determined as accurately as possible in order
to prevent competition distortions. Therefore the Netherlands supports the Commission
proposal to determine the reference output dynamically.
The CO2 emission factor should reflect the ambition to decarbonise the electricity
sectors. As a result of this regions will be encouraged to fasten their developments in
more sustainable electricity production. Also in the next years the amount of sustainable

energy will grow and therefore the average CO2-emission factor will decrease. Therefore
the emission factor should be determined year-by-year and based on actual carbon
intensity.
Several parameters used to calculate the aid amounts have not been set in the attached
draft Guidelines proposed for consultation and will be established at a later stage. This
concerns the electricity consumption efficiency benchmarks, the actual level of the above
GVA cap and the actual regional CO2-factors. The CO2-emissions factors will be set on
the basis of the most recent Eurostat data (2019), and will be updated once in the middle
of the next trading period. In 2025, the Commission will also assess whether additional
data is available allowing to improve and revise the methodology used to calculate the
CO2 emission factors, i.e. to take into account the increasingly important price-setting
role of low-carbon technologies in EU electricity markets.
2.4. Conditionality
Finally, the draft Guidelines propose to strengthen the conditionality of the compensation
of indirect ETS costs by going beyond the obligations already set by the Energy Efficiency
Directive 2012/27/EU. Stakeholders are invited to present their views on this new
conditionality requirement. Member States would have to verify that beneficiaries,
irrespective of their size, have conducted or commit to conduct an energy audit or have
an energy or environmental management system in place. Member States would also
have to monitor the implementation of the resulting recommendations by large
undertakings. Member States would have to monitor compliance with this requirement.
Also, the Commission as part of its monitoring efforts for approved schemes can check
compliance with this requirement.
We support the introduction of conditionality in order to incentivize beneficiaries to
reduce their carbon footprint. It is important that these Guidelines will be consistent with
the European Green Deal as well as the EU’s broader climate goals.
3. Modernisation of Electricity Generation
The new provisions related to aid involved in optional transitional free allowances for the
modernisation of electricity generation, are largely pre-determined by Article 10c of the
revised ETS Directive. The objective of this type of aid is the modernisation,
diversification and sustainable transformation of the energy sector. For projects involving
a total amount of investment exceeding EUR 12,5 million, aid would be granted on the
basis of a competitive bidding process which complies with the requirements of the draft
Guidelines proposed for consultation. For projects below EUR 12,5 million, State aid
measures would also be subject to State aid assessment.
In view of a fair competition on the internal market, we would like to underline the
importance of granting the aid on the basis of a competitive bidding process in order to
comply with principles of transparency, non-discrimination and financial management. In
line with this we would like to point out that a state aid assessment for projects below
EUR 12.5 million is necessary.