Executive Summary:
- A policy aiming to protect the environment, even though it may be necessary and important, does not automatically fall outside the scope of application of Article 107(1) TFEU.
- Relief from electricity charges confers a selective advantage, even if its purpose is to reduce the disadvantage of intensive users of electricity.
- Member States are allowed, under certain conditions, to counterbalance environmental protection with protection of international competitiveness.
Table of Contents:
- Introduction
- Form of the aid
- Budget and duration of the aid scheme
- Eligible beneficiaries
- Aid intensity
- Assessment of the existence of state aid
- Assessment of the compatibility of the aid with the internal market
- Conclusion
Introduction
The biggest obstacle to the implementation of strict environmental measures is their impact on the international competitiveness of affected undertakings. On the one hand, Member States impose taxes on fossil fuels and on energy generated by fossil fuels, while on the other, they try to support the undertakings that lose competitiveness as a result of a significant increase in their production costs. Preventing climate change and at the same time protecting competitiveness requires a fine balancing act. Member States try to offset the increase in production costs with corresponding subsidies to the most affected undertakings.
A case in point was an Estonian scheme supporting energy-intensive users [EIUs] that was notified to the Commission at the end of 2025. The scheme was intended to provide partial relief from an electricity levy whose purpose was to 1) discourage the consumption of electricity from fossil fuels, and 2) raise revenue to support the generation of electricity from renewable sources and high-efficiency cogeneration of energy and heat. The notified scheme was based on the Guidelines on state aid for climate, environmental protection and energy [CEEAG] of 2022.
According to the Commission decision authorising the aid in decision SA.121622,[1] “(4) the following activities are supported with the funds of the renewable energy levy:
(a) electricity production from renewable energy sources (‘RES’) using a production device with net capacity ≤ 125 MW;
(b) electricity produced from biomass in CHP mode (excluding biomass electricity that is produced in condensing mode);
(c) electricity produced in efficient cogeneration from waste, peat or shale-oil processing retort gas …;
(d) electricity produced in efficient cogeneration with a production device of electrical capacity ≤ 10 MW;
(e) support paid (following a government-authorised tender) to produce renewable electricity in order to meet the renewable electricity share target set in the Energy Sector Organisation Act;
(f) support paid via tender for electricity produced by renewable-energy devices with electrical capacity > 50 kW and < 1 MW, with the aim of increasing such producers’ annual production (2019–2021) by 5 GWh.”
The reduction of the charge was necessary because “(6) EIUs, which are particularly exposed to international trade and rely heavily on electricity for their value creation, play a significant role in the Estonian economy. Without the implementation of the proposed scheme the obligation to pay full renewable energy levy on electricity consumption could have detrimental economic consequences for EIUs and increase the risk of EIUs relocating outside the Union, where environmental standards could be less stringent and where these costs are not incurred at all or are not incurred at such intensity.”
“(7) Consequently, this could discourage the electrification of production processes and lead to a decrease in public support for decarbonisation policies. The reduction in the renewable energy levy on electricity consumption will serve as an incentive for companies in energy-intensive sectors to continue their operations within the Union and as an enabler for the decarbonisation of industrial processes. Furthermore, the reduction in the renewable energy levy encourages the electrification of production processes, aligning it with the central goal of successful decarbonisation of the Estonian economy.”
Moreover, “(8) Estonia plans to maximise the country’s RES potential, and one of the effective ways to achieve this is to mobilise the biggest energy consumers, the EIUs. Therefore, the authorities want to incentivise EIUs to invest in their own renewable energy production and support the full utilisation of existing RES and development of new RES.”
“(9) The renewable energy levy applicable to EIUs is around 1.25 times higher than the EU average (EUR 0.0084/kWh compared to EUR 0.0067/kWh), which impairs competitiveness and deters new industrial investment. Without the reduction scheme, EIUs would be required to pay the full renewable energy levy of EUR 0.0084/kWh for 2025– 2026.”
“(12) Beyond environmental considerations, the measure also pursues objectives related to maintaining competitiveness in energy-intensive sectors and supporting energy-efficiency improvements among EIUs. In this context, the Estonian authorities consider that potential distortions to the internal market are limited, as the scheme applies uniformly to undertakings active in sectors listed in Annex I to the CEEAG and is subject to strict eligibility criteria. They further consider that the scheme is transparent and proportionate, ensuring that the benefits granted do not create undue advantage within the internal market. While the granting of State aid may give beneficiaries an advantage over other market participants, the scheme is in the public interest, as it has positive impact on innovation, regional development, socio-economic benefits through job creation and the achievement of environmental objectives. Therefore, the Estonian authorities decided to design the scheme to reduce the charge financing support for electricity from renewable sources and high-efficiency cogeneration for EIUs.”
Form of the aid
Next, the Commission provided information on the form of the aid. “(15) The scheme provides aid on the basis of a scheme in the form of an ex ante levy reduction within the meaning of point 413 CEEAG on the renewable energy levy. The levy reductions as from 1 January 2026 until the date from which the reduced levy rate is first applied on the beneficiary’s invoice in 2026 will be compensated in the form of a one-off refund.”
“(16) The levy reduction granted under the scheme is financed from the State budget. In particular, the Ministry of Economic Affairs and Communications will compensate the [Transmission System Operator] for the loss of revenue resulting from the levy reduction.”
Budget and duration of the aid scheme
The overall budget of the scheme is EUR 35.85 million. The scheme will cover reduction of the levy rates for electricity consumption as from 1 January 2026. Individual aid may be granted under the scheme until 31 December 2029.
Eligible beneficiaries
Eligible EIUs must satisfy two conditions:
(a) their consumption must exceed 1 GWh in two of the three years preceding the application [minimum consumption threshold] and
(b) their activity must fall within the sectors listed in Annex 1 of the CEEAG.
In addition, beneficiaries must comply with the following requirements:
(a) They must conclude a purchase contract with a producer of electricity from renewable sources, and prove that they use that renewable electricity by cancelling the certificates of origin issued for that renewable electricity.
(b) They must demonstrate that the share of renewable electricity in their total consumption increases from at least 10% in 2026, to 25% in 2027, 35% in 2028 and 50% from 2029.
(c) They must carry out an energy audit in accordance with Article 11 of Directive 2023/1791 energy efficiency.
The relatively high thresholds for minimum consumption of RES electricity mean that the number of potential beneficiaries will be rather small and estimated at about 100. The high thresholds also imply that the aid will go to those EIUs that need support the most.
Aid intensity
The aid will be granted in the form of an ex ante reduction that will be applied to the electricity invoices of beneficiaries. Therefore, EIUs will have to apply for the reduction to the Transmission System Operator [TSO].
Beneficiary EIUs, will receive a partial reduction of the renewable energy levy. The maximum rate of intensity will be capped at 75% or 85% of the eligible costs, depending on whether the installation is at “risk” or “significant risk” of competitive pressure, respectively, according to Annex 1 CEEAG.
However, there will be a floor to the reduction of the levy as a result of the aid. The reduced levy will not fall below EUR 0.5/MWh.
Assessment of the existence of state aid
With respect to the use of state resources, the Commission notes that the measure is imputable to the state, as it will be introduced by law. The state will forgo revenue from lower rates. Therefore, the measure is financed by state resources.
With respect to the existence of a selective advantage, only EIUs eligible under Annex 1 CEEAG will be able to benefit from the partial reduction of the electricity charge. Consequently, beneficiaries will pay less of the charge and bear lower costs.
With respect to the affectation of trade and distortion of competition, the sectors listed in Annex 1 CEEAG are those which are especially exposed to international trade. Therefore the measure will distort competition between beneficiaries and non-beneficiary undertakings.
Assessment of the compatibility of the aid with the internal market
The Commission examined the conformity of the measure under the general conditions of CEEAG and also under the specific conditions in section 4.11 CEEAG.
Development of economic activity and incentive effect: The measure aims to support EIUs in their use of more green electricity. Since EIUs, by definition, use relatively more electricity than other undertakings, any increase in the price of electricity has a disproportionally adverse effect on them. This implies that they have a stronger incentive to move to other countries outside the EU where environmental standards are lower. “(61) The Commission considers that the scheme facilitates the development of economic activity as, in the absence of the scheme, the economic consequences for EIUs with a high electro-intensity and exposure to international trade may lead to a shift of production towards other regions outside the EU or bankruptcy. Finally, it applies only to economic sectors listed in Annex 1 CEEAG, which are particularly exposed to international trade and that rely heavily on electricity for value creation”.
No breach of any relevant provision of Union law: The Commission noted that “(65) Estonia confirmed that the scheme does not, by itself, by the conditions attached to it, or by its financing method, constitute a non-severable violation of Union law”. “(66) Based on the information provided by the Estonian authorities, the Commission has no indications of a possible breach of any relevant provision of Union law that would prevent the scheme from being declared compatible with the internal market. Therefore, the Commission considers that the requirements of point 33 CEEAG are fulfilled.”
Need for State intervention and eligibility: The Commission considered that the measure was necessary and appropriate and noted favourably that it was open only to undertakings in sectors classified as at risk or significant risk in Annex 1 CEEAG.
Proportionality and cumulation: Beneficiaries from sectors at “significant risk” and from sectors at “risk” will pay at least 15% and 25%, respectively, of the levies. Also, reductions will not be allowed to bring a levy below 0.5 EUR/MWh. Therefore, the Commission considered that aid would be proportionate and in compliance with point 408 CEEAG. “(81) As regards cumulation, the Estonian authorities declare that aid under the scheme cannot be cumulated with aid under other schemes, ad hoc or de minimis aid in relation to same eligible costs … Therefore, the Commission considers that the conditions in point 56 CEEAG are fulfilled.”
Avoidance of undue negative effects of the scheme on competition and trade: The Commission recalled point 402 CEEAG according to which “(86) [t]he Commission has used appropriate measures to identify those sectors which are particularly exposed to the risks mentioned in point 400 and it has introduced proportionality requirements taking into consideration that, if the levy reductions are too high or awarded to too many electricity consumers, the overall funding of support to energy from renewable sources might be threatened and distortions of competition and trade may be particularly high.’” However, “(87) Estonia, by observing compliance with the eligibility and proportionality conditions of Section 4.11 CEEAG, ensures that undue distortions on competition and trade are avoided.”
Conclusion
Since the notified measure complied with all the relevant provisions of CEEAG, the Commission did not raise any objections.
Notes:
[1] The full text of the Commission decision can be accessed at:
https://ec.europa.eu/competition/state_aid/cases1/202621/SA_121622_47.pdf
