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EU to allow state aid for coal plant exit, low-CO2 industry shift

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EU to allow state aid for coal plant exit, low-CO2 industry shift

The European Commission is willing to approve national government aid to coal plant operators for closing early, and to manufacturers to decarbonize their production, to support the EU's 2050 carbon neutrality goal, it said Jan. 14.

Many EU national governments, including Germany, are forcibly phasing out hard coal- and lignite-fired power plants over the next two decades, and operators are seeking compensation for early closures.

The EC would only approve compensation in line with the operator's expected losses from an early power plant closure, it said in its Sustainable Europe Investment Plan. National governments would also have to structure the compensation to minimize any market or competitive distortions.

The move away from coal and lignite is driven by the EU's ever-stricter carbon constraints. "Burning lignite is one of the most polluting and CO2-intensive means of electricity generation," the commission said.

The EC is planning to increase the ambition of the EU's binding 2030 target to cut CO2 by at least 40% on 1990 levels. It is looking at 50% to 55% cuts, with an impact assessment due this summer and a formal proposal after that.

National governments have used state aid extensively to support renewable power generation as part of efforts to meet their national and EU renewable energy targets.

The EU has a binding target to source at least 32% of its total energy — including in heating and transport — from renewables by 2030.

The EC said it would continue to allow state aid that helped national governments achieve the 2030 targets. That could include increasing public investment in renewable energy schemes "for cheaper and more integrated green energy," and rolling out "cheaper and publicly accessible charging infrastructure" for electric vehicles.

Flexible approach

The EC said it would apply current EU state aid rules flexibly in specific areas — such as the coal plant closures — "which seem crucial" to achieving climate neutrality. Such areas include aid to companies to decarbonize their production processes, including by switching to electricity.

The EC would approve that if there were no economic incentives to drive the investment and if the companies involved cut their environmental impact more than EU standards or benchmarks.

It said it could also look at potential funding gaps when assessing aid to decarbonize industry, rather than the typical extra costs compared with a theoretical alternative investment which might not be in line with the EU's carbon-neutrality goal.

"This could be justified [as] such investments present an important way to reduce the carbon footprint of the installations concerned," it said.

Other crucial areas include energy efficiency in buildings, district heating, and the circular economy, including reusing waste heat or CO2, and recycling waste, such as plastic. "We will need to make buildings energy efficient and smart, to reduce energy demand," an EC source said. Heating buildings is a major part of EU natural gas demand.

Wider fossil fuel exit

The EC will also revise the relevant EU state aid rules by 2021 to bring them further in line with the European Green Deal strategy to be carbon-neutral by 2050.

The new rules will encourage innovation and deploying "new, climate-friendly technology at market scale," the EC said. This includes updating the EU environmental and energy state aid guidelines to make it easier for governments to phase out fossil fuels, particularly the most polluting ones, the commission said.

The current guidelines run from 2014 to the end of 2020.

Siobhan Hall is a reporter with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.