EU Commission approves Germany's €6.5 bln 'carbon leakage' scheme

The European Commission has greenlighted a German 6.5 billion euro scheme to prevent energy-intensive companies from relocating production to countries with less stringent emission rules, a phenomenon referred to as “carbon leakage.” The support will cover part of companies' higher fuel prices between 2021 and 2030 resulting from the country’s fuel emission trading system (ETS). “The scheme maintains incentives for a cost-effective decarbonisation of the German economy, in line with the Green Deal objectives. And this while keeping distortions of competition to the minimum,” commented EU competition commissioner Magrethe Vestager. The Commission said the measure, which Germany submitted in 2021, will benefit companies that face significant emission costs and are particularly exposed to international competition. German economy minister Robert Habeck called the approval “an important signal from Brussels for companies that face tough international competition and invest in climate protection at the same time."

“The Commission found that the scheme is necessary and appropriate to support energy-intensive companies in coping with higher fuel costs resulting from the German fuel ETS in order to reduce the risk of carbon leakage,” the Commission explained in its assessment. “Moreover, the Commission considers that by making the aid conditional upon energy efficiency and decarbonisation efforts, the measure contributes to the objective of maximising the incentives for a cost-effective decarbonisation of the economy.” It added that aid will be limited to the minimum necessary and will “not have undue negative effects on competition and trade in the EU.” Depending on their emission intensity, companies will be reimbursed between 65 and 95 percent of their additional costs, but only if they invest at least 80 percent of the aid to lower emissions, for example by improving efficiency or switching to climate-friendly production technologies.