What is happening? As part of its coal phase-out, Germany promised multi-billion Euro payouts to lignite operators for closing their plants. On 2 March 2021, the Commission announced that it would open a formal investigation procedure into those promised compensations based on doubts about their compatibility with EU State aid rules. The opening decision is expected to be published in the coming weeks, and followed by a one-month public consultation. The Commission will then have up to 18 months to complete its assessment – though cases are generally solved sooner.
Why is it important? As the EU tries to reach its climate and environmental goals, the Commission must make sure that it is not giving the green light to subsidies that drive the bloc in the opposite direction. In Germany’s case, it is fundamental not to use taxpayers’ money to pay for mistakes made by companies or governments – like investing in clearly stranding fossil fuel infrastructures, overcompensating an unambitious phase-out, or making up for failure to enforce the polluter pays principle – and in fact cleaning up after the companies. Lignite operations come at a high cost for people and ecosystems, and State aid decisions must take this into account. The decision to compensate Germany’s lignite plant closure will set an example for other coal phase out plans in Member States, as current ETS prices (43 euros/ton CO2 in March 2021) make it increasingly costly for coal plants to operate.
What is the legal context? The Commission is merely expected to look into whether this compensation package aligns with internal market rules only – this was mentioned in the announcement of the investigation, and would be in line with DG Competition’s general approach to State aid cases historically. Until now, and even though the EU Treaties arguably oblige it to do so, the Commission has not strictly assessed State aid cases in the broader context of environmental and climate policies. At the end of 2020, DG Competition kicked off a process to align competition rules with the European Green Deal; this should concern the entire State aid practice and rules. To date, there have been no specific State aid guidelines on coal plant closure compensation but the Commission has started to handle them case by case. The decision by the Commission on the German lignite case will send a clear message either in favour of climate protection or in favour of the fossil industry.
What do we want?
No State aid to incentivise business as usual. No subsidies should be paid to fossil fuel companies for operating; and nothing more than what is strictly required by EU State aid law for closing the plants. The coal industry is making losses faster than expected and any State aid would only compensate for lignite power plant operators’ bad business decisions to keep relying on coal.
A coal phase-out by 2030 without further compensation. The phase-out date of 2038 is not in line with the EU’s commitments under the Paris Agreement, which require a coal phase-out by 2030. According to the contract with lignite operators, the phase-out can only be accelerated without further compensation under strict conditions and until 2035, otherwise operators have the right to renegotiate the contract. This is a major hurdle for the ambitious policy needed in the face of the global climate crisis.
Adherence to the polluter pays principle. The Commission must assess whether Germany has enforced the polluter pays principle before agreeing on any amount of compensation, in particular for the recultivation of lignite mines and recovering water pollution costs (e.g. sulphate pollution). Moreover, the German government must implement the strict levels of the Best Available Techniques Conclusions on Large Combustion Plants, including binding energy efficiency performance. This is reinforced by the Hinkley Point C ruling requiring that the Commission checks compliance of activities with environmental law and principles as a condition for approving State aid.
Meaningful allocation of money and just transition. Financial resources must be allocated to more sustainable uses that are meaningful in the European Green Deal framework – this includes ensuring that the affected communities in coal regions are supported for a just transition to low-carbon local economies. Germany could have decided that the communities were first to be compensated for all the pollution, displacement and other external impacts of coal plants and mines, as well as for their just transition, before compensating the utilities.
According to the government, the compensation sums are made up of lost profits, recultivation costs, and a legal disputes waiver – though it remains unclear which amount is paid for which item and whether the result is based on a formula. A financial study commissioned by the German government on the recultivation costs was only disclosed several months after the Bundestag voted on the law. The study shows that the sums are not proportionate to the recultivation costs particularly regarding the operator LEAG.
Commitment to the European Green Deal. The climate neutrality, zero pollution and just transition objectives of the Green Deal and of the EU Climate Law must play a significant role in State aid decisions – as an integral element of the sustainable functioning of the internal market.
“The EU competition policy should reinforce the European Green Deal and its climate, zero pollution and just transition objectives, and not secure yet another stream of subsidies to the coal industry. Under no circumstances can citizens’ money finance bad business decisions which aim to prolong the use of coal or other fossil fuels,”said Elif Gündüzyeli, Senior Energy Policy Coordinator at CAN Europe.
“The coal era is over and operators have known it for years, but they chose not to adapt. Instead of subsidising polluters with public money to compensate for their outdated business choices, the German government should claim back their air pollution, water and carbon debt, and hold polluters accountable for the damage they inflict to people and nature,”said Christian Schaible, Policy Manager for Industrial Production at the European Environmental Bureau.