Fortum's views on EU's energy and environment state aid

Our main recommendations

Renewable electricity

• Renewable electricity production has to be integrated into the electricity market with the same market rules, rights and responsibilities as other technologies.
• Promotion of renewables should be based on more efficient and flexible power markets and a strengthened carbon price instead of specific subsidies. As electricity generation is covered by the ETS, as a rule no State aid for RES electricity should be allowed.
• Where subsidies are still deemed justified, their design should be as market-based as possible to expose producers to market prices; for example, during hours with negative market prices subsidies should not be paid. The subsidies should also be technology neutral and allow cross-border participation

Biomass

• As a whole, the use of biomass should be assessed from the system efficiency point of view, giving preference to using biomass for high-value bio-based materials and products and using the reject biomass as a transitional energy source for electricity and heat.
• State aid may be necessary for R&D, innovations and first-of-kind biomass projects that are close to commercialization.

Low carbon heating

• The affordability of heating is a social and energy policy challenge in many Member States. Addressing this challenge requires systemic solutions to enable the transition to energy-efficient low-carbon heating. To support this process, the EEAG should allow investment and operative aid to low-carbon, efficient and scalable heating solutions.
• The EEAG should allow effective promoting measures for the efficient individual heating solutions and DHC systems, both in terms of investment and temporary operational aid, or other effective, nationally determined measures, e.g. taxation.
• The length of the schemes for energy-efficiency measures (other than co-generation) in the criteria shall not be categorically limited to 5 years for operating aid. The Member States should be given sufficient flexibility to design the aid between investment and/or operative aid, within the limits of aid accumulation guidelines.

Waste

• Thermal treatment of waste as an environmental alternative to diverting waste from landfills and treating residues from recycling processes is an important part of the circular economy and should remain eligible for aid in full accordance with the requirements to prioritisation within the EU waste hierarchy.
• Forbidding waste exports to another EU country for recovery purposes, e.g., should be considered as a form of State aid for domestic recovery operations.

Carbon removal technologies

• Since the approval of the existing State aid guidelines, carbon removal technologies have developed and CCS is no longer the only solution. Both CCU, direct capture of CO2 from the air (DAC), and material substitutions based on carbon removals are becoming feasible and should be considered in the framework of the guidelines.

Taxation

• To avoid market distortions caused by different tax treatment or aggressive tax competition, taxes between different energy generation technologies within an individual Member State as well as between the Member States should be aligned as much as possible.
• It’s necessary to ensure compatibility between the EU ETS, State aid and taxation. All CO2- emitting production should be subject to ETS-driven carbon pricing or a (national) CO2 tax, but not both. This principle should be clarified both in the EEAG and in the Energy Tax Directive.
• in some countries, district heating production is covered by the EU ETS, but it is also subject to additional (and increasing) national CO2 taxation, whereas the heating of individual buildings is not always subject to any CO2 steering – not to ETS or to CO2 taxation.

Capacity mechanisms and market design

• The section related to aid to generation adequacy should be updated in connection with the requirements laid down in the Market Design package (European generation adequacy, plan to remove market distortions, investigate strategic reserve prior to considering wide-encompassing market mechanism, generation capacities etc.).
• Attention should be paid to defining consistent capacity products and promoting cross-border participation of generators.
• The EEAG should also clarify the role or regulated versus commercial operations (e.g. regarding flexibility assets) from the State aid point of view, placing specific attention on provisions setting out a delineation between market and regulation to ensure that, from a State aid point of view, there are sufficient safeguards against cross-subsidies and conflict of interest.

Tradable permit schemes

In sectors regulated by EU legislation (e.g. Industrial Emissions Directive and LCP BREF setting emission limits and standards), tradable permit schemes should be preferably EU wide. These schemes should achieve environmental objectives beyond those to be achieved on the basis of EU legislation.