Government proposal on aid scheme for the electrification of energy-intensive industries is submitted to Parliament
An aid scheme is proposed for electricity-intensive industries to compensate for the indirect costs of emissions trading on the price of electricity. The Government submitted a proposal on this to Parliament on 31 March 2022. The act is scheduled to enter into force in summer 2022.
The aim of the Act on aid scheme for the electrification of energy-intensive industries is to mitigate so-called carbon leakage risk, safeguard the cost competitiveness of industry, and steer operators towards developing their industrial production in a more carbon neutral direction.
The amount of aid to be paid would be determined by, among other things, the price of emission allowances andthe operator’s level of electricity consumption or production. At least 50% of the aid granted would have to be used for development activities that promote carbon neutrality. The aid therefore incentives industry to seek and implement solutions that promote carbon neutrality.
The aid could be granted to operators in years 2022–2026. An appropriation of EUR 87 million for this purpose is included in the supplementary budget proposal for 2022. An appropriation of EUR 150 million would be allocated to the aid in the General Government Fiscal Plan for 2023–2026. Of the industrial sectors to be supported, the largest would be the forest industry, with the metal and chemical industries also significant.
Carbon leakage refers to a potential increase in total global greenhouse gas emissions when companies relocate or set up production outside the European Union and its Emissions Trading System.
The Emissions Trading Directive takes the risk to carbon leakage into account in two ways. Some operators covered by the ETS are entitled to apply for free allocation of emission allowances to decrease the impact of direct carbon costs. In accordance with the Directive, compensation for indirect costs of emissions trading should be implemented through financial measures adopted nationally.
In the autumn 2020 budget negotiations, the Government agreed on the introduction of an aid for the electrification of energy-intensive industries. In the spring 2021 mid-term policy review, the Government agreed on revisions to the subsidy. According to the policy outlines, the beneficiaries of the aid will be compensated annually for 25% of indirect costs, provided that the annual cost of the aid scheme does not exceed EUR 150 million.
The aid has been prepared in accordance with the European Commission’s Emissions Trading System state aid guidelines. The new Act would repeal the 2017 Act on the compensation of the indirect costs of emissions trading. The proposal is included in the central government supplementary budget proposal for 2022 and is intended to be discussed in connection with it. The introduction of the aid scheme is subject to the Commission’s approval.
The provisions on the use of the subsidy would be laid down both in the Act and in a Government Decree on subsidy for electrification of energy-intensive industries adopted on the basis of it.
Anna-Maija Sinnemaa, Senior Specialist, Ministry of Economic Affairs and Employment, tel. +358 29 504 7303