Introduction
Compliance with the rules on the cumulation of State aid can be tricky for several reasons. First, all aid granted by all public authorities for the same project needs to be taken into account. Second, this requires identification of the relevant eligible costs, as the same undertaking may legally receive multiple awards of aid for different projects whose eligible costs may be determined according to distinctly different methodologies. Third, aid from national sources must be accounted separately from direct aid from EU institutions or agencies. The complication here is that EU aid managed by national authorities is deemed to be a state resource.
But recently, it has become clear that aid granted in other Member States may also have to be considered for the purpose of complying with the cumulation rules. This is particularly the case for aid that supports the production or use of green fuel or green energy that is traded across borders.
In a landmark judgment on 21 December 2022, the General Court, in case T-626/20, Landwärme v Commission, annulled Commission decision SA.56125 by which the Commission had declared compatible with the internal market two Swedish schemes providing for a tax exemption for biogas used as motor fuel [the motor fuel scheme], and a tax exemption on renewable fuel for heat generation [the heating fuel scheme]. In approving the two schemes, the Commission rejected a complaint that had been submitted to it by Landwärme, German biomethane producer, who claimed that there was potential overcompensation of Danish biogas producers resulting from the cumulation of the Danish support to biogas producers and of the Swedish tax exemption for biogas.
The General Court annulled the Commission decision because the Commission had assessed the cumulation of aid in the national context of Sweden, instead of taking into account the cross-border effects of the Danish measures. Although the beneficiaries of the Swedish scheme were the purchasers of biogas in Sweden and the tax exemptions would not affect directly the production cost of biogas, they would, however, benefit indirectly [and twice] biogas producers exporting to Sweden because they could sell biogas there at a lower price. The tax exemption would give them a competitive advantage in relation to natural gas and in relation to the exports of Landwärme. The General Court also held that the Commission should have considered the principle of non-discrimination of tax measures under Article 110 TFEU.
Following the judgment of the General Court, the Commission opened the formal investigation procedure in January 2024 and adopted a new decision in October 2024. This decision, SA.56908, was made public at the end of November 2024, although it is not yet published in the Official Journal.[1]
Beneficiaries
The new Commission decision identifies the aid beneficiaries as follows. “(32) Under the motor fuel scheme, the direct beneficiaries of the tax exemptions are the undertakings that are liable to pay energy and CO2 taxes on gas and file a tax return (the “taxpayers”). They are fuel suppliers and importers of biogas (and bio-propane). Among them may also be biogas (and bio-propane) producers, to the extent they are fuel suppliers or final consumers. In short, the tax is due where the motor fuel leaves the last fuel warehouse before it is sold to final consumers. The taxpayers are exempted from the energy and CO2 taxes on gas and then are expected to pass on the tax exemption benefit when selling the biogas (or bio-propane) to final consumers (e.g., a transport company or private person fuelling a vehicle at a gas station).”
“(33) Under the heating fuel scheme, the direct beneficiaries of the tax exemptions are the end users (e.g., companies active in the heating, district heating or manufacturing sectors). In this case, the end user may deduct the tax in its own tax declaration (if it is a taxpayer of the energy and CO2 taxes), but it is also common that the end user acquires the gas inclusive of tax and applies for a refund.”
“(35) While the direct beneficiaries of the schemes are the undertakings that claim the tax exemptions to the tax agency (either directly for the taxpayers or as a refund for the end users in the heating fuel scheme), the schemes indirectly benefit producers of sustainable biogas and bio-propane. They indirectly benefit from the schemes through an increased demand for their products (sustainable biogas or bio-propane) from final consumers.”
“(36) The schemes are open both to biogas and bio-propane produced in Sweden and imported biogas and bio-propane.” The schemes are open also to imported biogas in order to avoid discrimination against biogas from other Member States.
Cumulation
The Commission decision also explains how Sweden proposed to address the cumulation issue. First, the Commission recalled that “(62) in general, the tax exemptions can be cumulated with aid, and notably aid to the production of sustainable biogas and bio-propane.”
“(63) Investment aid that promotes sustainable biogas and bio-propane may be granted by several Swedish authorities under State aid schemes for research and innovation or environmental purposes under the General Block Exemption Regulation (“GBER”).”
“(64) In addition, operating aid may be granted for the promotion of sustainable biogas and bio-propane under the GBER.”
For those reasons, “(66) any aid granted to a producer, in Sweden or in another Member State, is taken into account in the monitoring of overcompensation either directly, when the reporting entity is a producer, or indirectly, when the reporting entity is a fuel supplier or importer”.
Assessment of the compatibility of the aid
After quickly establishing that the measure constituted State aid, the Commission proceeded to assess its compatibility with the internal market on the basis of the previous environmental aid and energy guidelines that were in force until January 2022 [i.e. the EEAG] and from January 2022 on the basis of the current guidelines [i.e. the CEEAG]. This article reviews only the assessment under the CEEAG concerning only two issues that are especially pertinent for tax exemptions: the avoidance of violation of any provisions of EU law and the cumulation and proportionality of the aid.
No breach of any relevant provision of Union law
The Commission began its assessment by recalling the principle that “(204) State aid cannot be declared compatible with the internal market if the supported activity, the aid measure, or the conditions attached to it entail a violation of relevant Union law.”
“(205) In the present case, the Commission has assessed, in particular, whether the schemes contravene any relevant Union legislation in the energy sector. The Commission notes that aid under the schemes to support the relevant products will be granted in compliance with the sustainability and greenhouse gas emissions reductions criteria laid down in RED II”. [RED I is the Renewable Energy Directive 2009/28, while RED II is the Renewable Energy Directive 2018/2001]
“(206) As the measure concerns excise duty reductions and exemptions for energy products, the Commission has also to assess its compliance with the Energy Taxation Directive.” [i.e. Directive 2003/96]
“(207) Article 16(1) of the Energy Taxation Directive allows Member States to apply an exemption or a reduced rate of taxation on biofuels. Article 16(2) limits the exemption or reduction in taxation to the part of the product that actually derives from biomass, which is the case under the scheme”.
“(208) Furthermore, the measure also complies with Article 16(3) of the Energy Taxation Directive which states that the exemption or reduction in taxation applied by Member States shall be adjusted to take account of changes in raw material prices to avoid over-compensating for the extra costs involved in the manufacture of the products. The Commission notes that Sweden monitors annually the prices of the relevant products and, if needed, adjusts the aid levels to avoid the risk of overcompensation in the future”.
Interestingly, the Commission also made the following statement. “(209) As regards the comment from third parties on the accounting methodology for RES targets (see recital (90)), the Commission considers that such methodological questions neither affect the object of the aid measure, namely the promotion of biogas or bio-propane as such, nor do they relate to modalities of an aid measure so indissolubly linked to the object of the aid that it is impossible to evaluate them separately. Therefore, the Commission does not assess this point in the context of this State aid decision.”
The penultimate sentence of the previous paragraph is important. Using the State aid powers conferred to it directly by the Treaty, the Commission has competence to assess only whatever feature of a State aid measure that is “indissolubly linked” to it. What is indissolubly linked is what cannot be assessed separately, presumably because it cannot be implemented separately from the aid measure itself.
On the basis of the above analysis, the Commission concluded in the awkwardly phrased sentence that “(210) the Commission has no indication that neither the schemes, nor the conditions attached to them, entail a non-severable violation of relevant Union law. The Commission therefore concludes that the requirements of point 33 CEEAG are fulfilled.”
Proportionality
Then the Commission turned its attention to the proportionality of the aid. It recalled that “(225) according to point 47 CEEAG, State aid is considered to be proportionate if the aid amount per beneficiary is limited to the minimum needed for carrying out the aided project or activity. Point 103 CEEAG states that aid for reducing greenhouse gas emissions should, in general, be granted through a competitive bidding process. However, point 109 CEEAG explains that for support schemes targeting decarbonisation in the form of reductions in taxes or parafiscal levies, the application of a competitive bidding process is not obligatory. Such aid must be granted, in principle, in the same way for all eligible undertakings operating in the same sector of economic activity that are in the same or similar factual situation in respect of the aims or objectives of the aid measure. The notifying Member State must put in place an annual monitoring mechanism to verify that the aid is still necessary. Point 109 CEEAG specifies that reductions of taxes or levies which reflect the essential costs of providing energy or related services are excluded from the scope of section 4.1 CEEAG.”
“(226) According to point 110 CEEAG, where a tax or a parafiscal levy reduction reduces recurrent operating costs, the aid amount must not exceed the difference between the costs of the environmentally-friendly project or activity and of the less environmentally-friendly counterfactual scenario. Where the more environmentally friendly project or activity may result in potential cost savings or additional revenues, these must be taken into account when determining the proportionality of aid.”
“(227) Sweden has confirmed that the aid, framed as a general tax reduction, is open to any undertaking which fulfils the eligibility criteria (see recital (40)).”
“(228) The Commission notes that the schemes do not cover reductions of taxes reflecting essential costs of providing energy or related services, but of taxes that come on top of the costs of producing or purchasing biogas/bio-propane.”
“(229) Sweden explained the tax exemptions are granted to compensate for the difference between the higher costs of sustainable non-food-based biogas and bio-propane and the costs of natural gas and LPG respectively (see recital (42)). The scheme is subject to regular monitoring by the Swedish authorities. Sweden has committed to submit to the Commission annual monitoring reports and to adapt the aid levels, if necessary, to avoid any overcompensation in the future (see recital (43)). The monitoring reports are based on detailed information collected by the SEA from the taxpayers, both in respect of domestically produced and of imported biogas (see recital (44)).”
“(230) As shown in recitals (47) and (54), the Swedish authorities explained that the tax reductions do not exceed the difference between the cost of sustainable biogas and biopropane and the cost of natural gas.”
“(231) The Commission notes that all main costs are taken into account in the calculation. Moreover, revenues from the sales of by-products are included in the calculation. Sweden has however indicated that there is no system of guarantees of origin in place in Sweden for biogas (see Tables 1, 2 and 3).”
“(232) Finally, point 111 CEEAG states that, when designing aid schemes, Member States must take into account the information on support already received from the mass balance system documentation under Article 30 of RED II.”
“(233) Sweden has confirmed that it complies with the requirements of Article 30 RED II and that it is currently working on the introduction in Sweden of the Union Database referred to in RED II and further developed in RED III (see recital (67)). The Commission notes that this system was neither available when Sweden designed and notified the schemes, nor when the Commission has undertaken the present assessment, and therefore it was not possible to take into account information from the mass balance system documentation. Nevertheless, Sweden has explained that when the Union Database is fully operational and the information therein comprehensive, this will not require any changes to the design of the schemes, as support granted to producers of biogas and bio-propane abroad is already considered in the monitoring through import prices, and thereby taken into account for the assessment of overcompensation. Therefore, the Commission takes the view that the requirements of point 111 CEEAG are without impact on its assessment of the schemes.”
“(234) Therefore, the Commission concludes that the requirements of section 4.1.3.5 CEEAG are complied with.”
Cumulation
This was the most important part of the new Commission decision, given that it was the main subject of the judgment of the General Court that annulled the previous decision.
The Commission, first, recalled that “(235) according to point 56 CEEAG, aid may be awarded concurrently under several aid schemes or cumulated with ad hoc or de minimis aid in relation to the same eligible costs, provided that the total amount of aid for a project or an activity does not lead to overcompensation or exceed the maximum aid amount allowed under these guidelines. If the Member State allows aid under one measure to be cumulated with aid under other measures, then it must specify, for each measure, the method used for ensuring compliance with the conditions set out in this point.”
At this point of the decision, the Commission referred to its assessment of cumulation under the EEAG and concluded also that “(237) the schemes comply with Section 3.2.1.3.1 of the CEEAG.” Its assessment of cumulation under the EEAG is explained below.
“(153) The Commission notes that [State aid] is granted at different stages of the supply chain and has different direct beneficiaries. Production aid intervenes at the first stage (production) and the Swedish tax exemptions schemes intervene at the last stage (consumption). The aim of production support is to encourage investment in biogas production by providing producers higher or more stable revenues than the market would normally provide. The aim of a consumption scheme is to reduce the price of biogas for end consumers so that they choose to buy biogas over natural gas.”
“(154) As considered by the General Court, the tax exemptions in Sweden have no impact on production cost. They could result in an increase in demand which could in turn result in increased revenues for the producer. At the same time, as also considered by the General Court, biogas that received a production subsidy would enable the producer to sell biogas at a price that can compete with natural gas.”
Then the Commission divided its analysis into two sections: Cumulation with production aid at national level and cumulation with production aid in other Member States.
Cumulation of national aid
With respect to the national level, “(155) the Swedish authorities explained that cumulation between the tax exemptions and measures granting investment or operating aid to biogas/biopropane producers is possible. They also explained that aid amounts that may have been granted to producers of biogas/bio-propane in Sweden will be included in the costs reported and thereby taken into account for the compensation monitoring by the SEA.” [SEA is the Swedish Energy Agency]
“(156) As regards the comments from Landwärme on the cumulation with Swedish production aid schemes (see recital (93)) and in view of the replies provided by Sweden (see recital (107)), the Commission does not identify any relevant issue related to the cumulation of the tax schemes and other Swedish production aid schemes. The Commission notes that on the one hand the potential production aid is considered in the overcompensation test carried out in the context of the tax schemes (see recitals (65) and (66)), and that on the other hand, Sweden ensures that the cumulation requirements of the GBER are complied with when granting production aid under the GBER (see recital (107)). (157) On this basis, the Commission concludes that the schemes are in line with Section 3.2.5.2. of the EEAG, in the case of cumulation with that production aid at national level.”
Cumulation with aid from other Member States
With respect to aid granted by other Member States, the Commission, first, explained that it “(158) had received information from Landwärme showing that the amount of biogas from Denmark had continuously increased in Sweden between 2015 and 2019.”
“(160) Landwärme provided additional data on this fact (see recital (79)). Landwärme put forward that biomethane producers that cumulated two subsidies were overcompensated and used this overcompensation to force Swedish biomethane producers and producers from other Member States out of the Swedish market (see recital (80)).”
“(162) On this basis, the Commission considers that it cannot be excluded that the aid granted in Denmark may have had an impact on the increase of biogas imports from Denmark in Sweden. However, the Commission also considers that the evidence provided does not allow to infer from this development that there is a causal link to overcompensation. This development may have simply been the effect of more biogas production facilities in Denmark, which is the aim of the production aid in Denmark, and hence increased supply.”
“(163) The Commission further understands that Landwärme’s reasoning is based on GOs [guarantees of origin] (allowing to trace back the origin). Cross-border trade of biomethane is as a general rule based on certificates. Once biogas is injected into the gas grid, it is indistinguishable from natural gas. GOs issued for the purposes of RED II have the sole function of showing to a final customer that a given share or quantity of energy was produced from renewable sources. GOs are tradable. GOs have a market value that should be taken into consideration for the relevant support schemes.”
“(164) Therefore, the relevant question is not whether the GOs are traded but whether they (as well as other sources of revenue) are included in the overcompensation test(s).”
“(165) The Commission notes that both Sweden and Denmark carry out overcompensation tests. The Commission will begin its assessment with the Danish overcompensation test.”
“(166) As confirmed by the Danish authorities (see recital (82)), for the aid scheme SA.35485, Denmark carries out an annual overcompensation assessment. The calculation is based on the annual financial statements of the beneficiaries and takes into account all costs and revenues, including among other things income related to the sales of gas and GOs, as well as the Danish aid. Denmark performs the assessment on a rolling three-year period. If the previous three-year period shows that the beneficiaries of the Danish support scheme for biomethane have been overcompensated, the aid level is reviewed and adapted by the national authorities. This is what happened following the 2023 assessment as explained by Denmark. The Danish authorities added that this method considers the effects of the Swedish schemes, as an increased demand for biogas will be reflected in an increased income reported in the annual financial statements.”
“(167) The Commission considers that the test carried out by Denmark is well designed to ensure the absence of overcompensation in the Danish scheme (and to take appropriate corrective measures in case of overcompensation). In 2020-2022, the Commission carried out itself a monitoring exercise on the aid scheme SA.35485 and took a close look at the overcompensation test carried out by Denmark. Therefore, the Commission can confirm the Danish arguments.”
“(168) The Commission notes that the Danish overcompensation test takes into account all revenues, including the potential revenues from the sale of GOs as well as any possible impact of aid granted in other Member States on the Danish producers’ revenues. The Commission had already pointed out in the Opening Decision that the Danish calculation takes into account all revenues, notably income related to sales of gas and GOs (see recital (95) of the Opening Decision), contrary to Landwärme’s statement. In response to the Opening Decision, neither Landwärme nor any other interested party provided evidence that this would be factually wrong.”
“(169) As regards the Swedish tax schemes at stake, the Swedish Gas Association and Sweden explained that the monitoring reports reflect the costs for producing biogas in Sweden, including any aid granted to producers. As for imported biogas, calculations are based on the import prices, which reflect aid amounts granted to a producer in another Member State as well as the price of GOs. Sweden explained that it cannot consider production costs for imported biogas: neither Sweden nor importers could have any knowledge of production costs or aid granted to producers in other countries (see recitals (83) and (98)).”
“(170) The Commission notes that the Swedish test is based on the price that the fuel supplier faces, because this is where the tax is levied. The Swedish test is designed such that the average price of biogas remains still higher than the average price of natural gas on the Swedish market, even with the tax exemption. When the biogas is imported, its price on the Swedish market corresponds to the import price (e.g. the price paid to the Danish producer (and included in the Danish test) and costs incurred by the importer (e.g. transport costs)).”
“(171) Landwärme considers that the calculation method used by the Commission in its compatibility assessment for biomethane aid schemes, including the Swedish schemes, allows for overcompensation by not considering revenues generated through the sale of GOs and aid granted in other Member States (see recital (85)).”
“(172) EREF, Eurogas and GreenGasAdvisors also raised general concerns regarding the risk of overcompensation due to the potential cumulation of multiple schemes’ aids in case of cross-border trade (see recitals (88) and (89)).”
“(173) The Commission considers that in the present case the risk of overcompensation is appropriately addressed through the combination of the Swedish and the Danish overcompensation tests. The Danish and Swedish mechanisms complement each other and allow to ensure that there is no overcompensation taken together when assessing the compatibility of the Swedish measure.”
“(174) In particular, the Danish test already addresses overcompensation of Danish biomethane producers appropriately, by including GO revenues and any revenues resulting from cross-border trade. On the Swedish side, the test satisfactorily takes into account cross-border trade and potential production aid received in other Member States as the test is not based solely on domestic production but also includes imported biogas. Moreover, the aid granted in other countries is considered, since it will affect the price of biogas imported to Sweden (which is taken into account in the Swedish test).”
“(175) As regards the calculation provided by Landwärme with the aim to show the overcompensation of Danish producers (see recital (86)), the Commission notes that the calculation is driven by assumptions and is based on a misunderstanding of the overcompensation test that Denmark performs. Landwärme assumed that the Danish production aid is the difference between the biogas production cost and the price for natural gas and then added the Swedish tax rebate (assuming the entire rebate was passed on to Danish producers) as well as the GO price. On the contrary, the test performed by Denmark is based on actual financial data from Danish producers with all revenues and costs, as already described in recital (95) of the Opening Decision. This implies that potential extra revenues to Danish producers due to the Swedish tax break as well as from selling GOs are included in the overcompensation test and are therefore deducted from the Danish production aid. The Commission therefore cannot conclude that it has received evidence of overcompensation arising from the Swedish schemes to producers in cases where production aid is granted by another Member State (see recital (231) of the Opening Decision). Specifically, the calculation presented by Landwärme does not invalidate the above findings that overcompensation in Denmark is adequately addressed.”
(176) In their comments, some third parties, including Landwärme, proposed that Sweden excludes imported biomethane which has been subsidised in its country of origin from the schemes (see recital (87)). As a reply to this suggestion, Sweden stated that State aid rules do not forbid cumulation of aid and that this suggestion does not consider whether the cumulation of aid actually leads to overcompensation (see recital (101)). Moreover, Sweden noted that there is not an EU harmonised preference on how to support biogas: by finding that production aid in one Member States makes a tax exemption in another impossible, the Commission would be choosing a preferred means of support for all Member States, i.e., production aid (see recital (105)). In line with point 56 CEEAG, the Commission notes that cumulation of aid in relation to the same eligible costs is possible provided that the total amount of aid for a project or activity does not lead to overcompensation. The Commission also refers to point 93 CEEAG which states that given the scale and urgency of the decarbonisation challenge, a variety of instruments, including direct grants, may be used. In the current case, the Commission understands that this suggestion from Landwärme is proposed as a way to address overcompensation. The Commission would therefore only have to assess this as a relevant point in case it had found evidence of overcompensation. The same applies to whether different levels of taxation might be applied or not (see recitals (91) and (92) and (103) to (106)).”
“(177) Based on the above, the Commission concludes that the schemes comply with Section 3.2.5.2. of the EEAG.”
Conclusions
The Commission’s long and laboured explanation on cumulation in fact shows how difficult it is for Member States to take into account and calculate correctly the effect of all aid granted by themselves and other Member States. For Member States granting consumption subsidies this is not a major problem because the benefit to consumers is the price difference between biogas and natural gas. But it is a problem for Member States granting production subsidies. They also have to monitor the revenue from exports, which may vary from producer to producer and from one destination and another.
[1] The full text of the Commission decision can be accessed at:
https://ec.europa.eu/competition/state_aid/cases1/202448/SA_56125_298.pdf
