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EFTA Updates State Aid Rules On Emissions Trading

by Ulrika Lomas,, Brussels

28 December 2012

The European Free Trade Association (EFTA) Surveillance Authority has announced the adoption of new guidelines for the assessment of state aid in the context of the greenhouse gas emission allowance trading scheme, the European Union's (EU) system to facilitate the taxation of carbon emissions.

According to the guidelines, European Economic Area (EEA) EFTA states (Iceland, Liechtenstein and Norway) may compensate certain electricity-intensive users for part of the higher electricity costs expected to result from changes to the EU Emissions Trading Scheme (ETS) from 2013. The sectors that have been deemed eligible to receive compensation in the form of state aid include producers of aluminum, copper, fertilizers, steel, paper, cotton, chemicals and some plastics.

The new rules aim to counterbalance so called "carbon leakage." Carbon leakage occurs when there is an increase in global CO2 emissions as a result of companies in the EEA shifting production outside the EEA due to the fact that they cannot pass on to their customers cost increases resulting from the ETS without a significant loss of market share to third country competitors.

According to EFTA, the new rules carefully balance aim to mitigate the impact of indirect CO2 costs for the most vulnerable industries, thereby preventing carbon leakage which would undermine the effectiveness of the ETS. At the same time, the new rules have been designed to ensure that national support measures respect the EEA objective of "decarbonizing" the European economy while maintaining a level playing field among EEA competitors.

The rules also allow support to be given to the construction of new highly efficient power plants which implement environmentally safe capture and geological storage of CO2 by 2020.

TAGS: environment | tax | Iceland | law | Liechtenstein | Norway | environmental tax | carbon tax | tax breaks | regulation

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