Abstract
In this article, I suggest a reconceptualization of state aid to include non-action by a government in a situation in which a clear negative externality exists. Indeed, the current state of state aid regulation, which only focuses on positive action, appears inefficient to incentivize the promotion of sustainable ways to produce energy. This reconceptualization would not require a radical change in positive law, merely a reinterpretation in line with the economic orthodoxy.
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Notes
- 1.
OECD (2015), p. 11.
- 2.
- 3.
Stigler (1971), p. 3.
- 4.
In the language of the European Court of Justice, the aid should create (1) a selective (2) advantage (3) affecting competition between Member States (4) using states resources and be attributable to the State. These criteria are slightly different from the wording of Article 107 TFEU.
- 5.
- 6.
European Commission (2005).
- 7.
This logic is recognized by the European Commission: “State aid measures can sometimes be effective tools for achieving objectives of common interest. They can correct market failures, thereby improving the functioning of markets and enhancing European competitiveness” (European Commission 2005, pt. 10). The Lispsey-Lancaster theorem is clearly not considered by such a statement. It also added, more mysteriously from an economic point of view: “They can also help promote e.g. social and regional cohesion, sustainable development and cultural diversity, irrespective of the correction of market failures”.
- 8.
“2. The following shall be compatible with the internal market:
-
(a)
aid having a social character, granted to individual consumers, provided that such aid is granted without discrimination related to the origin of the products concerned;
-
(b)
aid to make good the damage caused by natural disasters or exceptional occurrences;
-
(c)
aid granted to the economy of certain areas of the Federal Republic of Germany affected by the division of Germany, in so far as such aid is required in order to compensate for the economic disadvantages caused by that division. Five years after the entry into force of the Treaty of Lisbon, the Council, acting on a proposal from the Commission, may adopt a decision repealing this point”.
-
(a)
- 9.
“3. The following may be considered to be compatible with the internal market:
-
(a)
aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment, and of the regions referred to in Article 349, in view of their structural, economic and social situation;
-
(b)
aid to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State;
-
(c)
aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest;
-
(d)
aid to promote culture and heritage conservation where such aid does not affect trading conditions and competition in the Union to an extent that is contrary to the common interest;
-
(e)
such other categories of aid as may be specified by decision of the Council on a proposal from the Commission”.
-
(a)
- 10.
Some specific regulations for coal exist.
- 11.
OECD (2013), p. 3.
- 12.
European Commission (2008a), pp. 2–4.
- 13.
It is interesting to note that this article does not explicitly mention negative externalities and does not adopt an economic conceptualization.
- 14.
European Commission (1994), Community guidelines on State aid for environmental protection, 10 March 1994, 94/C 72/03.
- 15.
European Commission (2001), Community guidelines on State aid for environmental protection, 3 February 2001, 2001/C 37/03.
- 16.
European Commission (2008b), Community guidelines on State aid for environmental protection, 1 April 2008, 2008/C 82/01. Hereafter EG 2008.
- 17.
European Commission (2014a). Guidelines on State aid for environmental protection and energy 2014–2020, 28 June 2014, 2014/C 200/01. Hereafter EG 2014.
- 18.
For the last version of the GBER, see Commission Regulation n° 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty.
- 19.
It is indeed doubtful that a support is required to lower transaction costs (to facilitate coordination or reduce information asymmetries) or in the case of a negative externality. Regulation is probably a more efficient tool to increase welfare.
- 20.
European Commission, Less and better targeted state aid: a roadmap for state aid reform 2005–2009, 7 June 2005, COM(2005) 107 final, pt. 10.
- 21.
How then could it be considered as efficient?
- 22.
The concept of sustainable development is indeed debated in economics. Analyses are distinguishing between strong and weak sustainability. If the concept were univocal, such statement could make sense since it is not possible to produce “too much” but the diversity of its interpretation creates shadows.
- 23.
Dalhman (1979), p. 60.
- 24.
But the benchmark to appreciate when a positive externality occurs should be specified.
- 25.
Confusion to the extent that going beyond of what is required is not technically a positive externality.
- 26.
EG 2008, pt. 6.
- 27.
European Commission (2010), § 8.
- 28.
EG 2014, pt. 12.
- 29.
The guidelines are identifying more environmental and energy measures than just the promotion of renewable energies. For example, it mentioned among a number of other measures, (1) aid for energy from renewable sources, (2) energy efficiency measures, including cogeneration and district heating and district cooling, or (3) aid for resource efficiency and in particular aid to waste management Of course, these measures can be compatible if and only if they also satisfy the compatibility provisions.
- 30.
European Commission (2005), pts. 10 and 11.
- 31.
EG 2014, pt. 88.
- 32.
Deighton-Smith et al. (2016), p. 9.
- 33.
See for example the webpage dedicated to RIA, http://www.oecd.org/gov/regulatory-policy/ria.htm [accessed 27 August 2017].
- 34.
It would be the exactly the opposite, infra.
- 35.
The Commission is considering that this situation would happen to “to counterbalance the effects of negative externalities, where it is not possible to identify the polluter and make it pay for repairing the environmental damage it has caused” (EG 2008, pt. 53). It remains difficult to identify an occurrence of this type of situation, infra. See also Article 191 (2) TFEU: “Union policy on the environment shall aim at a high level of protection taking into account the diversity of situations in the various regions of the Union. It shall be based on the precautionary principle and on the principles that preventive action should be taken, that environmental damage should as a priority be rectified at source and that the polluter should pay.
In this context, harmonisation measures answering environmental protection requirements shall include, where appropriate, a safeguard clause allowing Member States to take provisional measures, for non-economic environmental reasons, subject to a procedure of inspection by the Union”.
- 36.
European Commission (2005), pt. 30.
- 37.
The problem of definition of what is a positive externality will be developed further in the third section of this paper.
- 38.
At pt. 98, the Commission is writing: “If the aid is proportionate and limited to the extra investment costs, the negative impact of the aid is in principle softened. However, even where aid is necessary and proportionate, aid may result in a change in behaviour of the beneficiaries which distorts competition. A profit seeking undertaking will normally only increase the level of environmental protection beyond mandatory requirements if it considers that this will result, at least marginally in some sort of advantage for the undertaking”. It is difficult to understand exactly why in such a situation it would hamper competition. From an economic point of view, internalizing an externality will increase competition, not stifled it. The Commission then took the example of decontaminating a site when the “author” of the pollution cannot be identified.
- 39.
This difference is made especially by Aristotle, who distinguished between two (among three) types or reason: praxis and episteme.
- 40.
EG 2014, pt. 107.
- 41.
See for example https://www.pv-magazine.com/features/solar-incentives-and-fits/feed-in-tariffs-in-europe/ [accessed 20 March 2017]. After it the situation in France in 2014 was in regard to size and incentive and for a term of 20 years as follow: Rooftop: <36 kW = €0.1440/kWh, 36–100 kW = €0.1368/kWh, 100 kW–12 MW = €0.0612/kWh; Building Integrated Photovoltaic: <9 kW = €0.2539/kWh, 9 kW–12 MW = €0.0612/kWh; Ground-mounted: 0–12 MW = €0.0612/kWh.
- 42.
See for example, on the logic of the protection of infant industry, Melitz (2005).
- 43.
The maturity logic is used in European Commission 2014, for example §110.
- 44.
For some details, see Decker (2014), pp. 223–235.
- 45.
It takes time and it is costly to increase the capacity of production, which will depend on the energies which are captured. For example, without sun or wind, sun power or wind power is simply not possible to create. These technologies are not yet sufficient to ensure the stability of the grid.
- 46.
To ensure the stability of the electric grid, it should be possible to increase the amount of electricity generated on a regular basis. Most of the time, gas plants are used for that. See also Decker (2014).
- 47.
- 48.
European Commission (2016a), pp. 2–5 for example.
- 49.
EG 2014, pt. 124.
- 50.
§ 247 EG 2014: “The Commission will apply these Guidelines to all notified aid measures in respect of which it is called upon to take a decision after their applicability, even where the projects were notified prior to that date. However, individual aid granted under approved aid schemes and notified to the Commission pursuant to an obligation to notify such aid individually will be assessed under the Guidelines that apply to the approved aid scheme on which the individual aid is based.”
- 51.
For example, Easterly (2001).
- 52.
EG 2014, pt. 125.
- 53.
EG 2014, pt. 126.
- 54.
EG 2014, pt. 126.
- 55.
The Commission will especially pay attention to the fact that “(1) is essential to ensure the viability of the renewable energy sources concerned; (2) does not, for the scheme in the aggregate, result in overcompensation over time and across technologies, or in overcompensation for individual less deployed technologies in so far as differentiated levels of certificates per unit of output are introduced; and (3) does not dissuade renew able energy producers from becoming more competitive”. Of course, these criteria are still abstract but the Commission is not ready to renounce its control power.
- 56.
Two months in general to take a decision or launch an “in depth investigation” (Council Regulation 659/1999, laying down detailed rules for the application of Article 93 of the EC Treaty, 22 March 1999, modified by Council Regulation 734/2013, amending Regulation (EC) No 659/1999 laying down detailed rules for the application of Article 93 of the EC Treaty, 31 July 2013).
- 57.
Council Regulation 659/1999, laying down detailed rules for the application of Article 93 of the EC Treaty, 22 March 1999, modified by Council Regulation 734/2013, amending Regulation (EC) No 659/1999 laying down detailed rules for the application of Article 93 of the EC Treaty, 31 July 2013.
- 58.
Spector (2009), p. 178.
- 59.
Kaplow (1992).
- 60.
Article 6 GBER.
- 61.
Spector (2009), pp. 178 and 181.
- 62.
Article 4(s) GBER.
- 63.
Article 4(v) GBER.
- 64.
Article 41(6) GBER.
- 65.
Article 41 GBER: “The eligible costs shall be the extra investment costs necessary to promote the production of energy from renewable sources. They shall be determined as follows:
-
(a)
where the costs of investing in the production of energy from renewable sources can be identified in the total investment cost as a separate investment, for instance as a readily identifiable add-on component to a pre-existing facility, this renewable energy-related cost shall constitute the eligible costs;
-
(b)
where the costs of investing in the production of energy from renewable sources can be identified by reference to a similar, less environmentally friendly investment that would have been credibly carried out without the aid, this difference between the costs of both investments identifies the renewable energy-related cost and constitutes the eligible costs;
-
(c)
for certain small installations where a less environmentally friendly investment cannot be established as plants of a limited size do not exist, the total investment costs to achieve a higher level of environmental protection shall constitute the eligible costs”.
-
(a)
- 66.
Article 42 GBER.
- 67.
Article 42 GBER.
- 68.
From an economic point of view, the PPP (polluter pays principle) is creating a property right to be “free” from pollution; while doing so, Coasian bargaining could theoretically be possible.
- 69.
EG 2008, pt. 8. Moreover, as the first quotation of this paper stressed, it seems that the benchmark to evaluate if there are externalities lies in the standards set by the European Commission which is a very peculiar way to address externality questions.
- 70.
EG 2008, pt. 47; EG 2014, pt. 142.
- 71.
EG 2008, pt. 47.
- 72.
EG 2008, pt. 45.
- 73.
EG 2008, pt. 53.
- 74.
EG 2008, pt. 54; EG 2014, pt. 237.
- 75.
EG 2008, pt. 51.
- 76.
EG 2014, pt. 162.
- 77.
EG 2008, pt. 55.
- 78.
EG 2008, pt. 20; see also EG 2014.
- 79.
The cost of intervention is not explicitly considered by the Commission when addressing the question of the compatibility of a state aid with the internal market.
- 80.
EG 2008, pt. 24.
- 81.
This logic could also apply to the concept of subsidies under WTO; see for example Esty (1994), for example, pp. 66–67.
- 82.
Which is also a mechanism to help old and often dirtier plans to the detriment of new comers.
- 83.
This is the so called “double benefit” of a tax: it is incentivizing to internalize externality and it is creating a surplus that it is possible to use to create even more welfare.
- 84.
The problem will then be to determine this level. Should we consider national or international costs?
- 85.
See for example, European Commission (2016b).
- 86.
Judgment of the Court of Justice of 29 June 1999, DMTransport, C-256/97, para. 27; Judgment of the General Court of 6 March 2002, Territorio Histórico de Álava—Diputación Foral de Álava et aL. v Commission, Joined Cases T-127/99, T-129/99 and T-148/99, para. 149.
- 87.
ECJ, Commission vs Kingdom of the Netherlands, C-279/08P: “With regard to the first branch of the first plea, alleging the lack of an advantage financed through State resources, the General Court holds that the measure in question is not based on emission allowances allocated directly by the State. However, the possibility of trading those allowances confers on them a value on the market, which can be sold by the undertakings at any time. In addition, by purchasing emission allowances, the undertakings avoid a fine. The emission allowances, which are assimilated to intangible assets, were put at the disposal of the undertakings concerned free of charge, whereas they could have been sold or put up for auction. The Kingdom of the Netherlands has thus foregone the collection of State resources. Consequently, the measure in question constituted an advantage granted to the undertakings concerned through State resources”.
- 88.
The amount of “support” offered by the state remains largely unknown; but it represents at least 50 billion in OECD countries just for fossil fuels industries.
- 89.
Rent seeking should be higher for taxes than for pollution permits.
- 90.
EG 2014, pt. 174.
- 91.
EG 2014, pt. 170.
- 92.
EG 2014, pt. 177.
- 93.
EG 2014, pt. 178.
- 94.
A subsidy shall be deemed to exist if: “government revenue that is otherwise due is foregone or not collected”.
- 95.
A subsidy shall be deemed to exist if: “a government provides goods or services other than general infrastructure, or purchases goods”.
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Lanneau, R. (2018). Promoting Renewable Energies Through State Aid, a Reform is Required. In: Mathis, K., Huber, B. (eds) Energy Law and Economics. Economic Analysis of Law in European Legal Scholarship, vol 5. Springer, Cham. https://doi.org/10.1007/978-3-319-74636-4_15
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