The European Commission has approved the Italian scheme to support investments for the use of hydrogen in industrial processes. This approval is encompassed into the public policy aiming to foster the green transition towards a net-zero economy, in compliance with the Green Deal Industrial Plan. It is declared in the press release published on 30 January 2024 “…Approved €550 million Italian State aid scheme to support investments for the use of hydrogen in industrial processes to foster the transition to a net-zero economy…”.
The EU Commission, indeed, considered the Italian scheme is necessary, appropriate and proportionate to accelerate the green transition and facilitate the development of certain economic activitiesrequired for the implementation of the REPower EU Plan and the Green Deal Industrial Plan. Moreoever, the mentioned decisioni s in line with Article 107(3)(c) TFEU (Treaty on the functioning of the European union) and the conditions set out in the Temporary Crisis and Transition Framework.
It is interesting to quote the Margrethe Vestager, (Executive Vice-President in charge of competition policy) statement for which: “…this €550 million Italian scheme will help industries to significantly decarbonise industrial processes that depend on a switch to hydrogen for their green transition. The measure will also help Italy to reduce its dependence on imported fossil fuels, in line with the REPowerEU Plan, and ensure a full switch to hydrogen by 2036 in all supported investments…”
In a nutshell, under this measure, which is part of the Italian National Recovery and Resilience Plan (PNRR), the aid will take the form of direct grants.
The beneficiaries of thes measure are the companies relying on the use of fossil fuels as energy source or feedstock for their production processes in industrial sectors in Italy.
The Treaty on the functioning of the European Union generally prohibits State aid unless it is justified by reasons of general economic development. To ensure that this prohibition is respected and exemptions are applied equally across the European Union, the European Commission is in charge of ensuring that State aid complies with EU rules.
For general information, the article 107 of the mentioned treaty states that: “…. Save as otherwise provided in the Treaties, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.
- 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…”.
It is very interesting the third paragraph of the mentioned article for which: “… 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…”.
It is interesting to recall and outline the peculiarities of the relatioship between aid of state measures and overcompensation of costs.
As above explained, the aid of State measure has to cover only the proved costs. The measure:
- should establish in advance in an objective and trasparent way the parameters;
- has to require a proper account separation for the costs;
- should consider the difficulty in making the correct calculation lies not only in identifying true costs but also in taking into account the reaction of beneficiaries.
The aid of State should be released for the services and business which are not provided or satisfactorily provided by the market.
Therefore, it is necessary to carry out a market survey or analysis to establish what the market fails to supply or offer at the required level of quality and affordable price; for example: hydrogen, biofuels, renewable energies and synthetic fuels need to be supported-at least- in the phase of start-up.
Then, it is important that:
- the measure is focused on well-defined service/good whose costs cannot be avoided and therefore they can be quantified later on for the purpose of calculating the amount of required compensation;
- the parameters of compensation must be determined in advance;
- the Member state has to ensure that the producers/providers will not overcompensate.
These criteria are aligned with the Altmark case which indicated the criteria to be met by the aid of State.
Finally, we recall Phedon Nicolaides “Compensation for the Net Extra Costs of Public Service Obligations: Complexity and Pitfalls” and Alessio Elia “ La sovracompensazione dei costi e il legitimo affidamento nella applicazione della Direttiva n. 2003/03/CE”.
Finally, this article ends with the following points:
- the press released of the EU Commission is very interesting and useful for the Italian hydrogen economy;
- it could be very interesting to develop a system of excises reduction for the hydrogen employed and sold as fuel. Indeed, in Italy (according to the Italian excises law- decree 504 issued on 29 October 1995) the green hydrogen is exempted for the excises payment only if it is not used directly as fuel.