Energy and Environment Principles

The Energy and Environment Principles

Where a subsidy or subsidy scheme relates to the energy or environment, in that the public authority’s specific policy objective relates to energy or the environment, there are additional principles that need to be considered and applied (the “E&E Principles”). These are set out in Schedule 2 of the Subsidy Control Act 2022 (the “SCA”). The E&E Principles need to be applied to in addition to the general subsidy control principles set out in Schedule 1 of the SCA (please refer to our article on the Subsidy Control Principles).

Examples of subsidies to which the E&E Principles need to be applied (as taken from the Government guidance) include subsidies to:

encourage innovation in renewable energy production;

improve energy efficiency of an energy-intensive industry;

increase plant diversity on agricultural land; and

improve recycling among small businesses.

The E&E Principles do not apply to nuclear energy subsidies.

Not all the E&E Principles apply to all energy and environment related subsidies. A summary of the E&E Principles and their scope is set out below:

Principle

Detail

Score/application

All subsidies in relation to energy and environment shall be aimed at and incentivise the beneficiary in:

delivering a secure, affordable and sustainable energy system and a well-functioning and competitive energy market; or
increasing the level of environmental protection compared to the level that would be achieved in the absence of the subsidy.

All subsidies in relation to energy and environment

Subsidies in relation to energy and environment shall not relieve the beneficiary from liabilities arising from its responsibilities as a polluter under the law of England and Wales, Scotland, or Northern Ireland.

All subsidies in relation to energy and environment

Subsidies must:

not undermine the government’s ability to meet its obligations under Article 304 of the TCA;
not unnecessarily affect the efficient use of electricity interconnectors provided for under Article 311 of the TCA;
be determined by means of a transparent, non-discriminatory and effective competitive process.

But a non-competitive process may be used where appropriate measures are put in place to prevent overcompensation and:
the potential market supply is insufficient to ensure a competitive process;
the eligible capacity is unlikely to have a material effect on competition and investment within the UK and international trade and investment; or
the subsidy is given for a demonstration project.

Subsidies for electricity generation adequacy, renewable energy or cogeneration

Subsidies for electricity generation adequacy may be limited to installations exceeding CO2 emissions limits.

Subsidies for electricity generation adequacy

Subsidies for renewable energy or cogeneration shall not affect beneficiaries’ obligations or opportunities to participate in electricity markets.

Subsidies for renewable energy or cogeneration

Subsidies in the form of partial exemptions from energy-related taxes and levies in favour of energy-intensive users shall not exceed the total amount of the tax or levy concerned.

Subsidies in the form of partial exemptions from energy-related taxes and levies

Subsidies in the form of compensation for electricity-intensive users given in the event of an increase in electricity costs resulting from climate policy instruments shall be restricted to sectors at significant risk of carbon leakage due to the cost increase.

Subsidies that compensate electricity-intensive users for increases in electricity costs

Subsidies for the decarbonisation of emissions linked to industrial activities in the United Kingdom shall:

achieve an overall reduction in greenhouse gas emissions; and
reduce the emissions directly resulting from the industrial legacy activities.

Subsidies for decarbonisation of industrial emissions

Subsidies for improvements of the energy efficiency of industrial activities in the United Kingdom shall improve energy efficiency by reducing energy consumption, either directly (by reducing total energy use from one year to the next) or per unit of production.

Subsidies for improving energy efficiency of industrial activities

Commentary

The E&E Principles have been designed so as to comply with the UK’s international commitments, and also support the UK’s commitment to achieve net zero by 2050. The guidance provides some assistance to public authorities when applying the E&E Principles, however, this is quite light in places. Like with the general subsidy control principles, a public authority should keep written records of its analysis, evidence and conclusions when applying the E&E Principles, as this is likely to be an area open to challenge.

If you have any further or specific queries in relation to the Subsidy Control regime, please do get in touch with our Public Sector Team.