Fossil Fuel Subsidies in the EU: EU State Aid Rules as Control and Phase Out Tools – Opportunities and Estimates

Abstract

The paper aims to identify and analyze potential legal avenues for phasing out fossil fuels in the European Union using EU State aid rules. Our analysis of the EU’s legal framework reveals that the EU State aid rules would allow the European Commission to effectively target and monitor fossil fuel subsidies. In particular, the requirements for notification, examination, transparency, reporting, and recovery of unlawfully granted aid may be highly useful tools. The legal framework also provides avenues for the EU Commission to start a ‘Fossil Fuel Inquiry’ to identify and quantify all support for fossil fuels within the EU Member States. Furthermore, the EU State aid rules can also provide civil society with the possibilities to actively lobby for State aid control and offer the court systems as an additional avenue for enforcement. Based on a legal analysis of which fossil fuel subsides are subject to the EU state aid legal framework and we make a first estimate of the value of fossil fuel subsidies subject to this regime. With due limitations our best estimate suggests that approximately 50—60% of the 112 billion Euro of subsidies in the EU per year which have been identified by the ODI/CAN report can be addressed by EU State aid rules. The analysis of the EU’s legal framework for State aid reveals that the EU State aid rules allow the European Commission to effectively target and monitor fossil fuel subsidies. We conclude that despite inherent limitations, the EU state aid toolbox offers various possibilities to the EU to actively advance its climate change policy and comply with its international commitments to reduce fossil fuel subsidies.

Main points & highlights
• Identifies potential legal avenues for phasing out fossil fuels using EU state aid rules
• Explores the different methods of defining subsidies for fossil fuels
• Contrasts these with the EU definition of State aid
• Provides an overview of and highlights the effectiveness of the EU State aid system
• Estimates that 58 to 69 billion Euros of subsidies can be addressed by the EU State aid regime
• Argues that the EU State aid regime could be effectively utilized to tackle fossil fuels subsidies in the EU

Keywords: Climate Change, European Union, EU State Aid Rules, Energy Policy, Fossil Fuel Subsidies