Amendment to the state aid temporary framework for companies affected by the conflict in Ukrain

As we explained in a previous post, on March 23, 2022, the European Commission adopted a Temporary Framework to allow Member States to remedy the liquidity shortage faced by certain companies due to Russia’s invasion of Ukraine, the restrictive measures (sanctions) imposed by the European Union or its international partners, and the economic countermeasures taken (“Temporary Framework”).

The Framework will remain in force until December 31, 2022, although there may be further extensions depending on the political and economic circumstances as well as the needs of the internal market.

This new amendment responds to the prolonged military aggression against Ukraine, which has forced the European Commission to adapt the original Temporary Framework measures to the present situation

For this purpose, in addition to the priorities identified by the Commission, the Member States have been consulted on their specific needs and the best way to reduce dependence on Russian oil.

The following is a summary of the main new developments, aimed at accelerating the rollout of renewable energy and decarbonization of industrial processes.

First, the Commission modifies section 2.1 by increasing the maximum aid amounts under the Temporary Framework. The Commission considers such increase necessary to tackle the continued economic disturbance and, in particular, the sustained increases in energy costs, together with gas supply shortages and uncertainty as to future availability.

Second, the Commission has adjusted section 2.4, concerning aid to cover additional costs due to exceptional increases in natural gas and electricity prices. This should limit incentives to increase energy and gas usage, which would aggravate the current shortage.

Third, this amendment opens the door for Member States to adopt additional measures under REPowerEU to accelerate or facilitate investment in renewable energy or biogas, among others. The REPowerEU plan is a set of measures aimed at ending the EU’s dependence on Russian fossil fuels while enhancing progress towards green transition.

In line with the above, two newly inserted sections regulate aid both for accelerating the deployment of renewable energy, storage and renewable heat relevant for REPowerEU, and for decarbonizing industrial production processes through electrification or renewable hydrogen.

Finally, this amendment complements the Winter Preparedness Package, a new legislative tool to reduce gas use in Europe by 15% until next spring.

The Commission lists the following types of aid, which will require a case-by-case assessment subject to conditions: (i) support for companies affected by mandatory or voluntary gas curtailment; (ii) support for gas storage; (iii) transitory and time-limited support for fuel switching to more polluting fossil fuels subject to energy efficiency efforts and to avoid lock-in effects; and (iv) support for the provision of insurance or reinsurance to companies transporting goods to and from Ukraine.

In addition to other measures, the amendment to the Temporary Framework aims to minimize the negative impact of the sanctions imposed in the context of the Ukrainian conflict and to mitigate the consequences for the various economic sectors affected.