EU Commission to Probe German Energy Subsidy

17.12.2013 -

EU competition commissioner Joaquin Alumina is set to open proceedings against Germany on 18 December for its rebates to energy intensive companies engaged in international commerce, known by the acronym EEG. Chemical producers in particular benefit from the legislation, which exempts them from paying national surcharges on electricity bills to support renewable energy.

The European Commission sees the privilege as violating competition laws. At the same time, it has threatened to challenge Germany's aid to renewables, which Alumina sees as disadvantaging other European players

After proceedings are opened, the country would have a month's time to respond to the charges. Subsequently the EU could require Germany to rewrite the EEG legislation, and in the worst-case scenario, companies that benefited from the exemption in the past could be required to pay some of the levies. BASF has calculated that an end to the German practice could cost it as much as €300 million annually.

At present, some 1,700 firms with production facilities in Germany are exempted from supporting renewables, and in 2014 the number is foreseen to rise to 2,700. Unconfirmed reports say the federal government authorized the exemptions in December this year, rather than as usual in January, to protect 2014 budgets from being affected by any changes.

In anticipation of a potential conflict with EU authorities, the grand coalition of Christian and Social Democrats in their recently signed coalition agreement provided for a gradual reduction of aid to renewables. For 2014, subsidies valued at €24 billion already have been agreed.

Germany's chemical industry association Verband der Chemischen Industrie said it did not expect any immediate consequences for its 140 member companies currently exempt from the levies. It added that the government and energy-intensive industries will explain to the Commission that the exemptions are "necessary and appropriate." VCI said it believes that any required repayment would be limited to benefits awarded after 2012, when the German legislation was last revised.

The German chemical workers union, IG BCE, which draws its membership from the chemical and energy sectors, said it feared Brussels' plans could endanger the country's transition away from nuclear energy while also playing into the hands of "ecology hardliners." Without being specific, IG BCE chief Michael Vassiliadis said the union was "in a position to exert pressure at short notice."

The consensus among legal experts appears to be that subsidies to companies trading outside the EU would be allowed to continue.