Bulgaria to aid companies for carbon leakage due to indirect emission costs

Bulgaria

Bulgaria has published a bill on supplementing the Climate Change Mitigation Act, which is in line with European Union legislation related to the functioning of the EU emission trading system (EU ETS) and implements Directive (EU) 2018/410 (14 March 2018).

Published for public consultations that began on 12 June 2019 and will accept comments until June 26, the draft Act aims to create a harmonised legal framework for introducing a mechanism to support companies from the industrial sector facing significant risk of carbon leakage due to the indirect costs related to greenhouse gas emission quotas in electricity pricing.

The indirect cost for carbon-emission quotas comes largely from the expenses of energy producers (mainly thermal power plants) in purchasing the needed quotas in order to function effectively. These costs are included in the price of electricity purchased by end consumers.

As a result, Bulgaria's energy-intensive industrial sector, the main electricity consumer in the country, faces the greatest risk of carbon leakage since it cannot afford to transfer the indirect costs of production to customers since they may loose market share. To combat this, industry under the draft Act is eligible for state aid. 

The proposed changes to the Climate Change Mitigation Act include the following:

  • the issuance of new secondary legislation by the Ministry of Economy, the competent body and the administrator of state aid, which will regulate the criteria, terms and conditions for granting financial aid and will make reports to the European Commission;
  • a new financing scheme, which generates income from the sale of quotas in the EU ETS;
  • new eligibility requirements whereby companies able to apply for aid will be from sectors listed in Annex II (sectors and subsectors forecast to be exposed to a significant risk of carbon leakage due to indirect emission costs) of the Guidelines of the European Commission on state aid measures for the greenhouse gas emission allowance trading scheme post-2012; and
  • the deadline of 31 December 2020 for application for the mechanism.

Additionally, the draft Act also includes the following amendments to the Energy Act:

  • giving new authority to the Energy And Water Regulatory Commission to provide information upon request related to the granting of state aid;
  • the Fund for Security of the Electric Power Grid will manage the financial resources for covering the expenses of providing aid to companies;
  • the provided financial aid will be reported annually to the Minister of Economy.

A preliminary analysis reveals that approximately 190 Bulgarian companies will have the right to apply for this aid until the end of 2020, if they meet the criteria of the new ordinance. Fore more information on this eAlert, feel free to contact one of the our local CMS experts.