The European Commission has published new EU guidelines on CCfDs to help Member States design State aid schemes that accelerate industrial decarbonisation while complying with EU competition rules.
EU guidelines on CCfDs provide a common framework for carbon State aid schemes
Alongside its proposal to reform the EU Emissions Trading System (ETS) and the Electrification Action Plan, the European Commission has published the EU guidelines on CCfDs. The document is intended to help Member States design State aid schemes based on Carbon Contracts for Difference (CCfDs), facilitating their approval under the Climate, Environmental Protection and Energy Aid Guidelines (CEEAG) and enabling a faster assessment process by the Commission. The guidance does not introduce new legal obligations beyond existing EU legislation.
Member States may establish direct aid schemes to support greenhouse gas emissions reductions, with financial support linked to the actual emissions cuts achieved during a project’s operational phase. In most cases, this support will be provided through Carbon Contracts for Difference or equivalent contractual arrangements.
EU guidelines on CCfDs require proof that State aid is necessary
Under the new guidance, Member States must demonstrate that public support is essential for companies to switch to cleaner production processes. This can generally be proven by showing that representative projects would generate a negative net present value or that their levelised cost of CO₂ abatement exceeds expected future carbon prices.
Governments must also prove that projects would not be implemented without the subsidy, despite the incentives already provided by the EU ETS or other existing policies. For ETS-covered sectors, eligibility should be restricted to projects delivering greenhouse gas emissions reductions beyond the relevant free allocation benchmarks. For new installations, some schemes may require emissions at least 60% below the applicable benchmark.
State aid programmes should remain open to competing technologies and industrial sectors to minimise market distortions. Restrictions to specific technologies or sectors are only justified where objective reasons exist, such as support for innovative long-term decarbonisation solutions. Project implementation cannot begin before the application to the competitive selection process has been submitted.
Eligibility criteria and project assessment
The guidelines specify that greenhouse gas emissions must be measured at the level of ETS product benchmark sub-installations. Where an installation includes multiple benchmarks, emissions should be assessed separately for each relevant sub-installation.
Projects that do not reduce emissions below the applicable benchmarks may still comply with updated free allocation rules if the full cost of ETS allowances is deducted when calculating net abatement costs.
The Commission also recommends concentrating public support on the highest-emitting industrial facilities, where the greatest emissions reductions can be achieved. The ETS monitoring methodology should therefore be used to verify project implementation and emissions performance.
Although the eligibility scope is more limited, the Commission considers that this approach does not create undue distortions of competition. Support may also be granted where Member States identify eligible sectors or innovative technologies capable of delivering significant and cost-effective long-term environmental benefits.
Ensuring real emissions reductions
According to the EU guidelines on CCfDs, supported projects must deliver genuine net emissions reductions rather than simply shifting emissions between sectors.
Projects relying on hydrogen or biomass must comply with EU sustainability criteria and sector-specific legislation, including the requirements applicable to renewable and low-carbon hydrogen.
For electrification projects, applicants must demonstrate that indirect emissions from electricity consumption remain significantly lower than the direct emissions reductions achieved. Financial support should therefore result in a measurable reduction of direct industrial emissions.
Where projects involve capacity expansion or the construction of new facilities, operators must commit to reducing the total capacity of existing installations by at least 90% before aid payments are made. Alternatively, new facilities must achieve emissions levels substantially below ETS benchmarks, for example at least 60% lower.
Phasing out fossil fuels
The Commission makes clear that State aid must not prolong the use of polluting fossil fuels.
Projects using natural gas must demonstrate how carbon lock-in risks will be avoided. This may include limiting gas use to situations where electrification, biomass or hydrogen are not technically or economically feasible, while requiring credible phase-out plans or the integration of Carbon Capture, Utilisation and Storage (CCUS) technologies for unavoidable process emissions.
Implementation safeguards
Member States are expected to introduce safeguards ensuring that approved projects are delivered on schedule. These include common operational deadlines and fixed financial penalties where implementation is delayed or projects deviate by more than 10% from their committed greenhouse gas reduction pathway.
