The UK’s new domestic subsidy control regime came into force on 4 January 2023, introducing a new way in which subsidies are determined and regulated.
We will be publishing a series of bitesize briefings which seek to explore the nuances and features of the new regime. In this article, we will set out the process for assessing subsidies which relate to energy or the environment for which there are additional principles to consider.
Where a subsidy or subsidy scheme relates to the energy or environment, in that the public authority’s specific policy objective relates to energy or the environment, there are additional principles that need to be considered and applied (the “E&E Principles”). These are set out in Schedule 2 of the Subsidy Control Act 2022 (the “SCA”). The E&E Principles need to be applied to in addition to the general subsidy control principles set out in Schedule 1 of the SCA (please refer to our article on the Subsidy Control Principles).
Examples of subsidies to which the E&E Principles need to be applied (as taken from the Government guidance) include subsidies to:
The E&E Principles do not apply to nuclear energy subsidies.
Not all the E&E Principles apply to all energy and environment related subsidies. A summary of the E&E Principles and their scope is set out below:
Principle |
Detail |
Score/application |
A |
All subsidies in relation to energy and environment shall be aimed at and incentivise the beneficiary in:
|
All subsidies in relation to energy and environment |
B |
Subsidies in relation to energy and environment shall not relieve the beneficiary from liabilities arising from its responsibilities as a polluter under the law of England and Wales, Scotland, or Northern Ireland. |
All subsidies in relation to energy and environment |
C |
Subsidies must:
|
Subsidies for electricity generation adequacy, renewable energy or cogeneration |
D |
Subsidies for electricity generation adequacy may be limited to installations exceeding CO2 emissions limits. |
Subsidies for electricity generation adequacy |
E |
Subsidies for renewable energy or cogeneration shall not affect beneficiaries’ obligations or opportunities to participate in electricity markets. |
Subsidies for renewable energy or cogeneration |
F |
Subsidies in the form of partial exemptions from energy-related taxes and levies in favour of energy-intensive users shall not exceed the total amount of the tax or levy concerned. |
Subsidies in the form of partial exemptions from energy-related taxes and levies |
G |
Subsidies in the form of compensation for electricity-intensive users given in the event of an increase in electricity costs resulting from climate policy instruments shall be restricted to sectors at significant risk of carbon leakage due to the cost increase. |
Subsidies that compensate electricity-intensive users for increases in electricity costs |
H |
Subsidies for the decarbonisation of emissions linked to industrial activities in the United Kingdom shall:
|
Subsidies for decarbonisation of industrial emissions |
I |
Subsidies for improvements of the energy efficiency of industrial activities in the United Kingdom shall improve energy efficiency by reducing energy consumption, either directly (by reducing total energy use from one year to the next) or per unit of production. |
Subsidies for improving energy efficiency of industrial activities |
The E&E Principles have been designed so as to comply with the UK’s international commitments, and also support the UK’s commitment to achieve net zero by 2050. The guidance provides some assistance to public authorities when applying the E&E Principles, however, this is quite light in places. Like with the general subsidy control principles, a public authority should keep written records of its analysis, evidence and conclusions when applying the E&E Principles, as this is likely to be an area open to challenge.
If you have any further or specific queries in relation to the Subsidy Control regime, please do get in touch with our Public Sector Team.
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