LUX-TEN and New EU Guidelines on State-Aid for 'CEEAG'?

There are some concerns that the design of the LUX-TEN legislation (formerly L-NET) might conflict with anti-competitiveness ‘State Aid’ rules at the EU level. LUX-TEN Advocates need to:

  1. take a close look at revised 2022 guidelines for State Aid as they apply to climate, environmental protection and energy (CEEAG) to determine likelihood of a legal challenge;
  2. research parallel precedents for exemptions or rulings that are substantively similar to LUX-TEN; and
  3. possibly propose revisions to the legislation to align more closely in design to those exempted policies.

This is a list and description of guidelines on the EU Commission Website.

The renewable energy feed-in tariff is likely the closest policy to explore for comparison.
In doing some separate research in the Czech context, I found an example of an EU ruling from 2016/17 that established that the Czech FIT was actually in compliance with (i.e. not needing exemption) with EU regulations. However, the ruling did indicate that during the 2006-2012 period, the rates offered to projects participating in the FIT could be characterized as generating ‘windfall profits’ and that future rate-setting must avoid excessive levels of payment to maintain compliance.

We would welcome any further thoughts on whether the L-NET, as is, is likely to be compliant, or how it might be modified to become so if it is likely now.

A breakdown of key things to consider in this analysis:

Projects aimed at eliminating atmospheric carbon dioxide that are located outside of the territory of the Grand Duchy of Luxembourg are eligible for financial compensation, or payments, under the terms referred to in this law, if minimum fifty percent of ownership of the project assets are held by
individuals or entities legally domiciled in the territory of the Grand Duchy of Luxembourg.

  • The fact that the bill allows for projects to be developed outside of LU might increase likelihood of compliance. But the requirement of 50% ownership by companies domiciled in LU might do the opposite…?

  • The funding mechanism for the program is an existing one, a climate innovation fund to support tech development and deployment. The bill amends the law to include funding for Lux-ten projects. If this prior law is compliant with EU state aid regs, then would this resolve any challenges to lux-ten…?

  • There is reference to the General Block Exemption Regulation (GBER) in the CEEAG document above, and how these regs relate to each other. The GBER establishes exemptions to state aid rules, and apparently 96% of aid programs in Europe have been exempted under GBER, suggesting that the exemptions are either incredibly broad, or that states have used the regulation creatively to work around state aid (unlikely). The CEEAG document references that certain exemptions exist for ‘small scale projects’ under GBER but I have been unable to find reference to that in my research. This could be relevant to LUX-TEN because, for entirely different reasons not related to state aid compliance, the proposal caps CDR project size to a relatively small scale. This could be an argument for exemption, but we need to understand what “small” means in a regulatory sense.