Phasing out fossil fuel subsidies in the EU? Exploring the role of state aid rules

Abstract

The paper aims to identify and analyse potential legal avenues for phasing out fossil fuel subsidies (FFS) in the European Union (EU) using State aid rules. Our analysis reveals that the EU State aid rules would allow the European Commission to effectively target and monitor a vast number of FFS. From a policy perspective, the requirements for notification, examination, transparency, reporting, and recovery of unlawfully granted aid are of particular importance. The legal framework also provides avenues for the EU Commission to start a ‘Fossil Fuel Inquiry’, while providing important tools for civil society to apply pressure on states for the removal of FFS. Based on our legal analysis and pertinent literature, we discuss which of these different FFS and corresponding estimates are likely (or not) to fall under the EU State aid rules. Despite inherent uncertainties, the EU State aid toolbox offers various possibilities to the EU to actively advance its climate change policy and comply with its international commitments to reduce FFS. Key policy insights Member States in the EU still subsidize both the consumption and production of fossil fuels by a myriad of different measures, despite pledges to reduce FFS as part of the EU’s ambitious climate policy. A major part of these fossil fuels subsidies could be addressed by the already existing EU State aid rules, which provide an effective system that is not dependent on Member States political will and has a powerful enforcement mechanism. A first key step would be for the EU Commission to start a ‘Fossil Fuel Inquiry’, which would identify and quantify all support for fossil fuels within Member States. The EU State aid rules could also provide civil society with the possibility to actively lobby for State aid control, while offering the court systems in Member States as an additional avenue for enforcement.With this in mind, the EU State Aid rules could be used effectively to help the EU to phase out a major part of FFS.