Credit: Jazmin Campbell

On Thursday 7 July 2022, the Chamber of Deputies (Luxembourg Parliament) adopted the bill which establishes an aid scheme in the context of the greenhouse gas emission quota trading system for the period 2021-2030.

Provided for in the tripartite agreement (Solidaritéitspak), the law passed is part of both the new industrial strategy of the European Union (EU) aimed in particular at decarbonising energy-intensive sectors and within the framework of the system for trading energy quotas. European Union greenhouse gas emissions (EU ETS) which has been in force since 2005.

Covering approximately 45% of emissions in the EU, the emissions trading system is a major element of the EU's policy in the fight against climate change. The system sets a ceiling (reduced from year to year) on the greenhouse gases that can be released by energy-intensive companies. Within this cap, companies buy (or are allocated) and sell allowances covering emissions from their facilities. Gas emissions thus have a price (the cost of emission quotas), thus encouraging the companies concerned to invest in cleaner technologies.

However, the emissions trading system creates a risk of carbon leakage in certain electro-intensive sectors and sub-sectors. Due to the passing on of the costs of direct emissions to the price of their electricity, the companies concerned risk relocating their production to more lax third countries in terms of the environment or see their products replaced by imported products with higher carbon intensity if they in turn pass these costs on to their customers. However, this would go against the objectives pursued by the EU in the fight against global warming.

To mitigate this risk, Member States may adopt financial measures in favour of the sectors and sub-sectors concerned. It is for this reason that the aid scheme adopted on 7 July 2022 for the period 2021-2030 has been put in place, in order to offset part of the additional cost resulting from emission quotas by granting aid covering up to 75% of eligible costs.

From the rostrum of the Chamber of Deputies, the Minister for the Economy, Franz Fayot, said: "This aid scheme constitutes both an important instrument for preserving the competitiveness of Luxembourg and even European industry and a key element to succeed in the energy transition in this sector.”

Compared to the previous aid scheme for the financial years 2017 to 2020, this law introduces for the first time environmental measures for certain companies receiving aid. Thus, for large companies, SMEs being exempt from this conditionality, the granting of aid is conditional on commitments aimed at improving the ecological balance sheet of the company. A large company wishing to benefit from aid must therefore undertake to:

  • Either implement measures identified by the energy audit made compulsory by the modified law of 5 August 1993 concerning the rational use of energy;
  • Either cover 30% of its electricity consumption with renewable energies;
  • Or invest 50% of the aid received in decarbonisation projects.

If they do not meet one of these conditions, the companies expose themselves to reimbursement of the aid paid in the form of a subsidy.

The annual budget for this aid scheme is €50 million over a period of ten years.