State aid and revising the General Block Exemption Regulation

EU flag iStock 000009228887XSmall 146x219The European Commission has published proposals for a revised General Block Exemption Regulation. Matthew O'Regan and John Houlden consider the key issues.

As part of its drive to modernise the State aid rules and reduce the administrative burden of notification, the European Commission has recently announced proposals to revise the General Block Exemption Regulation (“GBER”). It is intended that this will simplify and clarify the State aid rules. The Commission is also intending to use the State aid rules to promote public investment in R&D, energy efficiency and environmental protection.

These proposals are likely to be welcomed by local authorities, particularly those in areas where regional aid is permitted, as they will enable more aid to be provided to and by them without needing to first be notified to and approved by the European Commission in Brussels.

Background: notification regime and exemptions under the GBER

Under the EU State aid rules (which are contained in Articles 107 to 109 of the Treaty on the Functioning of the European Union), State aid measures may not be put into effect unless and until they have been notified to and approved by the Commission. Non-notified aid is illegal and can be investigated by the Commission, potentially leading to the recipient being required to repay it.

The process of notification and review of aid measures is expensive, time-consuming and resource-intensive, for the Commission, Member States and aid beneficiaries: the review process typically lasts at least six months, whilst a formal, in-depth investigation can last a further two years. To alleviate this burden, the GBER provides an automatic exemption from prior notification to and individual approval by the Commission for a range of aid measures. The GBER is used extensively: in 2011, over € 17.2 billion of aid (32.5% by value of all aid granted) was granted under the GBER.

The current GBER contains specific, and often complex, rules for each category of aid covered by it, including for: regional aid; aid for small- and medium-sized businesses; aid for environmental protection, including cogeneration and renewable energy projects; and aid for research, development and innovation. The GBER applies both to aid to individual undertakings and aid schemes, under which aid can be granted under common rules to a number of undertakings. This will remain the case under the new proposals.

Why is the Commission revising the GBER?

The existing GBER expires on 31 December 2013 and a new Regulation must be adopted to replace it, for the period until 31 December 2020. The Commission has therefore recently published proposals to replace the GBER. It intends that the new rules will modernise the State aid regime, promote ‘good aid’ that assists economic growth, ensure transparency and focus the Commission's enforcement and monitoring resources on those aid measures that are most likely to distort competition. The proposals are intended to reduce the complexity of the rules, extend the scope of measures that are exempted from notification, promote the efficient use of public funds and increase incentives to comply with the notification obligation.

Key proposed revisions to the GBER

We summarise below the Commission’s key proposals for revising the GBER. It should be noted that, in several respects, the Commission has yet to publish full details of certain aspects of the new rules, such as the maximum aid intensities for certain types of aid. In some cases, the Commission has proposed different options upon which it has invited views.

New categories of aid which can be exempted without notification

The scope of the GBER will be extended to include, subject to limits, investment aid for three new categories of aid:

  • research infrastructures: this will cover aid for the construction or upgrade of research infrastructures, which are facilities, resources and related services used by the scientific community to conduct research, e.g. scientific equipment and instruments and knowledge resources. For the GBER to be applicable, the infrastructure must accessible on a transparent and non-discriminatory basis.
  • district heating and cooling: aid for energy efficient district heating and cooling networks can be ‘block exempted’, with higher levels of permissible aid where the beneficiary is an SME or if the environmental investment in using waste heat can be identified.
  • remediation of polluted land: as an exception to the ‘polluter pays’ principle, if the person responsible for causing damage to soil, surface water or groundwater cannot be identified or is held legally liable for remediating land, aid may be provided for the net costs of remediating polluted land (i.e. costs less any increase in the value of the land).

This is intended to promote research-led economic growth, energy efficiency and environmental protection. At present, such measures, if they constitute aid, require individual notification.

Revised eligibility rules for the applicability of the GBER

The Commission proposes to revise the eligibility rules applicable to all categories of aid covered by the GBER. However, for many categories of aid, it has yet to specify the relevant ‘aid intensity’, which is the maximum proportion of total eligible costs of the project (which are also defined in the GBER) that can be funded by State aid: this is obviously a critical detail, which is subject to further debate and on which the Commission is inviting further views.

The key changes are:

  • notification thresholds: the Commission is intending to revise the aid thresholds above which the GBER will not apply and for which individual notification will be required. However, the proposals contains little information on its thinking on these thresholds and it is inviting views on the appropriate thresholds, as well as the determination of eligible costs and the cumulation of aid.
  • incentive effect: the GBER will continue to apply to aid which has an ‘incentive effect’, by changing the beneficiary’s behaviour through enabling activities or projects which would not otherwise have been carried out. In order to facilitate verification of the existence of this effect, the Commission is proposing that all beneficiaries must submit a written application for aid before starting work on the activity or project. It is also considering stricter rules for large enterprises, where it is often more difficult to identify an incentive effect.
  • large aid schemes: the Commission is proposing that large aid schemes (where annual expenditure cumulatively exceeds 0.01% of national GDP and € 100 million) will fall outside the GBER and will require notification, as these are more likely to distort competition
  • procedural requirements, transparency and monitoring: an important policy objective for the Commission is effective monitoring of aid. It is therefore proposing that all granted public aid must be published on a publicly available website. Non-compliance with this transparency obligation would be enforced by withdrawing the GBER from the aid measure(s) in question and requiring the beneficiaries and/or granting authorities involved to notify all or some of future aid measures, irrespective of their size or nature.

Revised rules applicable to specific categories of aid covered by the GBER

The Commission is proposing changes to many of the existing categories of aid covered by the GBER. The main changes are:

  • R&D: in order encourage R&D, the Commission proposes to increase the permissible levels of support for aid by SMEs and also for fundamental and industrial R&D (which are unlikely to distort competition), whilst applying stricter rules to experimental development (which is closer to market and thus more likely to distort competition). The Commission's proposals will also encourage the use of repayable advances (where the aid is repaid, possibly with a premium, from sales revenues generated by the products in question), as these are less likely to distort competition than grants.
  • regional aid: one of the most important aspects of the GBER is aid to companies in less-developed regions. A new 'map' of eligible areas will be published later this year. Aid to certain sectors will not be within the GBER and require individual notification: steel, coal, shipbuilding, synthetic fibres, transport and airports. Aid to the energy sector is also excluded although aid to certain types of energy (renewables, co-generation and district heating) may benefit from other exemptions. To avoid aid being used to transfer production between regions, regional aid cannot be given to a beneficiary which has closed down the same or a similar activity in the EEA in the previous two years or has plans to do so. Where aid is granted to a large undertaking, it can be used only for investment in new activities and (unlike as at present) not for expanding existing activities. Special rules will also apply to regional aid for broadband networks, which may reduce the number of such schemes that require individual notification.
  • aid for SMEs: the Commission proposes more generous rules for aid to SMEs, which will promote investment and economic growth and address market failures (caused by SMEs having limited access to capital) without significant distortions of competition. In particular, the Commission will adopt a new € 10 million cap on public investment in SMEs, with further new rules to encourage aid to start-ups and innovative SMEs
  • environmental aid: the GBER as well as extending the scope of the GEBR to include district heating and remediation of polluted land, the GBER will now permit higher levels of aid for cogeneration, renewable and district heating projects in assisted areas.

Next steps

The proposed changes to the GBER are intended not only to promote "good aid" to facilitate economic growth and competitiveness, but also to clarify and simplify the exemption regime. Whilst the Commission's proposed revisions should make it easier for local authorities and other public bodies to provide State aid, there are nevertheless a number of remaining uncertainties that will need to be clarified before the revised GBER is adopted and enters into force.

Public bodies and other interested parties now have the opportunity to submit their observations on the proposals. The deadline for comment is 28 June 2013.

Matthew O’Regan and John Houlden are partners in Burges Salmon LLP. They can be contacted on 0117 939 2000 or by This email address is being protected from spambots. You need JavaScript enabled to view it..