Evaluation support studies on European State aid rules

The European Commission appointed Lear, together with DIW Berlin, E.CA Economics, Sheppard Mullin, and the University of East Anglia, to carry out background studies on the revision of State aid rules in several sectors.

The first example is the support study for the revision of EU Guidelines on State aid for environmental protection and energy (EEAG) and the respective parts of the General Block Exemption Regulation (GBER).

Such report consists of three study items addressing several questions (sections 1,2,3) and complementary annexes with literature, graphs and robustness checks.

The first section focuses on transparency, tendering and broadening. It displays that increased transparency of environmental aid schemes would facilitate evaluating the costs and benefits of the aid. It also focuses on the need to consider behavioural responses, learning-by-doing effects and the impact on biodiversity and natural ecosystems. Moreover, this section represents as cost-effective policy measures in the short term may not allow reaching long term emission targets at the lowest possible costs and, since investments are irreversible, policymakers face the risk of being locked in outdated technology.

The second section aims at understanding whether a distinction between investment and operating aid is still justified and if compatibility rules for investments and operating aid should be aligned.

The third section focuses on energy-intensive users. It displays as empirical studies support the relevance of electro-intensity and trade intensity for eligibility of energy-intensive users for levy exemptions in the EEAG.

The study assisted the Commission in ensuring that the guidelines are fit-for-purpose and that they facilitated the implementation of the European Green Deal. The work had to take into account the economic impact of the pandemic.

The second support study, led by Lear and participated by DIW Berlin and Sheppard Mullin, focused on a study to support evaluating rules regarding airports’ access to operating aid under the EU Aviation Framework applicable as of 2014.

The study’s objective is to provide an independent, evidence-based assessment on whether the 10-year transitional period for the phasing out of operating aid to airports is adequate and whether the current passenger thresholds to establish the need for operating aid are fit for purpose.

The report specifies that State aid regulation in the European Union is of first-rate importance to avoid adverse effects of State aid on competition and distortions of trade between the Member State.

For example, for non-hub airports with weak local competition, it is highlighted that more economic regulation is required in order to encourage cost efficiency.

Moreover, the rate-of-return regulation does not provide incentives for cost efficiency, instead of incentivizing the regulated companies to over-invest into capital.

It is also highlighted an equivalence between price-cap and cost-based regulation, with the former degenerating to the latter over time if not applied correctly.

Thus, regulation is necessary to emulate competitive forces, pushing airport management towards cost efficiency and reasonable pricing policies.

The last evaluation support study focuses on the EU rules on State aid for access to finance for SMEs. In particular, it analyses the relevance and effectiveness of the rules included in the General Block Exemption Regulation and the Risk Finance Guidelines.

Among the other elements of the study, the latter represents the importance of awareness, clarity and burdensomeness of the rules.

In particular, it is displayed as for the rules to be as effective as possible, financial intermediaries and potential beneficiaries must be fully aware of them and of their relevant benefits.

Besides that, compliance and application of the rules should not have as a result high cost.

The study and the interviews carried out highlighted as the level of awareness seems to be lower for beneficiaries – only 30 % state of being aware of the rules.

On the matter, stakeholders suggest increasing the awareness via 1) targeted training, 2) higher involvement in decision-making processes, and 3) broader advertisement on the web.

Concerning the clearness and transparency of the rules, 51 % of the financial intermediaries expressed as they do not consider rules as sufficiently clear. In particular, attention should be paid to the language, which is considered too complex and technical.

Lastly, financial intermediaries highlighted that 1) for one group, the burdensomeness for applying to the EU rules is reasonable and worth undertaking, 2) for another group, the amount of paperwork and the cost to be born for compliance are too relevant.

On the topic, beneficiaries expressed the same concerns as the second group, adding a long waiting time to find out the application results, together with excessive use of their time and human resources for the process.

The work performed by Lear DIW Berlin, E.CA Economics, Sheppard Mullin, the University of East Anglia, is of great relevance for the European Commission. This to understand if the current rules are fit for purpose and how to improve them through an analysis carried out with interviews to stakeholders, economic evaluation, and study of the academic literature.

(Luca Megale)