Brussels and Berlin -- The European Union will review German discounts on environmental taxes amid concerns the aid to companies that consume high volumes of energy may be illegal, but newly re-elected Chancellor Angela Merkel warned the measures are needed to keep Europe's biggest economy competitive.
The EU regulator's probe will aim to determine whether the discounts, which exempt companies from paying the full fee to finance Germany's renewable expansion under the EEG clean-energy law, are proportionate and do not unduly distort competition.
"The current state aid guidelines do not foresee the possibility of such reductions," the European Commission said in a statement. "At the same time, the commission considers that under certain conditions, reductions on the financing of renewable electricity may be justified for energy-intensive users in order to prevent" companies from relocating abroad.
The commission separately presented draft guidelines for assessing future energy and environmental state subsidies, and is seeking comments on these plans before Feb. 14.
In response, Chancellor Angela Merkel warned the European Union against undermining German industry, saying its review of aid to companies for energy bills may put jobs at risk.
In the first speech of her third term, Merkel defended her government's practice of granting discounts on a clean-energy fee to companies that use a lot of energy. She and new economy and energy minister Sigmar Gabriel will "communicate very clearly" to the European Commission that Germany needs competitive industry, Merkel said.
"I can't accept that we're contributing to a distortion of competition as long as there are European countries where power for industry is cheaper than in Germany," she told lower-house lawmakers in Berlin. "Germany would like to remain a strong place for industry."
Merkel, who travels to an EU summit in Brussels today, is pushing back against attempts to scale back rebates given to companies from Bayer AG to Linde AG on fees used to fund Germany's expansion of renewables. She says the discounts awarded under Germany's EEG clean-energy law are key to safeguarding the competitiveness of Europe's biggest economy as U.S. competitors benefit from low-cost shale gas.
The commission said that it opened an in-depth review into the rebates amid concerns they may be illegal. While the current guidelines don't foresee the possibility to grant such aid, subsidies to offset high energy prices may "sometimes be justified" by the need to keep EU companies competitive, said EU Competition Commissioner Joaquin Almunia.
"In the absence of an international agreement on climate change, the charges for financing renewables can be difficult to bear for some undertakings facing competition from third countries with lower environmental standards," Almunia told reporters in Brussels.
Germany, where every fourth job depends on foreign sales, will focus on protecting its exporting companies in negotiations with the commission, said Michael Fuchs, the economy spokesman for Merkel's Christian Democratic Union.
Producers with goods that are "verifiable as exports on the balance sheet" should keep the lower levies, Fuchs said by phone. "If a company isn't exposed to international competition, then it shouldn't qualify. Perhaps we will need to change the law. Certainly, we will need to make sacrifices."
Using overseas competition as a metric to decide whether an exemption is allowed is problematic, Fuchs said, because some businesses such as suppliers to the steel industry that aren't exporters provide goods and services to companies that are. "We don't want the chain of suppliers that add value to products to be broken up or forced to relocate due to new EEG regulations," he said.
Germany granted reductions this year to 1,716 companies or units, more than twice as many as in 2012, amounting to about 4 billion euros ($5.5 billion), according to data from national authorities. This year's list includes companies from drugmaker Bayer to gas producer Linde. HeidelbergCement AG, Vattenfall Europe Mining AG and ThyssenKrupp AG units also benefit.
Scrapping the reductions would mean that many companies and thousands of jobs would be "immediately lost," said Ulrich Grillo, the head of Germany's BDI industry federation that represents about 100,000 companies including Volkswagen AG and Siemens AG.
Germany needs to address the EU's concerns to "restore investment security as quickly as possible," Hildegard Mueller, head of the BDEW utility lobby that represents companies including EON SE and RWE AG, said in an e-mailed statement.
Merkel's government plans to change the EEG clean-energy law next year to reduce costs of its unprecedented switch to renewables from nuclear energy and at the same time address EU concerns. The government seeks to present draft new legislation at the end of April for a parliamentary vote before the summer recess.
Lead image: Euro money icon, investigation by magnifying glass, via Shutterstock