1. Introduction

Portuguese authorities notified the European Commission on 27 March 2018, under the simplified notification mechanism, pursuant to Article 108(3) of the Treaty on the Functioning of the European Union (TFEU) and Article 4(2a) of EU Regulation No. 794/2004[1], of a budget modification to the existing aid scheme approved by the Commission on 24 October 2016 under State aid procedure SA.45.694 (2016/N) – Programme for Clean Buses in Urban Areas[2].

The 2018 notification before the Commission was registered under State aid case SA.50760 (2018/N) and materially reasoned in the success obtained with the former aid scheme (SA.45.694) before beneficiaries under a competitive bidding process that led to the need to expand scheme’s budget from €60 million to €90 million.

In terms of State aid substantive rules, the Portuguese aid scheme rules are fully aligned with the Commission’s Guidelines on State aid for Environmental Protection and Energy 2014-2020[3] (EEAG) and the main objective of the scheme is to reduce polluting emissions of public transport buses in urban areas in Portugal. The approved scheme supports both the purchase of new clean buses by public passenger transport operators in urban areas and investment in the re-fuelling and electric charging infrastructure used by these buses. The scheme is open to transport operators and transport authorities responsible for carrying out passenger transport in urban areas under a public service remit.

2. Eligible costs: Clean buses for public transport in Portuguese cities and respective re-fuelling and recharging infrastructure

The aid for the purchase of new clean buses, to be awarded under a competitive bidding process[4] by national authorities, is available on a transparent, non-discriminatory basis to any operator with a public service remit that runs a bus service in Portugal. The scheme is open to all green technologies currently available: (a) compressed natural gas or liquid natural gas buses, (b) electric or hybrid buses, and (c) hydrogen buses.

Still, in order to qualify and be eligible under the scheme, clean buses must be able to lower emissions by at least 15% compared to the ceilings of the Euro VI emission standards, so that the aid is for undertakings going beyond the Union standards in force[5] – as detailed in the table below.  

Euro VI standard for diesel engine (applicable to hybrid, electric and hydrogen buses under the scheme, a 15% reduction on each emission standard identified below must be met by the Clean Bus to be eligible under the scheme)

Test

CO[6]

(g/kWh)

THC[7]

(g/kWh)

NOX[8]

(g/kWh)

PM[9]

(mg/kWh)

WHSC*

1,5

0,13

0,40

10

Clean Bus

1,275

0,1105

0,34

8,5

Euro VI standard for natural gas engine (applicable to CNG and LNG buses under the scheme, a 15% reduction on each emission standard identified below must be met by the Clean Bus to be eligible under the scheme)

Test

CO

(g/kWh)

CH4[10]

(g/kWh)

NOX

(g/kWh)

PM

(mg/kWh)

WHTC**

4,0

0,5

0,46

10

Clean Bus

3,4

0,425

0,391

8,5

* WHSC -Worldwide Harmonised Steady state Cycle.

** WHTC - World Harmonized Transient Driving Cycle.

Under the scheme, the eligible costs are then calculated as the difference – the counterfactual – between the cost of a clean bus and the equivalent new diesel Euro VI standard[11] bus. However, the grant per clean bus cannot exceed the following amounts: (a) EUR 100.000 for a natural gas vehicle; and (b) EUR 200.000 for electric, hybrid or hydrogen buses. The funding covers 85% of the eligible costs, which constitute the difference in cost between a clean bus and the equivalent new diesel Euro VI standard bus.

Under the scheme, beneficiaries are also able to benefit from support for the construction of the infrastructure necessary to operate the clean buses. The aid intensity is 100% of the costs of the equipment to operate and run such infrastructure. The refuelling and recharging infrastructure has to be used exclusively by the public transport bus operators in urban areas.

3. Compatibility of the aid

3.1 Clean buses

The Commission in its assessment of the modified scheme again recognises that the aid granted for the purchase of clean buses increases the level of environmental protection compared to the level which would be achieved in the absence of the measure. Moreover, the scheme assists Portugal to reach the target of reducing, by 2030, green-house gas emissions by 30% to 40% compared to 2005. The scheme is also expected to result in the acquisition of around 500 clean buses, with CO2 emission savings up to 110.000t until 2030, further to a significant reduction of NOx, HC and particulate matter emissions in alignment with EU environmental policies. The additional €30 million budget allocated to the scheme results in additional reductions in CO2, NOx, HC and particulate matter emissions.

Furthermore, the Commission concluded, based on documental evidence adduced by Portuguese authorities, that in spite of potential fuel savings, the clean buses can each be considerably more expensive than comparable Euro VI diesel buses and, as such, the State intervention is required before a step change can be achieved, which results in a more widespread use of clean buses.

The Commission also validated that the grant measure for the purchase of clean buses is an appropriate tool compared to other policy instruments, deeming that the type of aid chosen, i.e. a direct grant as opposed to a loan or a tax credit, is coherent with the market failure that the scheme targets.

In terms of incentive effect, the Commission acknowledges in the Decision that in a counterfactual scenario bus operators would have little to no incentive to invest in clean buses. As such, the direct grant incentivises bus operators to replace their buses that are currently mostly Euro III buses (circa 35% of the national bus fleet), with clean buses providing for better environmental protection.   

3.2 Clean buses re-fuelling and recharging infrastructure

Regarding the aid for the construction of the infrastructure used by clean buses, the Commission establishes that the funding to be provided is fully in line with Directive 2014/94/EU on the deployment of alternative fuels infrastructure[12]. In particular, in urban/suburban and other densely populated areas the EU legislation obliges Member States to install an appropriate number of publicly accessible recharging posts by end 2020. Further the Commission concludes that Portuguese authorities demonstrated that the bus operators were not willing to invest in clean buses (due to economic risk) and the possibility of receiving aid for the supporting infrastructure increases their interest to do so, and that the scheme incentivises bus operators to invest in the infrastructure to support the use of clean buses, thereby encouraging the purchase of least polluting bus types and, hence, reaching the environmental objective of common interest. The aid for the infrastructure was thus considered proportionate by the Commission, as the scheme provides for a number of safeguards ensuring that aid granted under it is limited to the minimum necessary to achieve the respective objectives. In particular, the bidders are required to fully justify the value for money of the infrastructure and in particular to demonstrate how the infrastructure enables buses to operate optimally in tackling air quality on the routes set out in the bid.

3.3 Transparency of the aid scheme

Also in line with the EEAG’s (section 3.2.7.), Portuguese authorities confirmed, as reflected in the Decision, that full information on the scheme would be made available on a comprehensive website, including: (a) the full text of the approved aid scheme, (b) the identity of the individual beneficiaries, (c) the form and amount of aid granted to each beneficiary, (c) the granting date, (d) the type of undertaking (SME/large company), (e) the region in which the beneficiary is located and (f) the principal economic sector in which the beneficiary has its activities.

4. Comment

As all conditions of the 2016 Portuguese aid scheme approved by the Commission were kept unaltered, without prejudice to the €30 million budget increase in the existing aid scheme (from €60 million to €90 million), the Commission, by Decision of 16 May 2018 in case SA. 50.760, considered that the budget modification for clean buses and the respective re-fuelling and recharging infrastructure, as approved by Commission decision SA.45694, continued to be compatible with the internal market, pursuant to Article 107(3)(c) TFEU.

Portugal, with the €90 million amended scheme in force until the end of 2020 for clean buses, jointly with the UK and Germany, as per publicly available information, is one of the few EU member states with a formal notified State aid measure approved by the Commission aimed at augmenting environmental protection through cleaner public transport buses.

Moreover, the UK implemented in 2016 the Low Emission Bus aid scheme with a budget of GBP 30 million, which is in force until March 2019, for funding the purchase of low carbon emission buses and supporting infrastructure in England and Scotland – approved by Commission Decision of 3 June 2016 in case SA.42167 (2015/N) – United Kingdom – Low Emission Bus Scheme[13]. Additionally the 2018 scheme set up by German authorities, which has a €70 million budget, supports public transport operators until the end of 2021, covering the additional costs for the acquisition of electric and plug-in-hybrid buses and the construction of the related electric charging infrastructure required for the operation of these buses – validated by Commission Decision of 26 March 2018 in case SA.48190 (2017/N) – Support scheme for the acquisition of electric buses for urban public transport[14].

Hence environmentally friendly aid schemes in the transport sector aimed at mitigating global warming, reducing CO2 emissions, and improving air quality are welcomed by the Commission based on the respective decisional acquis.

Still, the eligible costs rules, as a benchmark based on the sometimes conservative counterfactual scenario under the EEAGs (the extra investment costs consist of the additional investment costs necessary to go beyond the level of environmental protection required by the Union standard, the cost of investments needed to reach the level of protection required by the Union standards is not eligible and need to be deducted), should be relaxed in order to attract a bigger audience of potential beneficiaries to these schemes and to increase the number of schemes in force in EU member states with the goal of hastening the switch from pollution-causing and climate-changing technologies to more efficient and clean technologies all over Europe in the transport sector, as one should not forget that the transport sector in the EU still depends on oil for about 94% of its energy needs.

In a nutshell, the transition to low-emission alternative energy in the transport sector in the EU is moving forward, but it urgently needs to accelerate, with actions such as the one notified by Portugal to the Commission in case SA.45694, as amended in 2018 (SA.50760), with an approved increase in the existing aid scheme budget.