Europe backs Germany's 27.5 bln euro plan to aid industry with energy bills

BRUSSELS, Aug 19 (Reuters) - The European Commission approved on Friday a 27.5 billion euro ($27.66 billion) German scheme to help energy-intensive companies deal with higher electricity costs resulting from having to buy permits on the EU carbon market.

The Commission's approval falls in line with EU rules on state aid that aim to ensure fair competition for companies in the single market of the 27-nation bloc.

Energy intensive industries have long complained that having to pay for the carbon emissions they produce through the European Union's Emission Trading System (ETS), the bloc's main tool for enforcing its climate policy, puts them at a disadvantage compared with non-EU industry.

As Russia's invasion of Ukraine has raised energy costs and in some cases forced a shift to more carbon-intensive coal from gas, the costs industry in Europe faces have risen. Germany, is especially vulnerable because of its historic reliance on Russian gas.

"This... scheme will allow Germany to reduce the impact of indirect emission costs on its energy-intensive industries and hence the risk that these companies relocate their production to countries outside the EU with less ambitious climate policies," EU Competition Commissioner Margrethe Vestager said.

The Commission also approved similar, but smaller schemes in the Netherlands and Finland.

Under the plan, companies using a lot of energy will get compensation from the government to help with "indirect emission costs" - or the part of their higher electricity bills that results from carbon prices.

The compensation will be granted to eligible companies for costs incurred between 2021 and 2030, with the final payment to be made in 2031. The maximum aid amount will in most cases equate to 75% of the indirect emission costs incurred.

To qualify for compensation, companies will have to either implement measures to save energy or cover at least 30% of their electricity consumption with renewable sources.

Also, from next year they will have to make additional investments of at least 50% of the aid amount to save energy and decarbonise their production process. ($1 = 0.9942 euros)

(Reporting by Jan Strupczewski; editing by Barbara Lewis)