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DOI: https://doi.org/10.34069/AI/2023.70.10.3
How to Cite:
Kurepina, O. (2023). Legal regime stimulating economic activities: Convergence of Ukrainian legislation with EU law based on
SDGs. Amazonia Investiga, 12(70), 32-42. https://doi.org/10.34069/AI/2023.70.10.3
Legal regime stimulating economic activities:
Convergence of Ukrainian legislation with EU law based on SDGs
Стимулюючий правовий режим господарювання:
зближення законодавства України та права ЄС на засадах ЦСР
Received: August 10, 2023 Accepted: October 5, 2023
Written by:
Olena Kurepina1
https://orcid.org/0009-0001-2096-7943
Abstract
The purpose of the research is to substantiate ways
to improve Ukrainian legislation, defining the
features of the functioning of individual elements of
SLREA, which will facilitate the achievement of
SDGs. The study is based on a review of scientific
literature dedicated to specific elements of SLREA
(public procurement and state aid), Ukrainian
legislation, and specific EU legal acts regarding the
application of certain stimulating measures to
achieve SDGs. It is argued that, compared to the
institution of public procurement, the institution of
state aid exhibits a significantly lower degree of
actualization and integration into the legal
framework supporting SDGs. It is substantiated that
the modernization of Ukrainian legislation in the
field of state aid should occur based on the model
of legal regulation of the state aid system in the EU
on the principles of SDGs. The development of
SLREA in the context of adapting Ukrainian
legislation to EU law should involve the integration
of SDGs into the legal toolkit of such a regime.
Keywords: Stimulating legal regime of economic
activities, Sustainable Development Goals,
Ukrainian Legislation, European Union Law.
Introduction
This article discusses the need to improve
Ukrainian legislation to stimulate economic
activities. It is argued that current legislation is
1
PhD (Law), doctoral researcher, State Organization «V. Mamutov Institute of Economic and Legal Research of the National
Academy of Sciences of Ukraine», Ukraine. WoS Researcher ID: JGC-8895-2023
not sufficient to achieve the Sustainable
Development Goals (SDGs).
Kurepina, O. / Volume 12 - Issue 70: 32-42 / October, 2023
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It is probably difficult today to imagine the
strategic priorities for the development of any
country in the world beyond the worldview
paradigm that is based on the concept of
sustainable development, which aims to meet the
needs of the present generation without
compromising the ability of future generations to
meet their own needs. This understanding of the
essence of sustainable development was reached
in the report of the Brundtland Commission (or
the World Commission on Environment and
Development). The definition proposed by this
Commission remains the starting point for
countries around the world in determining the
direction of further social development.
It is worth noting that in September 2015, during
the 70th session of the United Nations (UN)
General Assembly in New York, the UN
Sustainable Development Summit and the
adoption of the Post-2015 Development Agenda
took place. During this summit, new
development milestones were approved. The
final document of the summit, titled
"Transforming Our World: The 2030 Agenda for
Sustainable Development", included 17
Sustainable Development Goals (SDG) and 169
targets (United Nations in Ukraine, 2023).
Ukraine, as a member of the UN, also joined
efforts to implement the principles of sustainable
development, which were reflected in the
adoption of several fundamental documents. At
the same time, as indicated in the Voluntary
National Review on SDGs in Ukraine not all
tasks related to the 17 goals have been
accomplished. Progress has been successfully
achieved for 15 out of the 17 goals, albeit
unevenly. Some goals have already been reached
by 80% or more (goals 1, 3, 4, 5), while progress
for four goals is within the range of 60-80%
(goals 2, 6, 8, and 16). For some goals, progress
is within the range of 20-60% (goals 7, 11, 12,
17), and achieving benchmarks for the remaining
goals (goals 9, 10, 13, 14, and 15) is currently
considered unlikely (less than 20%) compared to
the set targets for 2020. Goal 8, "Decent Work
and Economic Growth," is recognized in the
Voluntary National Review on SDGs in Ukraine
as an accelerator for achieving all goals.
Therefore, the potential of the stimulating legal
regime of economic activity should be utilized to
the fullest extent in a series of government
reforms (United Nations Ukraine, 2021).
However, due to the high level of declarativeness
in the provisions of the Sustainable Development
Ukraine 2020, the implementation of reforms in
some areas of legal regulation of socio-economic
relations varied in terms of effectiveness. In
certain cases, strategic approaches to reforming
specific elements of Ukraine's sectoral
legislation, which formed the basis of the
stimulating legal regime for economic activities,
were not initiated at all. In particular, the
development vector included the implementation
of reforms in economic competition protection
(Decree of the President of Ukraine № 5/2015,
2015), an integral element of which is state aid to
economic entities. The author considers this as a
component of the stimulating legal regime of
economic activity. However, as demonstrated in
this study, the reform of the system of state aid to
economic entities is taking place incrementally in
the absence of a unified "roadmap" for improving
legislation in this area. At the same time, deeper
and more systematic steps by the state are evident
in the reform of the public procurement
institution, the stimulating effect of which is
significant for activating processes of integrating
SDGs into various spheres of public life.
Therefore, this research aims to justify ways for
further improvement of Ukraine's legislation,
which defines the features of the functioning of
specific elements of the incentivizing legal
regime for economic activities. This will
contribute to the achievement of SDGs in various
areas of societal relations.
Literature Review
Sustainable development is a development
process that meets the needs of the present
without compromising the ability of future
generations to meet their own needs. The legal
regime stimulating economic activities is a set of
legal regulations that aim to promote economic
development through incentives.
The search for effective legal methods and means
to stimulate the transition of countries to
sustainable principles of economic, ecological,
and societal development holds a significant
place in the research conducted by both foreign
and domestic scholars.
Particular attention is drawn to the scientific
developments of foreign experts who emphasize
the advantages and new opportunities created by
certain legal instruments for the implementation
of state policies on sustainable development. In
several scholarly studies, structural changes in
the socio-economic and ecological spheres
achieved through the regulatory potential of the
institution of public procurement have been
highlighted. This has been detailed in the
scientific works of Aldson F. (2011), Andrecka
M. (2017), Caranta R. (2010), Fisher E. (2013),
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Hermans F. & Knippenberg L. (2006), Manta O.
et al. (2022), Steiner M. (2013), Telles P.,
Ølykke G.S. (2017), Witjes S. & Lozano R.
(2016), and others.
Aldson's (2011) study found that public
procurement can be an effective instrument to
promote sustainable development by
encouraging the purchase of sustainable goods
and services. This finding is relevant to the
current article because it suggests that Ukraine's
legal regime could be modified to promote
sustainable public procurement. Public
procurement, as emphasized by Andrecka M.
(2017), Caranta R. (2010), Fisher E. (2013),
Manta O. et al. (2022), Steiner M. (2013),
Telles P., Ølykke G.S. (2017), Witjes S. &
Lozano R. (2016), should be considered a driver
of transformations in the economic sphere that
simultaneously contributes to the consideration
of social values, environmental standards, and
the development of socially responsible business.
These mentioned scholarly approaches are
crucial to be taken into account in the process of
shaping the conceptual principles of developing
the stimulating legal regime of economic
activity, as creating favorable conditions for
sustainable economic activity is essential.
The possibilities of state aid in the context of
creating incentives for accelerating the transition
to a sustainable development model in various
areas of societal relations have been emphasized
in the scholarly works of Bartniczak B. (2014),
Gupta A. (2023), Rivera-Lirio J.M. &
Muñoz-Torres. (2010), Williams M. (1998), and
others. In particular, Bartniczak B. (2014) rightly
emphasizes that various types of state aid have
varying impacts (ranging from positive to
negative) on economic relations, and
consequently, this can affect the success of
implementing SDGs. Such a conclusion is highly
valuable, especially in the context of the ongoing
reform of the state aid system in Ukraine. The
research findings of Gupta A. (2023) are crucial
to the concept of this article, highlighting the
correlation between different forms of state aid
and their impact on achieving ambitious goals
outlined in the European Green Deal. In earlier
studies, notably in Williams M.'s (1998) article,
attention was drawn to both positive and negative
consequences of the impact of state aid provided
for economic development projects on the
natural environment. Environmental issues, as
evidenced by the EU experience and recent
changes in Ukraine's environmental policy, have
become extremely important in the context of
SDGs implementation. The prioritization of
achieving socially significant results through the
implementation of state aid policy is emphasized
in the work of Rivera-Lirio J.M. &
Muñoz-Torres (2010). It is worth agreeing with
this thesis, as the social impact of economic
activity is crucial within the SDGs system.
Particularly noteworthy is the systematic and in-
depth study by Hermans F. & Knippenberg L.
(2006), which stands out among other attempts
by authors in its reliance on the principles of
resilience and justice to identify criteria for
assessing sustainable development. The
scholarly approaches of these authors have
influenced the rationale for the author's own
proposals.
In domestic research, the issues of legal support
for the implementation of SDGs, including
through the prism of specific components of the
incentivizing legal regime for economic
activities, and the creation of prerequisites for
societal development based on sustainable
development principles, taking into account the
progressive experience of foreign countries, are
presented in the scholarly works of Gudima T.
(2020), Malolitneva V. & Dzhabrailov R. (2019,
2020), Ustymenko V. & Zeldina О. (2019),
Shapovalova O.V. (2016), and others.
Specifically, the studies of the mentioned authors
reflect the issue of improving the legal
framework for economic relations in Ukraine at
both macro and micro levels, with an emphasis
on the implementation of sustainable
development principles. In the research by
Gudima T. (2020), the features of improving the
legal regulation of monetary and credit policies
and macroprudential policy based on sustainable
development principles are elucidated. The
results obtained by the author constitute a
comprehensive scientific foundation for
assessing the potential of the stimulating legal
regime of economic activity in achieving SDGs.
The development and evolution of legislation on
sustainable public procurement are highlighted in
the works of Malolitneva V. & Dzhabrailov R.
(2019, 2020). The scientific conclusions drawn
by these authors were taken into account during
the assessment of the current state and prospects
for the development of the public procurement
institution as a component of the stimulating
legal regime of economic activity. The research
of Shapovalova O.V. (2016), Ustymenko V. &
Zeldina О. (2019) also hold scientific-practical
value, where the peculiarities of adapting
Ukraine's economic legislation to EU
requirements based on sustainable development
principles are disclosed. Additionally, these
studies delve into the implementation in
Ukrainian legislation of approaches that have
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found expression in the EU's investment policy,
contributing to the achievement of SDGs.
At the same time, the aforementioned scholarly
studies do not provide answers to the questions
posed within this article, particularly regarding
the determination of the possibilities of the
incentivizing legal regime for economic
activities in achieving SDGs, taking into account
contemporary changes occurring in European
Union (EU) law. Indeed, as evidenced by the EU
experience, stimulating economic activity is
precisely aimed at achieving SDGs, which is
reflected in the prioritization of sustainable
development policies. This involves supporting
the fundamental idea of transitioning to a circular
economy, attracting "green" investments, and
other initiatives. Accordingly, among the
possible means of realizing the potential of the
stimulating legal regime of economic activity,
public procurement and state aid to economic
entities can be recognized. The potential of these
instruments is capable of ensuring the
implementation of SDGs and is the subject of in-
depth investigation in this article.
Additionally, a unique aspect of the article is
driven by Ukraine's acquisition of candidate
status for membership in the EU, as confirmed by
the European Council's decision on June 23,
2022. It is precisely with this consideration in
mind that the scholarly material is presented
within the scope of this research work.
Methodology
The theoretical foundation of the study is based
on the main scientific results presented in the
works of the authors, whose analysis is outlined
in the literature review. If we briefly summarize
their findings, the following key scientific
approaches and conclusions can be highlighted:
1) the principles of resilience and justice are
crucial for assessing the degree of
implementation of sustainable development
principles in various areas of societal
development. This extrapolates to relationships
that are the subject of the stimulating legal
regime of economic activity; 2) economic
development stimulation should not occur at the
expense of diminishing the role and significance
of social and environmental goals. Achieving
these goals is a guarantee of the harmonious
development of society based on sustainable
development; 3) the outcome of implementing
various stimulating measures should be the
formation of a new model of behavior for
economic agents, including the widespread
adoption of socially responsible business
practices that align with SDGs; 4) sustainable
public procurement and effective state aid can act
as accelerators for the government's transition to
a sustainable development model; 5) the
adaptation to EU law, currently a highly relevant
task for Ukraine, should occur on systematic
principles, involving the modernization of all
sectors of legislation to contribute to the
achievement of SDGs at macro and micro levels
of legal regulation in various spheres of social
relations.
These scientific conclusions have been
considered in shaping the author's own
perspective and preparing scientific proposals.To
achieve the research aim, a combination of
general scientific and specialized methods of
scientific inquiry was employed in the article.
These methods include dialectical, comparative
legal, analytical-synthetic, formal-logical, and
system-structural analysis, as well as predictive
methods, among others.
The dialectical method was used to assess
qualitative and quantitative indicators of
transformations in Ukraine's legislation
regarding the integration of SDGs into key
directions of state policy. It allowed for an
evaluation of the degree of legislative reform in
the areas of public procurement and state aid to
economic entities, as well as the acquisition of
norms within these legal institutions as tools to
support the achievement of SDGs.
The comparative legal method was utilized to
identify the peculiarities of integrating SDGs into
EU legislation, understand the role of state aid
institutions in promoting the achievement of
sustainable development objectives and
formulate proposals for the corresponding
improvement of Ukrainian legislation in this
area.
The analysis of the statistical, scientific, and
empirical information presented in the article,
which vividly illustrates shortcomings in the
formation of national principles for providing
state aid to economic entities as a key element of
the incentivizing legal regime for economic
activities, was conducted using the analytical-
synthetic method.
The formal-logical and system-structural
methods were employed to emphasize the weak
positioning of the state aid institution to
economic entities as an institutional basis for
supporting the achievement of sustainable
development goals compared to the institution of
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public procurement. This was analyzed within
the context of the gradual implementation of
sustainable development principles.
The predictive method was used to identify
opportunities for further improvement of
Ukraine's legislation, which defines the
functioning of specific elements of the
incentivizing legal regime for economic
activities in the context of promoting the
achievement of SDGs.
The empirical basis of the research consists of
national legislative acts, specific legal acts of the
EU, statistical and analytical information, and the
practices of state authorities and others.
Results and Discussion
In particular, the pace of reforming certain legal
institutions, the norms of which are deeply
integrated into the structure and content of the
incentivizing legal regime for economic
activities as an integral component of economic
law and legislation, is noteworthy.
Significant progress has been achieved, first and
foremost, in the process of improving the
institution of public procurement, especially in
terms of adapting Ukrainian legislation to EU
standards. This consistent legislative work was
carried out with a focus on the target indicators
established by the Strategy for Reforming the
Public Procurement System ("Roadmap"),
approved by the Cabinet of Ministers of
Ukraine's (CMU) Order No. 175-р., February 24,
2016.
It is important to note that changes in the legal
regulation of public procurement also took place
in compliance with Ukraine's commitments to
achieving the goals and objectives of sustainable
development. These goals, as established by
established scientific approaches, are aimed at
ensuring the balance of sustainable development
across three components - environmental,
economic, and social (Ustymenko, (Ed.), 2021).
In this context, it is not coincidental that in the
national report "Sustainable Development Goals:
Ukraine," which presents adapted global
sustainable development goals and indicators of
their implementation tailored to Ukraine's needs,
emphasis is placed on considering the relevant
national program documents' tasks, specifically
Goal 12.7, which aims to "Promote sustainable
practices in public procurement according to
national strategies and priorities" within Goal 12,
"Ensuring sustainable consumption and
production" (United Nations Ukraine, 2017).
Importantly, as a result of consistent reforms,
approaches to the functional purpose of public
procurement have changed significantly, leading
to the systemic integration of SDGs into public
procurement procedures and the inclusion of
environmental and social components in the
assessment criteria for "tender proposals."
According to Article 29 of the Law of Ukraine
№ 922-VIII "On Public Procurement" dated
December 25, 2015 (as amended by the Law of
Ukraine dated September 19, 2019, with
subsequent amendments), the evaluation criteria
include: 1) price; or 2) life cycle cost; or 3) price
together with other evaluation criteria, including
payment terms, delivery time, warranty service,
technology transfer, and training of managerial,
scientific, and production personnel, as well as
measures related to environmental protection
and/or social protection related to the subject of
procurement (part 3).
The importance of deepening the integration of
so-called "horizontal" goals into the public
procurement system is highlighted in the
scholarly work of V. K. Malolitneva. The scholar
suggests applying a value-oriented approach to
public procurement in Ukraine, which would
involve the implementation of "horizontal" goals
within the framework of relevant directions of
the country's state policy, particularly in
environmental protection, which encompasses
the development of "green" public procurement,
and in social protection, which includes the
realization of employment and training
opportunities, the promotion of respect for
human rights, and protection (Malolitneva,
2021).
Indeed, the adaptation of legislation in the field
of public procurement to the provisions of
Directives 2014/24/EU and 89/665/EEC, by
Appendices XXI-F, XXI-G, and XXI-H to the
Association Agreement between Ukraine and the
EU, within the framework of the third stage
(January 1-December 31, 2019) of implementing
the Action Plan for the Implementation of the
Strategy for Reforming the Public Procurement
System ("Roadmap") (approved by the CMU’s
Order No. 175-р, 2016), provided for the
reflection in the national legal framework of the
conditions for the integration of social and
environmental standards and requirements for
contractors or products purchased for state needs
as characteristics and elements of proposal
evaluation in procurement procedures in the
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national legal field (Articles 74 and 77 of
Directive 2014/24/EU) (Order No. 175-р, 2016).
However, the institute of state aid to business
entities, the legal norms of which constitute a
significant proportion of the stimulating legal
regime of economic activity, is much less
updated and integrated into the system of legal
tools to promote the achievement of sustainable
development goals.
Despite the priority declared in the Sustainable
Development Ukraine 2020 for the reform of
economic competition protection (Decree of the
President of Ukraine № 5/2015, 2015), of which
state aid to business entities is recognized as a
key means of implementation, the state has not
taken sufficient measures to direct the potential
of state aid to business entities towards achieving
sustainable development goals.
It must be noted that, a Strategy ("roadmap") for
reforming the system of state aid to economic
entities, has not been developed and presented to
date, as, for example, it was done in the case of
public procurement. In turn, the existing Concept
of reforming the system of state aid to economic
entities, approved by the CMU’s Order No. 81-р,
on January 13, 2010 does not take into account
the recent changes in Ukraine's legal policy,
internal and external strategies, which have
occurred due to the Association Agreement
between Ukraine and the EU and Ukraine's
acquisition of candidate status for EU
membership in 2023.
By the way, in EU legislation, the concept of
"state aid" is consistently evolving, and it is
worth noting that in EU law, unlike domestic
legislation, the use of the phrase "state aid" is
traditional. This concept is considered one of the
key legal instruments capable of ensuring not
only the effective use of state or local resources
but also directing these resources toward
achieving SDGs. The beginning of such
fundamental changes in the nature and purpose
of state aid was laid down by the European
Commission in the Communication EU State Aid
Modernisation (Communication SAM) dated
May 8, 2012. In particular, the text of
Communication SAM repeatedly refers to the
Europe 2020: A strategy for smart, sustainable
and inclusive growth, also known as the
Sustainable Development Strategy (European
Union, 2010). (European Union, 2012).
As indicated in this Communication from the
European Commission, state aid policy can also
actively and positively contribute to the strategy
objectives by prompting and supporting
initiatives for more innovative, efficient and
greener technologies, while facilitating access to
public support for investment, risk capital and
funding for research and development (point 3.1)
(European Union, 2010).
Since the adoption of the Europe 2020: A
strategy for smart, sustainable and inclusive
growth, also known as the Sustainable
Development Strategy and the implementation of
measures to modernize the state aid system, the
latter has become an integral means of
implementing sustainable development policies
in the EU. This is specifically emphasized in the
reflection paper "Towards a Sustainable Europe
by 2030" prepared by the European Commission,
which states: «The EU State Aid policy,
especially since its modernization in recent years,
has been geared towards sustainability. 94% of
total State Aid in the EU was targeted at
horizontal objectives of common interest, such as
environmental protection, research,
development, innovation and regional
development. Of total spending, 54% was in
support of environmental and energy savings»
(European Commission, 2019, January 30).
To create favorable conditions to accelerate the
EU's green and digital transitions, the
Commission Regulation (EU) 2023/1315
(Official Journal of the European Union, 2023).
This regulation introduced amendments,
including to Commission Regulation (EU) №
651/2014, declaring certain categories of aid
compatible with the internal market in
application of Articles 107 and 108 of the Treaty
(referred to as the General Block Exemption
Regulation - GBER) (European Commission.
(2014, June 17).
In particular, as mentioned in the European
Commission's press release, these innovations
provide Member States with more flexibility to
develop and implement support measures in
sectors crucial for the transition to climate
neutrality. This is intended to accelerate
investments and funding for the production of
clean technologies in Europe in line with the
Green Deal Industrial Plan for the Net-Zero Age
(European Commission, 2023).
It should be additionally emphasized that the
adoption of Commission Regulation (EU)
2023/1315 was a logical outcome of recent
changes in various sets of guiding principles for
state aid. In the context of Ukraine's integration
into the EU and the subsequent adaptation of
national legislation to EU law, this holds
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significant importance for enhancing domestic
legal regulation of state aid to economic entities.
In this regard, it is worth noting that the lag in the
implementation of legal norms regulating
specific categories of state aid from the list
classified as stimulating measures in the GBER
Commission Regulation (EU) № 651/2014 is
significant. This can create substantial challenges
in achieving nationally defined indicators for
sustainable development goals.
In particular, Article 1(1) of Commission
Regulation (EU) № 651/2014 as amended by
Commission Regulation (EU) 2023/1315
outlines the list of aid categories covered by its
scope and enumerates 16 types (European
Commission. (2014, June 17). Meanwhile,
Article 6(2) of the Law of Ukraine № 1555-VII,
2014 "On State Aid for Economic Entities" dated
July 1, 2014, establishes the provision that the
Cabinet of Ministers of Ukraine defines the
criteria for assessing the admissibility of
individual categories of state aid and designates
only 9 types.
As can be seen, the differences in the lists of
"compatible with the internal market" and
"permissible" state aid categories in terms of the
number of types are evident. Additionally, an
analysis of the current legislation in Ukraine
reveals inconsistencies in the substantive nature,
characterized by incomplete or contradictory
reproduction of the procedures, conditions, and
other aspects related to the provision of relevant
categories of aid, which are recognized as
"compatible with the internal market" under EU
law and "permissible" under national legislation.
Sometimes, this can be explained by the lack of
proper monitoring by national legislative bodies
regarding the current versions of relevant EU
legal acts and the failure to take measures for the
corresponding update of national legislation.
Indeed, the problems related to adapting national
legislation to EU law are most pronounced in the
area of environmental protection aid.
According to section 2.2 of the Communication
from the European Commission – 2022
Guidelines on State aid for climate,
environmental protection and energy, the
following categories of aid are considered
compatible with the internal market, provided
certain requirements are met:
a) aid for the reduction and removal of
greenhouse gas emissions, including
through support for renewable energy and
energy efficiency;
b) aid for the improvement of the energy and
environmental performance of buildings;
c) aid for the acquisition and leasing of clean
vehicles (used for air, road, rail, inland
waterway and maritime transport) and clean
mobile service equipment and for the
retrofitting of vehicles and mobile service
equipment;
d) aid for the deployment of recharging or
refuelling infrastructure for clean vehicles;
e) aid for resource efficiency and for
supporting the transition towards a circular
economy;
f) aid for the prevention or the reduction of
pollution other than from greenhouse gases;
g) aid for the remediation of environmental
damage, the rehabilitation of natural habitats
and ecosystems, the protection or restoration
of biodiversity and the implementation of
nature-based solutions for climate change
adaptation and mitigation;
h) aid in the form of reductions in taxes or
parafiscal levies;
i) aid for the security of electricity supply;
j) aid for energy infrastructure;
k) aid for district heating and cooling;
l) aid in the form of reductions from electricity
levies for energy-intensive users;
m) aid for the closure of power plants using
coal, peat or oil shale and of mining
operations relating to coal, peat or oil shale
extraction;
n) aid for studies or consultancy services on
matters relating to climate, environmental
protection and energy (Official Journal of
the European Union, 2022).
At the same time, the list of aid categories
covered by the Criteria for Assessing the
Eligibility of State Aid to Economic Entities for
Environmental Protection, approved by the
CMU’s Resolution No. 1060 dated October 11,
2021, has not been updated and brought into
compliance with both the 2022 Guidelines on
State aid for climate, environmental protection
and energy and the updated version of
Commission Regulation (EU) № 651/2014.
There is also a difference in the methodological
principles for assessing the compatibility of state
aid in the fields of climate, environmental
protection, and energy with the internal market.
This is essential for developing national
approaches to determining the eligibility of state
aid measures to business entities for
environmental protection.
As stated in point 21 of 2022 Guidelines on State
aid for climate, environmental protection and
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energy, based on Article 107(3), point (c), of the
Treaty, the Commission may consider
compatible with the internal market State aid to
facilitate the development of certain economic
activities within the Union (positive condition),
where such aid does not adversely affect trading
conditions to an extent contrary to the common
interest (negative condition) (Official Journal of
the European Union, 2022).
In this regard, the "positive condition" entails the
European Commission determining the
following circumstances:
identification of the economic activity that is
being facilitated by the measure, its positive
effects on the society at large and, where
applicable, its relevance for specific policies of
the Union;
incentive effect of the aid;
absence of breach of any relevant provision of
Union law.
On the other hand, the essence of the "negative
condition" is revealed through the following
elements:
the need for State intervention;
the appropriateness of the aid;
the proportionality of the aid (aid limited to the
minimum necessary to attain its objective)
including cumulation;
the transparency of the aid;
avoidance of undue negative effects of the aid on
competition and trade;
weighing up the positive and negative effects of
the aid.
It is important to emphasize certain aspects of the
"positive" and "negative" conditions. In
particular, a crucial factor in justifying the
necessity of providing state aid is the presence of
the incentive effect of the aid, as noted in point
26 of the 2022 Guidelines on State aid for
climate, environmental protection and energy,
«Aid can be considered as facilitating an
economic activity only if it has an incentive
effect. An incentive effect occurs when the aid
induces the beneficiary to change its behaviour,
to engage in additional economic activity or in
more environmentally-friendly economic
activity, which it would not carry out without the
aid or would carry out in a restricted or different
manner.». Furthermore, the aid must not support
the costs of an activity that the aid beneficiary
would carry out and must not compensate for the
normal business risk of an economic activity (p.
27) (Official Journal of the European Union,
2022).
Evaluating the necessity of state intervention as
an element of the "negative condition," point 34
of the 2022 Guidelines on State aid for climate,
environmental protection and energy emphasizes
that the proposed State aid measure must be
targeted towards a situation where it can bring
about a material development that the market
alone cannot deliver, for example by remedying
market failures about the projects or activities for
which the aid is awarded. Whilst it is generally
accepted that competitive markets tend to bring
about efficient results in terms of the
development of economic activities, prices,
output and use of resources, in the presence of
market failures, public intervention in the form of
State aid may improve the efficient functioning
of markets and thereby contribute to the
development of an economic activity to the
extent that the market on its own fails to deliver
an efficient outcome. The Member State should
identify the market failures preventing the
achievement of a sufficient level of
environmental protection or an efficient internal
energy market (Official Journal of the European
Union, 2022).
It is worth noting that state aid, both within the
framework of 2022 guidelines on State aid for
climate, environmental protection and energy
and other EU legal acts, is considered a legal
instrument to promote the implementation of
state policies across various economic,
environmental, social, and other development
dimensions. Being in systemic connection with
other means of implementing state policy, state
aid aims to address regulatory deficiencies or so-
called market "failures." In this regard, state aid
is generally regarded as a legal tool of secondary
or discretionary application, where the
advantages of this institution are utilized to
rectify "residual market failures, i.e., those left
unaddressed by such other policies and measures
(point 35) (Official Journal of the European
Union, 2022). Consequently, it enhances the
effectiveness of the legal framework in specific
areas of societal relations.
The mentioned context allows us to assert a
correlation between the need for state
intervention through state aid and its
"appropriateness," which, according to point 39
of the 2022 Guidelines on State aid for climate,
environmental protection and energy, is defined
as follows: "The proposed aid measure must be
an appropriate policy instrument to achieve the
intended objective of the aid, meaning there
should not be a less distortive policy and aid
instrument capable of achieving the same results"
(Official Journal of the European Union, 2022).
40
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Considering state aid as an appropriate and
proper means of implementing state policy, its
special role lies in facilitating the transition to a
sustainable societal development model. To
transform the state aid system into an effective
instrument for achieving SDGs, an update of the
guiding principles of state aid was envisaged
within "The European Green Deal", including the
guiding principles of state aid in the field of
environmental protection and energy. In
particular, as stated in subsection 2.2.2,
"Greening national budgets and sending the right
price signals", "Evaluations are underway of the
relevant State aid guidelines, including the
environmental and energy State aid guidelines.
The guidelines will be revised by 2021 to reflect
the policy objectives of the European Green
Deal, supporting a cost-effective transition to
climate neutrality by 2050, and will facilitate the
phasing out of fossil fuels, especially those that
are most polluting, ensuring a level-playing field
in the internal market. These revisions are also an
opportunity to address market barriers to the
deployment of clean products" (European
Commission, 2019).
Consequently, as a result of gradual efforts
towards shaping an adequate contemporary legal
framework to promote the integration of
sustainable development principles into key
areas of societal activity, the examples provided
in this work can be considered instances of
substantial updates to a range of EU legal acts
that define the principles of state aid compatible
with the internal market.
Conclusions
It is argued that the reform of certain legal
institutions, the norms of which are deeply
integrated into the structure and content of the
stimulating legal regime of economic law and
legislation, and whose potential could have been
utilized to achieve sustainable development
goals, occurred at varying paces and with
different degrees of adaptation to EU law.
Specifically, compared to the institution of public
procurement, the institution of state aid to
undertakings demonstrates a significantly lesser
degree of actualization and integration into the
system of legal instruments aimed at promoting
the achievement of sustainable development
goals.
As evidenced by the analysis of the current
legislation of Ukraine, inconsistencies in
substantive nature are observed, which manifest
as incomplete or contradictory reproduction of
the procedures, conditions, and other specific
aspects of providing corresponding categories of
state aid that are recognized as "compatible with
the internal market" under EU legislation and
"permissible" under national legislation.
Sometimes, this can be explained by the lack of
proper monitoring by national legislative bodies
regarding the up-to-date versions of relevant EU
legal acts and the failure to take measures for the
appropriate update of national legislation. The
most significant challenges in adapting national
legislation to EU law are vividly demonstrated in
the case of providing state aid for environmental
protection.
The research provides arguments in favor of
considering the experience of reforming the state
aid system in the EU as a good example of
directing the regulatory potential of this legal
instrument for implementing state policies
toward achieving more comprehensive goals.
These goals involve creating conditions for
sustainable societal development within secure
economic, environmental, and social
frameworks, as compared to the primary
objectives that focus on ensuring the effective
utilization of state and/or local resources without
harming free competition.
It is substantiated that it is precisely through this
model of legal regulation of the state aid system
in the EU that the modernization of Ukraine's
legislation in the field of state aid to economic
entities should take place, facilitating the use of
state and/or local resources to achieve SDGs.
Additionally, the importance of prioritizing the
compensatory function of the state aid institution
in the system of implementing state economic
policies in relevant directions is emphasized.
This entails utilizing the stimulating potential of
state aid in cases where other means of legal
influence are incapable of ensuring or cannot
fully achieve the objectives of economic,
environmental, social, and other aspects of
development.
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