Community guidelines on State aid for environmental protection

Aid can be used as an incentive to companies to reach a level of environmental protection that is higher than the one they would aim for in the absence of binding standards. The Commission determines the conditions under which this aid can be allocated to undertakings without this aid interfering in the proper functioning of the common market.

ACT

Community guidelines of 1 April 2008 on State aid for environmental protection [Official Journal C 82 of 1.4.2008].

SUMMARY

State aid for environmental protection is one of the instruments for the implementation of the energy action plan for the period 2007-2009 aimed at establishing an integrated European energy and climate policy.

Principles

Controlling State aid for environmental protection is primarily intended to guarantee that aid measures will lead to higher levels of environmental protection than would have been reached in the absence of aid. The positive effects of aid must outweigh the negative effects in terms of distortions of competition, taking account of the polluter pays principle * (PPP) (art. 174 of the EC Treaty). The revision of rules governing State aid for environmental protection is carried out in accordance with the guidelines laid out in the State Aid Action Plan.

Assessment Methods: the balancing test

The “balancing test” was proposed in the “State Aid Action Plan” to assess the compatibility of aid with the common market. The balancing test allows the Commission to guarantee that State aid does has an incentive effect, is well targeted and proportional, and has a limited negative effect on competition and trade.

Aid must be able to correct market failures that are harmful to the environment. The most common market failure in the field of environmental protection is related to negative externalities. As part of their development strategy, undertakings aim to reduce production costs. To do so, they may use technology or production methods that do not take into account environmental protection. As a result, the production costs borne by the undertaking are lower than the “environmental costs” borne by society.

To correct these market failures, States may impose regulation, standards and taxes on undertakings that pollute to compensate for the negative externalities they produce in accordance with the polluter pays principle.

States may also use State aid as a positive incentive to achieve higher levels of environmental protection. Aid must encourage its beneficiary to change their behaviour and to make investments which improve environmental protection levels. However these investments may also provide economic benefits to the undertaking. It is important to verify that the aid is in fact needed and that the undertaking would not have made the investment had they not benefited from the aid measure.

Aid must have an incentive effect and be proportional. This is the case only if the same result could not be achieved without aid or with less aid. The aid amount must be limited to the minimum needed to achieve the environmental protection sought. All the economic benefits which the investment gives the undertaking must be subtracted from the investment costs.

Because it is difficult to take into account or measure all the benefits an undertaking may reap from an additional investment – the enhancement of its 'green image' for example – the amount of aid cannot reach 100 % of eligible costs, with the exception of aid granted in a genuinely competitive bidding process.

In other cases, generally, the intensity of aid * cannot exceed 50 – 60 % of eligible investment costs *. Aid to undertakings may however be increased according to the type of measure that is planned and the size of the undertaking. The present community guidelines establish rules for calculating eligible costs and aid intensity depending on project type. In certain cases, operating aid may also be granted.

Scope of application

The Community guidelines apply to all environmental protection aid measures notified to the Commission (including those notified before the guidelines were published) as well as measures which have not been notified if they are granted after these guidelines are published in the Official Journal. The Commission has identified a series of measures for which State aid may be considered to be compatible with the internal market:

• aid for undertakings which go beyond Community standards or which increase the level of environmental protection in the absence of Community standards;
• aid for the acquisition of new transport vehicles which go beyond Community standards or which increase the level of environmental protection in the absence of Community standards;
• aid for early adaptation to future Community standards;
• aid for environmental studies;
• aid for energy saving;
• aid for renewable energy sources;
• aid for cogeneration and energy-efficient district heating;
• aid for waste management;
• aid for the remediation of contaminated sites;
• aid for the relocation of undertakings;
• aid involved in tradable permit schemes;
• aid in the form of reductions of or exemptions from environmental taxes.

Follow-up and review

Every year, Member States must submit a report to the Commission on environmental aid measures. For each authorised scheme, the report must list information about large undertakings and particularly the amount of aid per beneficiary, aid intensity, a description of the measure and the type of environmental protection being promoted. State Members must also maintain a detailed register of all aid that is granted.

Community guidelines come into force on 2 April 2008 and are applicable until 31 December 2014. Four years after their publication, they shall be re-examined by the Commission based on information provided by Member States in particular. They may also be modified by the Commission for important reasons such as changes to Community policies or the conclusion of international agreements on climate change.

Context

The present Community guidelines shall replace the previous Community guidelines on State aid for environmental protection of 3 February 2001. Certain measures affected by the present guidelines are also covered by Regulation No 800/2008 of 6 August 2008 declaring certain categories of aid compatible with the common market in application of Articles 87 and 88 of the Treaty (General block exemption Regulation) [OJ L 214 of 9.8.2008].

Last updated: 11.08.2008