State aid for environmental protection

This Communication aims to determine whether and under what conditions state aid may be regarded as necessary to ensure environmental protection and sustainable development without having disproportionate effects on competition and economic growth.

ACT

Commission communication: Community guidelines on state aid for environmental protection [Official Journal C 37 of 03.02.2001].

SUMMARY

Background

Under Article 6 of the Treaty establishing the European Community (EC Treaty), environmental policy objectives must be integrated into the Commission's policy on aid controls in the environmental sector, in particular with a view to promoting sustainable development. Accordingly, competition policy and environmental policy are not mutually antagonistic: the requirements of environmental protection need to be integrated into the definition and implementation of competition policy, particularly in order to promote sustainable development. However, taking long-term environmental requirements into account does not mean that all aid has to be authorised.

Consideration has, therefore, to be given to the effects that aid may have in terms of sustainable development and full application of the "polluter-pays" principle (see Article 174 of the EC Treaty). Some forms of aid certainly do fall into this category, particularly where they make it possible to achieve a high level of environmental protection whilst avoiding any conflict with the principle of the internalisation of costs. But other forms of aid, as well as having adverse effects on trade between Member States and on competition, may run counter to the "polluter-pays" principle and may hinder the establishment of sustainable development. This might be the case, for example, where aid is designed merely to facilitate compliance with new mandatory Community standards.

Environmental aid should, however, be viewed in the general context of state aid and it should be pointed out that it is of limited importance. According to the data compiled for the Eighth Survey on state aid in the European Union, environmental aid in the period 1996-1998 accounted, on average, for only 1.85 % of the total aid granted to manufacturing and the services sector.

Scope

The guidelines apply to aid to protect the environment in all sectors governed by the EC Treaty, including those subject to specific Community rules on state aid (steel processing, shipbuilding, motor vehicles, synthetic fibres, transport and fisheries), but excluding state aid for research and development, training aid and the area covered by the guidelines for state aid in the agricultural sector. However, the guidelines do apply to the fisheries and aquaculture sector. Aid to promote the execution of important projects of common European interest that are geared, by way of priority, to the environment and often have beneficial effects beyond the frontiers of the Member State or States concerned may be authorised under the derogation in Article 87(3)(b) of the EC Treaty.

General conditions for authorising environmental aid

The guidelines recognise three main types of environmental aid, namely:

operating aid to promote waste management and energy saving: Firms should normally bear the costs of treating industrial waste in accordance with the "polluter-pays" principle. However, operating aid may be tolerated where national standards are introduced which are more stringent than the applicable Community rules or where national standards are introduced in the absence of Community rules, with the result that firms temporarily lose competitiveness at international level. All such operating aid is subject to a limited duration of five years where the aid is "degressive". Its intensity may amount to 100 % of the extra costs in the first year but must have fallen in a linear fashion to zero by the end of the fifth year. For want of European harmonisation, operating aid in the form of tax reductions or exemptions must comply with certain specific provisions. For instance, the Commission considers that operating aid may be justified for the combined production of electric power and heat where the costs of producing electric power or heat exceed market prices.
aid for small and medium-sized enterprises (SMEs) for advisory/consultancy services in the environmental field: This type of aid can be approved in accordance with Regulation (EC) No 70/2001.
investment aid: The investments concerned are investments in land which are strictly necessary in order to meet environmental objectives, investments in buildings, plant and equipment intended to reduce or eliminate pollution and nuisances, and investments to adapt production methods with a view to protecting the environment. Spending on technology transfer through the acquisition of operating licences or of patented and non-patented know-how may also qualify. Eligible costs must be confined strictly to the extra investment necessary to meet the environmental objectives.

As there are different types of investment aid (transitional investment aid to help SMEs, investments in energy saving, etc.), the guidelines spell out for each type of aid the conditions and ceilings applicable:

transitional investment aid to help SMEs adapt to new Community standards: For a period of three years from the adoption of new compulsory Community standards, investment aid to help SMEs meet new standards may be authorised up to a maximum of 15 % gross of eligible costs;
investments in energy savings: Such investments are eligible for investment aid at the basic rate of 40 % of eligible costs;
aid for firms located in assisted regions: In regions eligible for national regional aid, firms may receive aid to promote regional development. The basic rate for environmental investment aid is 30 % gross (standard system), 40 % gross (investments in energy saving, in renewable sources of energy or to promote the combined production of electric power and heat) or 50 % gross (investments in renewable sources of energy that supply an entire community);
aid for SMEs: The maximum rate of environmental aid may never exceed 100 % gross of the eligible costs.
aid for the rehabilitation of polluted industrial sites: Such aid is concerned with the quality of the soil or of surface or ground water. Where the person responsible for the pollution is not identified or cannot be made to bear the cost, the person responsible for the work may receive aid. Aid for the rehabilitation of polluted sites may amount to up to 100 % of the eligible costs, plus 15 % of the cost of the work. The eligible costs are equal to the cost of the work less the increase in the value of the land.
aid for the relocation of firms: As a rule, the relocation of firms to new sites does not constitute environmental protection and does not therefore confer entitlement to aid under the guidelines. The granting of aid may, however, be justified when a firm established, say, in an urban area lawfully carries on an activity that creates major pollution and must, on account of this location, move from its place of establishment to a more suitable area.

In order to enable the Commission to assess any substantial amounts of aid granted under authorised schemes and to decide whether such aid is compatible with the common market, any individual case of investment aid must be notified in advance to the Commission where the eligible costs exceed EUR 25 million and where the aid exceeds the gross grant equivalent of EUR 5 million.

These guidelines are no longer applicable once the new guidelines on state aid for the environment are published or, in any event, as of 30 April 2008."

See also