Community guidelines on State aid for environmental protection (94/C 72/03)

(Text with EEA relevance)

1. INTRODUCTION

1.1. In the 1970s and early 1980s, the Community's environmental policy was mainly concerned with setting and implementing standards for the main parameters of the environment. The Commission's memorandum of 6 November 1974 on State aid in environmental matters (1) reflects this approach. The framework, which was extended with certain amendments in 1980 (2) and again in 1986 (3), provided that aid could be authorized mainly to help firms carry out investment necessary to achieve certain mandatory minimum standards. The use of State aid was considered to be a transitional stage, paving the way for gradual introduction of the 'polluter pays` principle, under which economic agents would bear the full cost of the pollution caused by their activities (4).

1.2. In the Single European Act a new section on the environment was added to the EC Treaty which gives the Community express powers in the environmental field (5). The new provisions confirm the 'polluter pays` principle but go further, calling for the requirements of environmental protection to be included in defining and implementing the Community's other policies and stressing the need for prevention. The theme of integrating the environment into other policies is taken up, along with the concept of 'sustainable development`, in the Community's fifth programme on the environment (6). This acknowledges that the traditional approach, based almost exclusively on regulation and particularly standards, has not been wholly satisfactory. It therefore argues for a broadening of the range of policy instruments. Different instruments (regulation, voluntary action and economic measures) or various combinations of these may be the best way of achieving desired environmental objectives in a given situation, depending on the legal, technical, economic and social context. Both positive financial incentives, i.e. subsidies, and disincentives, namely taxes and levies, have their place. The need to integrate environmental with other policies also means taking into account the objectives of economic and social cohesion in the Community, the requirements of maintaining the integrity of the single market, and international commitments in the environmental field.

1.3. The application of the EC Treaty rules on State aid must reflect the role economic instruments can play in environmental policy. This means taking account of a broader range of financial measures in this area. Aid control and environmental policy must also support one another in ensuring stricter application of the 'polluter pays` principle.

1.4. Subsidies may be a second-best solution in situations where the polluter pays principle - which requires all environmental costs to be 'internalized`, i.e. absorbed in firms' production costs - is not yet fully applied. However, such aid, particularly in the most polluting sectors of agriculture and industry, may distort competition, create trade barriers and jeopardize the single market. The fact is that firms in all Member States have to invest to make their plant, equipment and manufacturing processes meet environmental requirements, so gradually internalizing external environmental costs. State aid is liable to give certain firms an advantage over their competitors in other Member States not receiving such aid, even though subject to the same environmental constraints.

1.5. A description is given below of the main types of State support for environmental protection that have been notified in recent years. The various types of aid are divided into the three broad categories: investment aid, horizontal support measures and operating aid.

1.5.1. Investment incentives, possibly associated with regulation or voluntary agreements

In many areas of environmental policy, firms are required to meet certain standards by law. Such mandatory standards may transpose international agreements or Community legislation into national law, or they may be set solely on the basis of national, regional or local objectives. The common feature in such situations is that there is a legal requirement.

However, to achieve or restore a satisfactory quality of the environment in heavily industrialized areas in particular, it is necessary gradually to raise levels of protection and to encourage firms to go beyond legal requirements.

The ultimate objective of investment incentives in this sphere is to facilitate a gradual raising of the quality of the environment. Support for investment typically falls into one of the following categories:

- aid under programmes designed to help existing firms adapt their plant to new standards or encourage them to reach such standards more rapidly (aid available for a limited period to speed up the process of implementing new standards),

- aid to encourage efforts to improve significantly on mandatory standards through investment that reduces emissions to levels well below those required by current or new standards,

- aid granted in the absence of mandatory standards on the basis of agreements whereby firms take major steps to combat pollution without being legally required to do so or before they are legally required to do so,

- aid for investment in fields in which environmental action is a matter of priority, but benefits the community at large more than the individual investor and is therefore undertaken collectively. This may be the case, for example, with waste disposal and recycling,

- aid to repair past environmental damage which the firms are not under any legal obligation to remedy.

1.5.2. Aid for horizontal support measures

Horizontal support measures are designed to help find solutions to environmental problems and to disseminate knowledge about such solutions so that they are applied more widely. The wide range of activities in this field includes:

- research and development of technologies that cause less pollution,

- provision of technical information, consultancy services and training about new environmental technologies and practices,

- environmental audits in firms,

- spreading information and increasing awareness of environmental problems among the general public, general promotion of ecological quality labels and of the advantages of environmentally friendly products, etc.

1.5.3. Operating aid in the form of grants, relief from environmental taxes or charges, and aid for the purchase of environmentally friendly products

Despite the progress achieved in reducing pollution and in introducing cleaner technologies, there are many activities which damage the environment but whose environmental costs are not passed on in production costs and product prices. Conversely, the environmental benefits of products and equipment that cause less pollution are normally not fully reflected in lower prices to consumers. A clear trend is nevertheless apparent in Member States towards measures to internalize some of these external costs and benefits through taxes or through charges for environmental services, on the one hand, and through subsidies, on the other.

The introduction of environmental taxes and charges can involve state aid because some firms may not be able to stand the extra financial burden immediately and require temporary relief. Such relief is operating aid. It may take the form of:

- relief from environmental taxes introduced in some Member States, where it is necessary to prevent their firms being placed at a disadvantage compared with their competitors in countries that do not have such measures,

- grants to cover all or part of the operating cost of waste disposal or recycling facilities, water treatment plant, or similar installations, which may be run by semi-public bodies with users being charged for the service.

Cost-related charges for environmental services are in line with the 'polluter pays` principle. However, it may be necessary to delay the introduction of full charging or to cross-subsidize some users at the expense of others, especially during the transition from traditional waste disposal practices to new recycling or treatment techniques. The State may also cover part of the investment costs of such facilities.

Among the subsidies designed to reflect the positive environmental benefits of certain technologies are:

- grants or cross-subsidies to cover the extra production costs of renewable energies, and

- aid that encourages consumers and firms to purchase environmentally friendly products (7) rather than cheaper conventional ones.

1.6. These guidelines aim to strike a balance between the requirements of competition and environment policy, given the widespread use of State aid in the latter policy. Such aid is normally only justified when adverse effects on competition are outweighed by the benefits for the environment. The guidelines are intended to ensure transparency and consistency in the manner in which the Treaty provisions on State aid are applied by the Commission to the wide range of instruments described above (regulation, taxes and subsidies, training and information measures) that are used by Member States for environmental protection purposes. The following section therefore states the criteria the Commission will apply in assessing whether State aid of various types for environmental protection purposes is compatible with Article 92 of the EC Treaty. The intention is not to encourage Member States to grant aid, but when Member States wish to do so to guide them as to what types and levels of aid may be acceptable.

2. SCOPE OF THE GUIDELINES

2.1. These guidelines apply to aid in all the sectors governed by the EC Treaty, including those subject to specific Community rules on State aid (steel processing, shipbuilding, motor vehicles, synthetic fibres, transport, agriculture and fisheries), in so far as such rules do not provide otherwise. In the agricultural sector (8) the guidelines do not apply to the field covered by Council Regulation (EEC) No 2078/92 (9).

2.2. The guidelines set out the approach followed by the Commission in the assessment pursuant to Article 92 of State aid for the following purposes in the environmental field:

- investment,

- information activities, training and advisory services,

- temporary subsidies towards operating costs in certain cases,

and

- purchase or use of environmentally friendly products.

They apply to aid in all forms (10).

2.3. Aid for energy conservation will be treated like aid for environmental purposes under the guidelines in so far as it aims at and achieves significant benefits for the environment and the aid is necessary, having regard to the cost savings obtained by the investor. Aid for renewable energy, the development of which is an especially high priority in the Community (11), is also subject to these guidelines, in so far as aid for investment is concerned. However, higher levels of aid than provided for in paragraph 3.2 may be authorized in appropriate cases. Operating aid for production of renewable energies will be judged on its merits.

2.4. State aid for research and development in the environmental field is subject to the rules set out in the Community framework for State aid for research and development (12).

3. APPLICABILITY OF THE STATE AID RULES

3.1. Assessment of aid for environmental protection pursuant to Article 92 of the EC Treaty

Article 92 (1) of the EC Treaty prohibits, subject to possible exceptions, government financial assistance to specific enterprises or industries that distorts or threatens to distort competition and may affect trade between Member States. State aid for environmental protection often fulfils the criteria laid down in Article 92 (1). It confers an advantage on particular enterprises, unlike general measures which benefit firms throughout the economy, and it can affect intra-Community trade.

However, where aid meets the conditions set out below, the Commission may consider that it is eligible for one of the exemptions provided for in Article 92 of the EC Treaty. Naturally, exemption is conditional on compliance with other provisions of Community law as well, in particular those governing the single market.

3.2. Aid for investment

3.2.1. Aid for investment in land (when strictly necessary to meet environmental objectives), buildings, plant and equipment intended to reduce or eliminate pollution and nuisances or to adapt production methods in order to protect the environment may be authorized within the limits laid down in these guidelines. The eligible costs must be strictly confined to the extra investment costs necessary to meet environmental objectives. General investment costs not attributable to environmental protection must be excluded. Thus, in the case of new or replacement plant, the cost of the basic investment involved merely to create or replace production capacity without improving environmental performance is not eligible. Similarly, when investment in existing plan increases its capacity as well as improving its environmental performance, the eligible costs must be proportionate to the plant's initial capacity (13). In any case aid ostensibly intended for environmental protection measures but which is in fact for general investment is not covered by these guidelines. This is true, for example, of aid for relocating plant to new sites in the same area. Such aid is not covered by the guidelines because recent cases have shown that it may conflict with competition and cohesion policy. It will therefore continue to be considered on a case-by-case basis until sufficient experience has been built up for more general rules to be issued.

3.2.2. The rules for investment aid in general also apply to aid for investment to repair past damage to the environment, for example by making polluted industrial sites again fit for use. In cases where the person responsible for the pollution cannot be identified or called to account, aid for rehabilitating such areas may not fall under Article 92 (1) of the EC Treaty in that it does not confer a gratuitous financial benefit on particular firms or industries. Such cases will be examined on their merits.

3.2.3. As a general rule, aid for environmental investment can be authorized up to the levels set out below (14). These provisions apply both to investment by individual firms and investment in collective facilities.

A. Aid to help firms adapt to new mandatory standards

Aid for investment to comply with new mandatory standards or other new legal obligations and involving adaptation of plant and equipment to meet the new requirements can be authorized up to the level of 15 % gross (15) of the eligible costs. Aid may be granted only for a limited period and only in respect of plant which has been in operation for at least two years when the new standards or obligations enter into force.

For small and medium-sized enterprises (16) carrying out such investment an extra 10 percentage points gross of aid may be allowed. If the investment is carried out in assisted areas (17) aid can be granted up to the prevailing rate of regional aid authorized by the Commission for the area, plus, for SMEs, 10 percentage points gross in Article 92 (3) (c) areas and 15 percentage points gross in Article 92 (3) (a) areas (18).

In keeping with the 'polluter pays` principle, no aid should normally be given towards the cost of complying with mandatory standards in new plant. However, firms that instead of simply adapting existing plant more than two years old opt to replace it by new plant meeting the new standards may receive aid in respect of that part of the investment costs that does not exceed the cost of adapting the old plant.

If both Community and national mandatory standards exist for one and the same type of nuisance or pollution, the relevant standard for the purposes of this provision shall be the stricter one.

B. Aid to encourage firms to improve on mandatory environmental standards

Aid for investment that allows significantly higher levels of environmental protection to be attained than those required by mandatory standards may be authorized up to a maximum of 30 % gross of the eligble costs. The level of aid actually granted for exceeding standards must be in proportion to the improvement of the environment that is achieved and to the investment necessary for achieving the improvement.

If the investment is carried out by SMEs, an extra 10 percentage points gross of aid may be allowed. In assisted areas, aid can be granted up to the prevailing rate of regional aid authorized by the Commission for the area, plus, where appropriate, the supplements for SMEs referred to above (19).

If both Community and national mandatory standards exist for one and the same type of nuisance or pollution, the relevant standard for the purposes of applying this provision shall be the stricter one.

Where a project partly involves adaptation to standards and partly improvement on standards, the eligible costs belonging to each category are to be separated and the relevant limit applied.

C. Aid in the absence of mandatory standards

In fields in which there are no mandatory standards or other legal obligations on firms to protect the environment, firms undertaking investment that will significantly improve on their environmental performance or match that of firms in other Member States in which mandatory standards apply may be granted aid at the same levels and subject to the same condition of proportionality as for going beyond existing standards (see above).

Where a project partly involves adaptation to standards and partly measures for which there are no standards, the eligible costs belonging to each category are to be separated and the relevant limit applied.

3.3. Aid for information activities, training and advisory services

Aid for publicity campaigns to increase general environmental awareness and provide specific information about, for example, selective waste collection, conservation of natural resources or environmentally friendly products may not fall within Article 92 (1) of the EC Treaty at all where they are so general in scope and distant from the marketplace as not to confer an identifiable financial benefit on specific firms. Even when aid for such activities does fall within Article 92 (1), it will normally be exemptible.

Aid may also be authorized for the provision of training and consultancy help to firms on environmental matters. As provided under the SME aid guidelines, for SMEs such aid may be granted at rates of up to 50 % of the eligible costs (20). In assisted areas aid of at least the authorized rate of investment aid may be authorized for training and consultancy services for both SMEs and larger firms.

3.4. Operating aid

In accordance with long-standing policy the Commission does not normally approve operating aid which relieves firms of costs resulting from the pollution or nuisance they cause. However, the Commission may make an exception to this principle in certain well-defined circumstances. It has done so so far in the fields of waste management and relief from environmental taxes. The Commission will continue to assess such cases on their merits and in the light of the strict criteria it has developed in the two fields just mentioned. These are that the aid must only compensate for extra production costs by comparison with traditional costs, and should be temporary and in principle degressive, so as to provide an incentive for reducing pollution or introducing more efficient uses of resources more quickly. Furthermore, the aid must not conflict with other provisions of the EC Treaty, and in particular those relating to the free movement of goods and services.

In the field of waste management, the pubic financing of the additional costs of selective collection, recovery and treatment of municipal waste for the benefit of businesses as well as consumers may involve State aid but can in that case be authorized provided that businesses are charged in proportion to their use of the system or to the amount of waste they produce in their enterprise. Aid for the collection, recovery and treatment of industrial and agricultural waste will be considered on a case-by-case basis.

Temporary relief from new environmental taxes may be authorized where it is necessary to offset losses in competitiveness, particularly at international level. A further factor to be taken into account is what the firms concerned have to do in return to reduce their pollution. This provision also applies to reliefs from taxes introduced pursuant to EC legislation in which the Member States have discretion as to the relief or its amount.

3.5. Aid for the purchase of environmentally friendly products

Measures to encourage final consumers (firms and individuals) to purchase environmentally friendly products may not fall within Article 92 (1) of the EC Treaty because they do not confer a tangible financial benefit on particular firms. Where such measures do fall within Article 92 (1), they will be assessed on their merits and may be authorized provided that they are applied without discrimination as to the origin of the products, do not exceed 100 % of the extra environmental costs (21), and do not conflict with other provisions of the Treaty or legislation made under it (22) with particular reference to the free movement of goods.

3.6. Basis of the exemption

Within the limits and on the conditions set out in paragraphs 3.2 to 3.5, aid for the above purposes will be authorized by the Commission under the exemption provided for in Article 92 (3) (c) of the EC Treaty for 'aid to facilitate the development of certain activities . . ., where such aid does not adversely affect trading conditions to an extent contrary to the common interest.` However, aid for environmental purposes in assisted areas pursuant to Article 92 (3) (a) of the EC Treaty may be authorized under that provision.

3.7. Important projects of common European interest

Aid to promote the execution of important projects of common European interest which are an environmental priority and will often have beneficial effects beyond the frontiers of the Member State or States concerned can be authorized under the exemption provided for in Article 92 (3) (b) of the EC Treaty. However, the aid must be necessary for the project to proceed and the project must be specific and well-defined, qualitatively important, and must make an exemplary and clearly identifiable contribution to the common European interest. When this exemption is applied, the Commission may authorize aid at higher rates that the limits laid down for aid authorized pursuant to Article 92 (3) (c).

3.8. Cumulation of aid from different sources

The limits set above on the level of aid that may be granted for various environmental purposes apply to aid from all sources, including Community aid when this is combined with national aid.

4. NOTIFICATION, EXISTING AUTHORIZATIONS, DURATION AND REVIEW OF GUIDELINES AND REPORTING REQUIREMENTS

4.1. Except in so far as aid classed as 'de minimis` is concerned (23) these guidelines do not affect the obligation of Member States pursuant to Article 93 (3) of the EC Treaty to notify all aid schemes, all alterations of such schemes and all individual awards of laid made to firms outside of authorized schemes. In the notification, Member States must supply the Commission with all relevant information showing, inter alia, the environmental purpose of the aid and the calculation of eligible costs. The rules for the accelerated clearance procedure for SME aid schemes and amendments of existing schemes (24) and on the notification of cumulations of aid remain applicable (25). When it authorizes aid schemes, the Commission may require individual notification of aid awards above a certain threshold or in certain sectors, apart from those referred to in paragraph 2.1 or in other appropriate cases.

4.2. The guidelines are without prejudice to schemes that have already been authorized when the guidelines are published. However, the Commission will review such existing schemes pursuant to Article 93 (1) of the EC Treaty by 30 June 1995. Furthermore, the Commission will monitor the effects of approved aid schemes and will propose appropriate measures pursuant to Article 93 (1) if it finds the aid in question to be creating distortions of competition contrary to the common interest.

4.3. The Commission will follow these guidelines in its assessment of aid for environmental purposes until the end of 1999. Before the end of 1996 it will review the operation of the guidelines. The Commission may amend the guidelines at any time should it prove appropriate to make changes for reasons connected with competition policy, environmental policy and regional policy or to take account of other Community policies and of international commitments.

4.4. The Commission will require Member States to supply it with reports on the operation of aid schemes for environmental protection in accordance with its notice of 24 March 1993 on standardized notifications and reports.

(1) Letter to Member States SEC(74) 4264 of 6 November 1974; Fourth Report on Competition Policy, points 175 to 182.

(2) Letter to Member States SG(80) D/8287 of 7 July 1980; Tenth Report on Competition Policy, points 222 to 226.

(3) Letter to Member States SG(87) D/3795 of 23 March 1987; Sixteenth Report on Competition Policy, point 259. The 1986 version of the framework, which was due to expire at the end of 1992, was extended for a further year: see letters to Member States of 18 January and 19 July 1993.

(4) See Council recommendation of 3 March 1975 (OJ No L 194, 25. 7. 1975).

(5) Articles 130r, s and t of the EC Treaty.

(6) COM(92) 23 final, Volume II, 27 March 1992 and Council resolution of 1 February 1993.

(7) General criteria for environmentally friendly products are listed in Council Regulation (EEC) No 880/92 of 23 March 1992 on a Community eco-label award scheme (OJ No L 99, 11. 4. 1992, p. 1).

(8) Aid relating directly or indirectly to the production and/or marketing of products, excluding fisheries products, listed in Annex II to the EC Treaty.

(9) Council Regulation (EEC) No 2078/92 of 30 June 1992 on agricultural production methods compatible with the requirements of the protection of the environment and the maintenance of the countryside (OJ No L 215, 30. 7. 1992, p. 85).

(10) The principal forms are grants, subsidized loans, guarantees, tax relief, reductions in charges and benefits in kind.

(11) See Council Decision 93/500/EEC of 13 September 1993 concerning the promotion of renewable energies in the Community (Altener programme) (OJ No L 235, 18. 9. 1993, p. 41).

(12) OJ No C 83, 11. 4. 1986, p. 2.

(13) For aid concerning the disposal of animal manure, the Commission also applies by analogy the criteria set out in Annex III to Council Directive 91/676/EEC of 12 December 1991 concerning the protection of waters against pollution caused by nitrates from agricultural sources (OJ No L 375, 31. 12. 1991, p. 1).

(14) The rules for investment aid laid down in these guidelines are without prejudice to those provided by other Community legislation existing or yet to be enacted, in particular in the environmental field.

For investments covered by Article 12 (1) and (5) of Council Regulation (EEC) No 2328/91 of 15 July 1991 on improving the efficiency of agricultural structures (OJ No L 218, 6. 8. 1991, p. 1) the maximum aid level is 35 %, or 45 % in areas referred to in Council Directive 75/268/EEC of 28 April 1975 on mountain and hill farming and farming in certain less-favoured areas (OJ No L 128, 19. 5. 1975, p. 1). These maximum aid levels apply irrespective of the size of the enterprise. Consequently, the maxima may not be increased for SMEs as provided for below in this section. For investments in Objectives 1 and 5b regions, the Commission reserves the right, on a case-by-case basis, to accept higher aid levels than the above, where the Member State demonstrates to the satisfaction of the Commission that this is justified.

(15) That is the nominal before-tax value of grants and the discounted before-tax value of interest subsidies as a proportion of the investment cost. Net figures are after tax.

(16) As defined in the Community guidelines on State aid for SMEs (OJ No C 213, 19. 8. 1992, p. 2).

(17) That is areas covered by national regional development schemes independent of the Structural Funds. In areas designated as eligible for aid from the Structural Funds pursuant to Objectives 2 or 5b but not nationally assisted areas, the level of aid will be decided in relation to each scheme.

(18) See the guidelines on State aid for SMEs. If the aid available for environmental investment in a non-assisted area under these guidelines exceeds the prevailing rate of regional aid authorized for an Article 92 (3) (c) assisted area in the same country, then the rate of aid in the assisted area can be raised to that available in the non-assisted area.

(19) As in the case of aid for adapting to standards, if the aid available for environmental investment in a non-assisted area exceeds the prevailing rate of regional aid authorized for an Article 92 (3) (c) assisted area in the same country, then the rate of aid in the assisted area can be raised to that available in the non-assisted area. See also footnote 17.

(20) See footnote 16.

(21) Unless Community legislation does not allow as much as 100 % (see, for example, Council Directive 91/441/EEC of 26 June 1991 amending Directive 70/220/EEC on the approximation of the laws of the Member States relating to measures to be taken against air pollution by emissions from motor vehicles (OJ No L 242, 30. 8. 1991, p. 1).

(22) For example the car emissions directive (which also contains notification requirements) and Council Directive 83/189/EEC of 28 March 1983 laying down a procedure for the provision of information in the field of technical standards and regulations, (OJ No L 109, 26. 4. 1983, p. 8).

(23) See SME aid guidelines (OJ No C 213, 19. 8. 1992, p. 2).

(24) OJ No C 213, 19. 8. 1992, p. 10.

(25) OJ No C 3, 5. 1. 1985.