State aid — United Kingdom — Aid C 61/2002 (ex N 196/2002) — Aid to newsprint reprocessing capacity support under the WRAP programme — Invitation to submit comments pursuant to Article 88(2) of the EC Treaty (Text with EEA relevance)
Date: 2002-11-20
Institutions: European Commission
Subjects: State aid, United Kingdom, action programme, control of State aid, pulp and paper industry, waste management, waste recycling

20.11.2002

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Official Journal of the European Communities

C 283/7

STATE AID — UNITED KINGDOM

Aid C 61/2002 (ex N 196/2002) — Aid to newsprint reprocessing capacity support under the
WRAP programme

Invitation to submit comments pursuant to Article 88(2) of the EC Treaty

(2002/C 283/04)

(Text with EEA relevance)

By means of the letter dated 2 October 2002, reproduced in the authentic language on the pages following
this summary, the Commission notified United Kingdom of its decision to initiate the procedure laid down
in Article 88(2) of the EC Treaty concerning the abovementioned aid.

Interested parties may submit their comments within one month of the date of publication of this
summary and the following letter, to:

European Commission
Directorate-General for Competition
State Aid Registry
B-1049 Brussels
Fax (32-2) 296 12 42.

These comments will be communicated to United Kingdom. Confidential treatment of the identity of the
interested party submitting the comments may be requested in writing, stating the reasons for the request.

SUMMARY

1. Procedure

In December 2001,
the Commission received a complaint,
against a planned aid measure by the UK Government for
the erection of a newsprint reprocessing facility under the
WRAP programme. The subsequent correspondence between
the Commission and the UK resulted in a notification dated
20 March 2002, of an aid project for a newsprint reprocessing
capacity under the Waste and resources action programme. By
letter registered on 16 July 2002, the UK notified the general
scheme ‘Waste and resources action programme’, registered
under number N 474/02. This notification will be subject to
a separate assessment.

2. Description of the measure

2.1. The WRAP programme

The aid is given within the framework of
the Waste and
resources action programme (WRAP). WRAP is an entity estab-
lished to promote sustainable waste management. It is funded
by the government for the period 2001-2004. WRAP intends
to promote the creation of a newsprint reprocessing capacity
which utilises waste newspapers and magazines as its raw
material input.

2.2. The tender process

WRAP has issued a competitive tender process in July 2001.
The tender was submitted to two key conditions: first of all, the

reprocessing facility had to produce newsprint, and must be
located within the United Kingdom. Secondly, the reprocessing
facility must use an agreed tonnage of waste paper per year
recovered from the municipal waste stream as raw material
input for the duration of the life of the facility. The agreed
tonnage must be in excess of the aggregate amount of waste
paper used by the successful bidder in a prior calendar year in
its newsprint manufacturing facilities in the UK. A funding
agreement was entered into on 21 February 2002. The
funding is subject to state aid clearance.

2.3. The beneficiary: Shotton

Shotton is based in Shotton, Flintshire, North Wales, being an
area eligible for regional aid under Article 87(3)(c) of the EC
Treaty. Shotton is owned by UPM-Kymmene Corporation, a
Finnish company. The present site of Shotton disposes of
two paper machines, using pulp derived from virgin wood
and from recycled wastepaper.

2.4. The project presented by Shotton

The project proposes the adaptation of the paper machines to
enable wastepaper to substitute for virgin pulp. It proposes also
the enhancement of one of the de-inking lines for the recycled
paper feeding one of the paper machines. This would allow an
increase in wastepaper consumption of approximately 321 000
tonnes per year. The adaptations of the facility will be finished
in 2003, and the facility will be fully operating by 2005.

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Shotton will source the waste paper from local authorities and
waste management companies, which will need to build up a
wastepaper collection infrastructure. UPM-Kymmene aims to
enter into long term contractual arrangements with local auth-
orities for the major part of its needs in waste paper. Other
specific environmental obligations are imposed on Shotton in
the specific funding agreement, concerning the reduction of the
CO2 emissions, the reduction of the lorry movements, the
reduction of emissions of volatile organic compounds, and
the recycling of water.

The total costs of the project are estimated at GBP 127,9
million (EUR 199,16 million), of which the element attrib-
utable to recycling constitutes GBP 88,2 million (EUR 137,34
million). The remaining GBP 39,7 million (EUR 61,82 million)
represent enhancements to the production and quality capa-
bilities of the existing paper machines, and do not relate to
recycling. Shotton has applied for a support of GBP 23 million
(EUR 35,81 million).

According to the UK authorities the eligible costs amount to
GBP 88 200 000 from which they deduct the investment to
meet the mandatory environmental standards (1) (GBP 35 000),
and the benefits in the year 1-5 (GBP 824 000) (2). This brings
the eligible costs to a total of GBP 87 341 000. As the support
asked amounts to GBP 23 million, the aid intensity would be
26,334 %.

3. Assessment of the measure

It

beneficiary.

The measure is funded by resources, granted by the State under
the WRAP programme. The measure is granted to an indi-
to distort
distorts or
vidual
competition, and could affect trade between Member States,
since both newsprint and waste paper are traded inter-
nationally. Therefore, the Commission considers at this stage
that the measure qualifies as State aid under article 87(1) of the
EC Treaty.

threatens

3.1. Applicability of the environmental guidelines (3)

The Commission has doubts on the fact that the aid would
qualify for an assessment under the environmental guidelines.
In general,
investment aid approved under these guidelines
aims at reducing the pollution caused by the beneficiary, but
not at indirect environmental effect, like in the case at hand.

In the first place, the Commission notes that the investment is
not designed to improve on standards directly applicable to the
company, but to comply with Community standards that apply
to the United Kingdom.

The use of waste paper for the production of newsprint seems
to be the current state of the art. Paper reprocessing facilities
exist in all Member States. Waste paper appears to be a normal
raw material with an economic value, subject to trade on the
markets.

(1) This amount is relating to the part of the investment necessary to
meet environmental standards, and concerning the monitoring of
air emissions.

(2) These benefits were calculated taking into account the difference
between the actual facility and the future facility during the first five
years of the investment.
(3) OJ C 37, 3.2.2001, p. 3.

that

the fact

the aid should be used for the
According to the tender,
production of newsprint, and the project should be located
within the UK. The winning company should commit itself
to take up an agreed tonnage of waste paper
from the
two conditions in the
municipal waste stream. The first
tender (i.e.
the aid should be used for the
production of newsprint, and the condition for the undertaking
to be located in the UK) might be seen as excessive in order to
achieve
excludes
solutions for the waste problem based on direct incentives
for
for collection systems which may rely on the market
waste paper
is
the collected waste paper
recycled. Therefore, the Commission has doubts for the justifi-
cation of these conditions for considering the aid to pursue an
environmental objective.

environmental objectives,

to ensure that

since

the

it

Taking the above considerations into account and based on the
the Commission doubts whether the
information available,
investment qualifies as an investment
in the meaning of
point 29 of the guidelines. The investment, at least in part,
may rather constitute an investment, to which the environ-
mental guidelines do not apply.

Given the doubts on the compliance with the environmental
aid guidelines, the commission assessed the measure as well
under the guidelines for national regional aid (4). However,
since it seems that
the investment not only concerns an
initial investment, but at least partly a replacement investment,
not all the investment costs would be eligible. Furthermore, the
aid intensity of the project amounts to 17 %, assuming that all
costs would be eligible for regional aid. This exceeds the
maximum aid intensity applicable in the Flintshire region,
which amounts to 15 %. Moreover, the aid would have to be
framework (5). Other
assessed
exemptions under article 87(2) and (3) of the EC Treaty do
not seem to apply either.

the multisectoral

under

3.2. Compatibility with the environmental guidelines

Although the Commission expressed doubts, at this stage, on
the applicability of the environmental guidelines, it is appro-
priate for the Commission to try and assess environmental
guidelines,
aid on that basis.
According to the UK, the maximum intensity allowed would
amount to 35 %. Increasing the recycling rate of waste paper
brings undoubtedly benefits for the environment and this
objective is in line with EU-policy on waste management.

the UK notified the

as

First of all, point 37 of the environmental guidelines requires
that the eligible costs must be strictly confined to the extra
investment
environmental
objectives. In the present case, the eligible costs presented by
the UK refer to the overall investment for the conversion of the
existing paper mills to mills using waste paper.

costs necessary

to meet

the

(4) Guidelines on national regional aid (OJ C 74, 10.3.1998, p. 9).
(5) Multisectoral
large investment
framework on regional aid for

projects (OJ C 107, 7.4.1998, p. 7).

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Secondly, point 37 of the environmental guidelines requires the
Commission to calculate the cost net of the benefits accruing
from any increase in capacity, cost savings engendered during
the first five years of the life of the investment and additional
five-year period. The UK
ancillary production during that
provided detailed information, but despite the Commission's
request,
information on the
the UK has not provided full
assumptions as regards input and output prices.

Therefore, the Commission has, at this stage and based on the
information available, doubts on the compatibility of this aid
with the environmental guidelines.

4. Conclusion

In the light of the foregoing considerations, on basis of the
the preceding preliminary
information available,
assessment, the Commission decided to initiate the proceedings
according to Article 88(2) of the EC Treaty. In accordance with
Article 14 of Council Regulation (EC) No 659/1999, all
unlawful aid can be subject to recovery from the recipient.

and of

TEXT OF THE LETTER

‘The Commission wishes to inform the United Kingdom that,
having examined the information supplied by your authorities
on the aid referred to above,
it has decided to initiate the
procedure laid down in Article 88(2) of the EC Treaty.

1. PROCEDURE

By letter dated 20 December 2001 and registered on 21
December 2001 under number A/40145,
the Commission
received a complaint, against a planned aid measure by the
UK Government for the erection of a newsprint reprocessing
facility under
the WRAP programme. The complaint was
registered by the Commission under number CP 219/01.
Following this complaint, the Commission asked for clarifi-
cations to the UK by letter dated 24 January 2002 and
registered under number D/50289. The UK replied by letter
dated 5 February 2002, and registered on 7 February 2002
under number A/30923. The Commission asked further
questions by letter dated 14 February 2002, and registered
under number D/50655. The UK replied by letter dated 7
March 2002, and registered on 11 March 2002 under
number A/31885.

the Waste

reprocessing

capacity under

the UK notified an aid project

By letter dated 20 March 2002, and registered by the
Commission on 20 March 2002, under number A/32132,
for a
the authorities of
newsprint
and
resources action programme. The notification was registered
under number N 196/02. According to the notification, the
UK authorities intended, at a later stage, to notify the general
scheme
action programme’. The
Commission informed the UK authorities that the notification
was considered to be incomplete, and asked for
further
questions by letter dated 15 May 2002 and registered under
number D/52364. The UK submitted the answers by letter
dated 14 June 2002, and registered on 19 June 2002 under
number A/34497. By letter registered on 16 July 2002, the UK

and resources

‘Waste

notified the WRAP scheme. This scheme has been registered
under number N 474/02, and will be subject to a separate
assessment. By letter dated 26 July 2002, and registered on
the same date under number A/35727, the UK asked for a
the
meeting, and agreed to extend the
Commission to take a decision until 20 October 2002. A
meeting was held on 29 August 2002 between the
Commission and representatives of the UK Government and
of
further
information by letter dated 6 September 2002.

the WRAP programme. The UK provided

time limit

for

2. DESCRIPTION OF THE MEASURE

2.1. The WRAP programme

for

and products,

The aid is given within the framework of
the WRAP
programme (hereafter WRAP). According to the information
submitted by the UK, WRAP is an entity established to
promote sustainable waste management, and more specifically
recycled materials and
to promote efficient markets
products. Its central objective is to enable recycled markets
to function more effectively by stimulating demand for
recycled materials
thereby improving the
economics of collection. WRAP's members comprise the
the Environmental Services Association
charity Wastewatch,
as well as the Secretary of State for Environment, Food and
Rural Affairs. It has as duty to administer the aid, and is funded
by the government for the period 2001-2004. WRAP ensures
recycling projects are the minimum
that
necessary, are proportionate to WRAP's objectives, and that
the use of non-government
funding is maximised. WRAP
functions as an adjunct to the government, and implements
government policies, although it has a private corporate
is provided though
form. The financial
WREB (Waste and Resources Environmental Body Limited), a
subsidiary of WRAP. WREB is also in charge with the process
for identifying the recipient of the support.

the funds

in itself

support

for

In the present case, WRAP has chosen to give support for the
creation of newsprint reprocessing capacity for the following
reasons:
in the UK newsprint sector, there seems to be an
established demand for the recycled products, but a market
failure seems to have led to a shortage of
reprocessing
capacity (6). The UK identified the main cause of the market
failure to be the lack of sufficient reprocessing capacity for
waste newsprint, which is currently being landfilled in the
UK because of the low prices for landfilling. With a greater
recycling capability, waste paper would be in strong demand.
This market failure would have led to difficulties experienced in
sourcing wastepaper in the last decade, and attendant price
fluctuations. For
reason, an increase in reprocessing
capacity has been hampered by lack of investor confidence.
In order to correct for this market failure, WRAP decided, by
way of a competitive tender process, to offer support to the
private sector
reprocessing capacity
which utilises waste newspapers and magazines as its raw
material input. According to the UK, the current project will
create a real market demand for waste paper, which will
provide environmental benefits over time.

to increase newsprint

this

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2.2. The tender process

2.4. The project

tonnage

of waste

newspapers

In the present case, WRAP has issued a competitive tender in
July 2001 inspired by EC public procurement procedures (7), in
view to promote the creation of newsprint
reprocessing
capacity. The specific aim expressed in the tender procedure
was to provide a subsidy towards the creation of a newsprint
reprocessing facility in return for a commitment to use an
and magazines
agreed
the raw
recovered from the municipal waste stream as
material for the new facility. WRAP's waste input target was
for the agreed tonnage to exceed 300 000 tonnes per year, and
the facility to enter into production in 2003, with full capacity
to be reached as soon as possible thereafter. The tender was
submitted to two key conditions: first of all, the reprocessing
facility has to produce newsprint, and must be located within
the United Kingdom. Secondly, the reprocessing facility must
use an agreed tonnage of waste paper per year recovered from
the municipal waste stream as raw material
for the
duration of the life of the facility. The agreed tonnage must
be in excess of the aggregate amount of waste paper used by
the successful bidder in a prior calendar year in its newsprint
manufacturing facilities in the UK. Tenderers needed to specify
the level of support required to bring forward their proposals,
and to demonstrate technological developments and environ-
mental benefits. Furthermore, the tender specification stipulated
that any costing included in the tender bids should only refer
to the activities and investments needed to achieve the required
environmental benefits.

input

to five companies,

appointed preferred bidder

Following the tender procedure, a prequalification pack was
four of which did prequalify and
sent
invitation document. Applications were
received a tender
finally received from two companies: Aylesford Newsprint
Limited, and UPM Kymmene — Shotton (hereafter ‘Shotton’).
Aylesford Newsprint was
in
November 2001, but during the discussion between WRAP
that Aylesford
it
and Aylesford Newsprint,
Newsprint would not be able to enter
into the level of
commitment which would enable WRAP to
contractual
achieve its objectives. That
is why WRAP reviewed its
position,
and appointed Shotton preferred bidder. The
decision was taken on 18 January 2002. Discussions then
followed
the
completion of the funding arrangements to enable the overall
investment to proceed. The funding is subject to state aid
clearance. A funding agreement was entered into on 21
February 2002.

between WRAP

regarding

appeared

Shotton,

and

According to the UK, the fact that there has been a competitive
tender to ensure that the minimum necessary is paid to secure
the existence of any
the environmental benefits, avoids
is why the UK authorities
distortion of competition. That
the funding does not constitute
consider it arguable that
State aid. But in order to obtain full
it has
been decided by the UK to notify the project.

legal certainty,

2.3. The beneficiary: Shotton

Shotton is based in Shotton, Flintshire, in North Wales, being
an area eligible for regional aid under Article 87(3)(c) of the EC
Treaty. Shotton is owned by UPM-Kymmene Corporation, a
Finnish company. The present site of Shotton disposes of
two paper machines, using pulp derived from a combination
of virgin wood and from recycled wastepaper.

The project proposes the adaptation of
the current paper
machines to enable wastepaper to substitute for virgin pulp.
It proposes also the enhancement of one of the de-inking lines
for the recycled paper feeding one of the paper machines.
According to the UK authorities, this project will allow to
achieve
of
approximately 321 000 tonnes per annum over that achieved
in the UK in 2000. This exceeds WRAP's objective of achieving
a net increase target of 300 000 tonnes per annum in the year
2000. The adaptations of the facility will be finished in 2003,
and the facility will be fully operating by 2005.

in wastepaper

consumption

increase

an

the waste paper used by
The UK authorities explain that
Shotton as raw material
in its newsprint production process
will source from local authorities and waste management
companies. UPM-Kymmene aims to enter
into long term
contractual arrangements with local authorities for the major
part of its feedstock. This will enable the local authorities to
implement comprehensive long term collection systems where
they do not currently exist. The excess wastepaper collected
prior to commissioning will be diverted to other paper mills
within the UPM-Kymmene group. According to the UK, the
local authorities and the waste management companies will
need to build up a wastepaper collection infrastructure.

Apart from the fact that Shotton has to use an agreed tonnage
recovered from the
of waste newspapers and magazines
municipal waste stream as the raw material
for the new
facility, the support to Shotton is submitted to other environ-
mental obligations set out in the funding agreement. These
comprise:

— an additional
emissions,

reduction of 118 000 tonnes of CO2

— an annual reduction of some 6 500 lorry movements (this
means a minimum reduction of some 325 000 lorry miles
per year),

— an annual reduction of 53 tonnes of emissions of volatile

organic compounds,

— the recycling of an additional total of 54 600 m3 of water.

According to the UK, the main objective of the current project
is to achieve additional newsprint recycling. But the UK argues
that the investment project would bring about other environ-
mental benefits consisting in a reduction of the waste going to
landfills (8),
in the reduction of carbon dioxide and methane
emissions from landfills, and in the virgin timber conservation
of 1,9 million tonnes. Furthermore, they claim that this project
will lead to the creation of an increasing demand for a major
proportion of
the household waste stream in the region
concerned to be recycled. This demand for waste newspapers
and magazines, being 30-40 % of household waste by weight,
would provide a stable economic platform for the estab-
lishment
for
household waste for recycling. The simultaneous collection of
other recyclable materials at much higher rates could therefore
also be supported. This leads to the conclusion that the facility
would enable greater proportions of household waste to be
recycled (9). This will bring benefits for
the environment,
while this will also allow less waste to be disposed in the
landfills.

and maintenance of

separated collections

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aid for

(hereafter

guidelines on State

The UK authorities argue that the investment in the newsprint
facility will enable the UK to make significant progress toward
achieving its obligations within the framework of European
waste management policy, and deliver tangible environmental
benefits. These environmental benefits bring the UK to affirm
that the aid qualifies for investment aid under point 29 of the
Community
environmental
protection (10)
‘environmental guidelines’), when
firms undertake investment
in the absence of mandatory
Community standards. According to the UK authorities, there
are no specific mandatory requirements for any newsprint
manufacturer to use recycled wastepaper as a raw material.
As
the new
the waste water
involve any additional
investment
In the case of air
expenditure on waste water treatment.
emissions,
referable to
there is only a very small part
mandatory air emissions standards. This investment concerns
the
for online monitoring of
equipment
emissions, and amounts approximately to GBP 35 000.

in the facility does not

far as concerns

installation of

standards,

mills to the new paper mills using only waste paper will
result in an increase in the total earnings of GBP 824 000
over the five year period from the date of full operation.

costs

eligible

guidelines:

calculated taking into account

The UK authorities calculated the aid intensity in the present
the
case on the following manner, based on point 37 of
environmental
to
amount
the
GBP 88 200 000 and they deducted from this figure the
investment to meet the mandatory environmental standards
(GBP 35 000), and the benefits in the year 1-5 (GBP 824 000).
These benefits were
the
difference between the actual facility and the future facility
during the first five years of the investment. According to
total of
the UK,
GBP 87 341 000. As the support asked amounts to GBP 23
million, the aid intensity would be 26,334 %. According to the
UK, this aid intensity would be below the maximum intensity,
which would amount to 35 % (30 % + 5 %) because of the fact
that the investment is located in a region eligible for regional
aid under Article 87(3)(c) of the EC Treaty (12).

this brings

eligible

to a

costs

the

the project,

Concerning the costs of
the total costs are
estimated at GBP 127,9 million (EUR 199,16 million) (11)),
of which the elements attributable to recycling constitutes
remaining
GBP 88,2 million (EUR 137,34 million). The
GBP 39,7 million
en-
hancements to the production and quality capabilities of the
existing paper machines, and do not
relate to recycling.
Shotton has applied for a support of GBP 23 million
(EUR 35,81 million). The UK provided a detailed schedule of
the payment of the GBP 23 million.

(EUR 61,82 million)

represent

The elements attributable to recycling are distributed as
follows:

As far as concerns the employment, the UK authorities argue
that the level of employment after the investment is expected
to be similar to the present plant.

3. PRELIMINARY ASSESSMENT OF THE MEASURE

According to Article 6 of the Procedural Regulation (13), the
decision to initiate the formal
investigation procedure shall
summarise the relevant issues of fact and law, shall include a
the Commission as to the aid
preliminary assessment of
character of
the
the proposed measure, and shall set out
doubts as to its compatibility with the common market.

(thousand GBP)

3.1. Existence of aid under Article 87(1) EC Treaty

Rebuild of recycled fibre mill line 1

Recycled fibre mill line 3

Extension of recycled fibre storage

Sludge combustion

Sludge dewatering

Power distribution

Raw water treatment

Effluent treatment

Mill site installations

8 400

40 600

6 700

22 200

4 000

1 600

1 500

700

2 500

Total

88 200

This total includes the amount of GBP 35 000 relating to the
part of
the investment necessary to meet environmental
standards, and concerning the monitoring of air emissions.
the switch from the current paper
According to the UK,

‘any aid granted by a Member
Under Article 87(1) EC Treaty,
State or
through State resources in any form whatsoever which
distorts or threatens to distort competition by favouring certain under-
takings or the production of certain goods shall, in so far as it affects
trade between Member States, be incompatible with the common
market’.

In this case, the measure is funded by resources, granted by the
State under the WRAP programme. The measure is granted to
an individual beneficiary. The aid granted under the WRAP
programme will cover a significant part of investment costs,
which will relieve the company from costs it should normally
have had to bear. The measure distorts or threatens to distort
competition, and could affect trade between Member States,
since both newsprint and waste paper are traded inter-
nationally (14).
the UK paper
from other Member
consumption is
States (15).
the UK exported
138 000 tonnes of newsprint paper in 2001. It is also clear
from the case-law of the Court that when aid granted by the
State strengthens the position of an undertaking vis-à-vis other
undertakings competing in intra-Community trade, the latter
must be regarded as affected by that aid (16).

imported mainly
It should also be noted that

large part of

In fact,

a

Therefore, the measure qualifies as State aid under Article 87(1)
of the EC Treaty.

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3.2. Assessment under rules other than the Community guidelines on

State aid for environmental protection (17)

The Commission must assess the compatibility of the eventual
aid with the EC Treaty. Consequently, the Commission has to
consider if the exemptions set out in Article 87(2) and (3) of
the EC Treaty apply. The exemptions in paragraph 2 of Article
87 of the EC Treaty could serve as a basis to consider aid
compatible with the common market. However,
the aid
measures (a) do not have a social character and are not
granted to individual consumers, (b) do not make good the
damages caused by natural disasters or exceptional occurrences
and (c) are not required in order to compensate for the
economic disadvantages caused by the division of Germany.
Neither apply the exemptions of Article 87(3)(a), (b) and (d)
of the EC Treaty that refer to promotion of the economic
development of
living is
abnormally low or where there is serious underemployment,
to projects of common European interest and to the promotion
of culture and conservation.

areas where

standard of

the

exceeds EUR 50 million,

The investment takes place in an area eligible for regional aid
under Article 87(3)(c) of the EC Treaty. For this reason, the aid
could be assessed as regional investment aid. However, since
the investment seems not to concern only an initial investment,
but seems to be at least partly a replacement investment, not
all the investment costs would be eligible for regional aid under
the Guidelines for national regional aid (18). Furthermore, the
aid intensity of the project amounts to 17 %, assuming that all
costs would be eligible for regional aid. This exceeds the
maximum aid intensity applicable in the Flintshire region,
which amounts to 15 %. Moreover, as the amount of
the
cumulative aid
investment
intensity expressed as a percentage of the eligible investment
costs is at least 50 % of the regional aid ceiling for large
companies, and the aid per
safeguarded
it would have to be
amounts
assessed
The
Commission does not have all the information for such an
the allowable intensity can only become
assessment, but
lower. For
the aid could not be approved.
reason,
this
Furthermore, according to the UK authorities, the investment
will not lead to the creation of employment, as the level of
employment is expected to be the similar to that at present.
For these reasons, the regional benefits of the project seem to
be doubtful to the Commission.

least EUR 40 000,
the multisectoral

job created or

framework (19).

to at
under

the

3.3. Assessment of the aid under the Community guidelines on State

aid for environmental protection (20)

3.3.1. Applicability of the Community guidelines on State aid

for environmental protection

Increasing the recycling rate of waste paper brings undoubtedly
benefits for the environment and this objective is in line with
EU policy on waste management. However, the Commission
has doubts that
the notified aid for the investment would
qualify for an assessment under the environmental guidelines.
It results from point 36 of the environmental guidelines that
these guidelines are applicable inter alia to investments which
are strictly necessary to meet environmental objectives.
In
general,
investment aid approved under the environmental
guidelines aims at reducing the pollution caused by the bene-
ficiary, but not at indirect environmental effects, like the case at

this

investment,

the
hand. Due to the particularities of
Commission doubts whether the aim of the environmental
guidelines is to apply to such cases. This is also confirmed
by the fact that (at least for the last years) all aid for similar
projects has been approved by the Commission as regional
investment aid on the basis of the multisectoral framework,
and not under the current environmental guidelines (21).

According to point 6 of the environmental guidelines,
the
concept of environmental protection refers to any action
to our physical
taken to remedy or prevent damage
surroundings or natural
the
resources, or
efficient use of these resources.

to encourage

is to be located within the UK. Furthermore,

According to the conditions set out in the tender, the aid
should be used for the production of newsprint, and the
project
the
winning company should commit itself to take up an agreed
tonnage of waste paper from the municipal waste stream. The
first two conditions in the tender (i.e. the fact that the aid
should be used for the production of newsprint, and the
condition for the undertaking to be located in the UK) might
be seen as excessive in order to achieve the environmental
objectives, since it excludes solutions for the waste problem
based on direct incentives for collection systems which may
rely on the market for waste paper to ensure that the collected
stage,
waste paper
the
this
these two
Commission has doubts on the justification of
conditions for considering the aid to pursue an environmental
objective.

recycled. Therefore,

at

is

the guidelines,

According to point 29 of
‘investment aid
to improve on the Community standards
enabling firms
applicable may be authorised up to not more than 30 %
gross of the eligible investment costs as defined in point 37.
These conditions also apply to aid where firms undertake
of mandatory Community
investment
standards [. . .]’.

absence

in the

The Commission notes that the investment is not designed to
improve on standards which would directly apply to the under-
takings, but to improve the recycling ration in the UK.

for

the use of waste paper

According to the information of which the Commission
disposes,
the production of
newsprint seems to be the current state of the art. It seems
that paper reprocessing facilities exist in all Member States, and
they function similarly. Waste paper appears to be a
that
normal raw material with an economic value, subject
to
trade on the markets. According to the information available
on the website of the Confederation of the European Paper
Industry,
is
produced on the basis of waste paper (22). Furthermore,
nearly the total amount of newsprint seems to be produced
on the basis of waste paper in the United Kingdom (23). Waste
paper seems therefore to be the normal raw material for the
production of newsprint. This is confirmed by the fact that
Shotton already uses waste paper in part of its current plant.

the newsprint paper

that 65 % of

seems

it

Taking the above considerations into account and based on the
the Commission doubts whether the
information available,
investment qualifies as an investment
in the meaning of
point 29 of the guidelines. The investment, at least in part,
may rather constitute an investment, to which the environ-
mental guidelines do not apply.

20.11.2002

EN

Official Journal of the European Communities

C 283/13

3.3.2. Compatibility with the environmental guidelines

Although the Commission expressed doubts, at this stage, in
the former paragraph about the applicability of the environ-
mental guidelines, it does not prejudge their applicability in the
present case. Therefore, it is appropriate for the Commission to
try and assess the aid under these guidelines, on basis of the
fact that the UK authorities notified the aid on that basis.

to meet

costs necessary

First of all, at this stage, the calculation of the eligible costs
raises doubts as far as concerning the definition of the eligible
costs. Point 37 of the environmental guidelines requires that
the eligible costs must be strictly confined to the extra
investment
environmental
objectives. In the present case, the eligible costs presented by
the UK refer to the overall investment for the conversion of the
existing paper mills to mills using waste paper. Even though
the remaining operational life of the existing machines seems
to be 10-20 years, the replacement of the existing machines
should not be considered as a whole to be admissible as an
eligible cost strictly necessary to achieve an environmental
benefit.

the

Secondly, point 37 of the environmental guidelines require the
Commission to calculate the cost net of the benefits accruing
from any increase in capacity, cost savings engendered during
the first five years of the life of the investment and additional
ancillary production during that
five-year period. The UK
provided detailed information, but despite the Commission's
information on the
request,
the UK has not provided full
It should
assumptions as regards input and output prices.

also be noted that, according to the British Recovered Paper
Association, it seems preferable to use recycled fibres in large
volumes, because it is very expensive to install the necessary
de-inking and cleaning equipment to allow recovered paper to
be re-processed (24). For this reason, the Commission doubts
whether the benefits resulting from the switch to using waste
paper as raw material instead of virgin wood pulp could be
more important than the amount of GBP 824 000 estimated
by the UK.

Therefore, the Commission has, at this stage and based on the
information available, doubts on the compatibility of this aid
with the environmental guidelines.

4. CONCLUSION

requests

In the light of the foregoing considerations, the Commission,
acting under the procedure laid down in Article 88(2) of the
EC Treaty,
its
comments and to provide all such information as may help
to assess the aid, within one month of the date of receipt of
this letter. It requests your authorities to forward a copy of this
letter to the potential recipient of the aid immediately.

the United Kingdom to submit

The Commission wishes to remind the United Kingdom that
Article 88(3) of the EC Treaty has suspensory effect, and would
draw your attention to Article 14 of Council Regulation (EC)
No 659/1999, which provides that all unlawful aid may be
recovered from the recipient.’

(6) According to the information submitted by the UK, each time the recycling capacity increased in the UK, the price of mixed waste paper and

magazines increased. The supply responds very slowly to the increasing demand, and causes upward pressure on prices.

(7) According to the UK, since the process related to the award of financial support rather than the procurement of a work, supply or service, there

could be no publication in the Official Journal. The structure of the process was however informed by the EC procurement rules.

(8) In the region where UPM-Kymmene is located, there is an abundance of low cost landfills, therefore local authorities have not been motivated to

invest in the collection of waste materials for recycling.

(9) According to the UK, it is estimated that the demand for newsprint of the scale created by the development of this facility will allow around

596 Kt of other materials (steel, aluminium, glass, newsprint, plastic) to be recycled per year.

(10) OJ C 37, 3.2.2001, p. 3.
(11) Exchange rate on 20 June 2002.
(12) Point 34(a) of the environmental guidelines.
(13) Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the EC Treaty (OJ L 83,

27.3.1999, p. 1).

(14) According to the statistics provided by the Confederation of European Paper Industries, the trade balance of waste paper amounted to 1 774

million tonnes in the EU in the year 2000.

(15) Source: British Recovered Paper Association (http://www.recycledpaper.org.uk.cpi.htm).
(16) Court of Justice, C-310/99, 7.3.2002, Italy v Commission.
(17) OJ C 37, 3.2.2001, p. 3.
(18) Guidelines on national regional aid (OJ C 74, 10.3.1998, p. 9).
(19) Multisectoral framework on regional aid for large investment projects (OJ C 107, 7.4.1998, p. 7).
(20) OJ C 37, 3.2.2001, p. 3.
(21) For example, Hamburger AG (C 72/01), Commission Decision of 9 April 2002 (not yet published); Kartogroup (N 184/2000), Commission

Decision of 18 July 2001 (http://europa.eu.int/comm/secretariat_general/sgb/state_aids/industrie/n184-00.pdf).

(22) ‘Special recycling 2000 statistics', CEPI, http://www.cepi.org/htdocs/pdfs/recycling/stats2000.pdf’
(23) http://www.paper.org.uk/htdocs/Statistics/recovered-by-sector.html
(24) British Recovered Paper Association, ‘Recycled content of paper products’, Confederation of Paper Industries, Confederation of Paper Industries —

Position Paper, http://www.recycledpaper.org.uk/cpi.htm