Communication from the Commission to the Council in accordance with Article 19(1) of Council Directive 2003/96/EC (waste oils)
Date: 2007-12-19
Institutions: European Commission
Subjects: derogation from EU law, energy policy, fuel, tax exemption, tax system, used oil

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 19.12.2007 
COM(2007) 826 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL 

in accordance with Article 19(1) of Council Directive 2003/96/EC (waste oils) 

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1. 

INTRODUCTION  

Article 19(1) of Council Directive 2003/96/EC1 restructuring the Community framework for 
taxation  of  energy  products  and  electricity  (hereafter  referred  to  as  the  “Energy  Tax 
Directive”  or  the  "Directive"),  stipulates  that,  in  addition  to  the  provisions  set  out  in  the 
previous articles, (in particular in Articles 5, 15 and 17), the Council acting unanimously on a 
proposal  from  the  Commission,  may  authorise  any  Member  State  to  introduce  further  tax 
exemptions or tax reductions for specific policy considerations. 

The  Commission  must  examine  any  requests  received  from  Member  States.  It  must  then 
either  present  a  proposal  to  the  Council  or,  alternatively,  inform  the  Council  of  the  reasons 
why it does not propose to authorise the measure. 

In the context of a broad review of derogations expiring in the Energy Taxation Directive by 
the  end  of  2006,  Italy,  Ireland,  Austria,  Portugal  and  the  United  Kingdom,  all  submitted 
specific requests for authorisation to derogate, from 2007 onwards, from the requirements of 
the Directive in regard to waste oils reused as fuel, either directly after recovery, or following 
a  recycling  process.  These  requests  were  registered  in  the  Directorate  General  for  Taxation 
and Customs Union2.  

By letter of 19 December 2006, all the Member States concerned were invited to re-examine 
their requests and, in the event that they were to be maintained, to submit full environmental 
arguments justifying the environmental benefits of the intended measures. In response to this 
invitation,  additional  information  was  provided  by  Ireland,  Italy,  Austria,  Portugal  and  the 
United Kingdom3. On 3 October 2007, Italy substantially restricted the scope of its request4.  

The  purpose  of  this  communication  is  to  inform  the  Council  of  the  reasons  why  the 
Commission does not propose to grant the authorisations requested. 

2. 

SUMMARY OF THE REQUEST 

2.1. 

The request submitted by Italy 

The request submitted by the Italian authorities refers to favourable tax treatment of mineral 
oils used as fuel provided that they are obtained from the regeneration process of waste oils; 
mineral oils of such origin are subject to only 50 % of the corresponding tax rate. 

The  request  is  justified  for  environmental  and  economic  reasons.  According  to  the  Italian 
authorities, the objective of the measure is to offset the additional costs related to the specific 
production process of the mineral oils in question, including the costs of collection of waste 

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Council Directive 2003/96/EC of 27 October 2003 restructuring the Community framework for taxation 
of energy products and electricity (OJ L 283 of 31.10.2003 p. 51; Directive last amended by Directives 
2004/74/EC and 2004/75/EC (OJ L 157 of 30 April 2004, p. 87 and p.100). 
Letters  registered  on  18  September  2006  (Austria),  16  October  2006  (the  United  Kingdom  and 
Portugal), 17 October 2006 (Italy) and 14 December 2006 (Ireland). 
On 14 March 2007 (Ireland), on 3 May and on 29 May 2007 (Italy), on 27 June 2007 (Austria), on 2 
April 2007 (Portugal) and on 24 January and on 22 June 2007 (the United Kingdom). 
This  modification  was  registered  with  the  Directorate  General  for  Taxation  and  Customs  Union  on 
5 October 2007. 

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oils,  the  costs  of  regeneration  and  subsequent  treatment  of  the  by-products,  such  as 
desulphurisation (which is required due to the high sulphur content of such by-products). The 
Italian  authorities  also  underline  the  importance  of  the  measure  with  respect  to  the  high 
collection  costs  due  to  the  mountainous  nature  of  the  Italian  territory,  the  type  of  the 
enterprises  involved  (small  and  medium  enterprises)  and  the  rather  old  technical  equipment 
available. 

The  Italian  authorities  stress  that  the  measure  is  in  line  with  the  provisions  of  Directive 
75/439/EEC5 and the priority given to regeneration and that it is an important element of the 
integrated  policy  stimulating  collection  and  regeneration  of  waste  oils.  In  this  context,  the 
Italian authorities point to the very high collection rates of waste oils achieved by Italy.  

The request foresees that the derogation will end on 31 December 2012. 

2.2. 

The request submitted by Ireland 

Ireland  would  like  to  apply  an  exemption  from  duty  to  waste  oils  which  are  reused  as  fuel, 
either directly after recovery or following a recycling process. 

The  purpose  of  the  measure  is  to  reduce  the  cost  associated  with  providing  a  fuel  recovery 
option and  thus  provide  an incentive towards the  collection of waste oils. In Ireland's view, 
without  favourable  tax  treatment,  operators  would  face  an  increase  in  collection  and 
compliance  costs.  The  Irish  authorities  furthermore  stress  that  regeneration  of  waste  oils  is 
uneconomic and cannot be considered as an environmentally sound option in Ireland due to 
the  small  size  of  the  market  and  its  geographic  isolation  from  larger  Member  States. 
According  to  Ireland,  any  regenerated  base  oils  produced  in  Ireland  would  have  to  be 
exported  to  a  lubricant  oil  manufacturer  abroad  as  there  are  no  such  facilities  available  in 
Ireland.  The  additional  transport  costs  would  further  worsen  the  economic  viability  of 
regeneration and increase the burden that waste oils represent for the environment.  

The Irish authorities also point out that the policy supporting the recovery of waste oils into 
fuels has the further advantages that it would reduce the need for imports to cover Irish energy 
requirements. 

Finally, Ireland also considers that given the uncertainty resulting from the ongoing revision 
of EC waste legislation6, it would be premature to amend, at this stage, national practices that 
were authorised in the past by means of a derogation. 

The request does not foresee any specific date of termination 

2.3. 

The request submitted by Austria 

The  Austrian  authorities  would  like  to  apply  a  tax  exemption  to  waste  oils  reused  as  fuel 
either  directly  after  recovery  or  following  a  recycling  process.  The  measure  is  justified  on 
environmental  policy  grounds.  Its  objective  is  to  support  the  collection  of  waste  oils. 
According to the Austrian authorities, taxing waste oils used for heating purposes would lead 

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Council  Directive  75/439/EEC  of  16  June  1976  on  the  disposal  of  waste  oils,  OJ  L  194,  p.  23,  as 
amended. 
Cf.  Commission  proposal  for  a  Directive  of  the  European  Parliament  and  of  the  Council  on  waste 
[COM(2005)667 final of 21 December 2005]. 

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to higher amounts of such waste being illegally disposed off in the environment. The Austrian 
authorities stress the minimal environmental impact of thermal treatment of waste oils in the 
mineralogical process in authorised installations. Moreover, there is already a specific charge 
levied on the disposal of waste oils and thus, according to the Austrian authorities, excise duty 
would represent a double imposition.  

The Austrian authorities also stress that the EU waste oils legislation is currently undergoing 
important  changes  and  thus  at  this  stage  it  is  premature  to  change  the  national  instrument 
framework. 

The request does not foresee any date of termination. 

2.4. 

The request submitted by Portugal 

Portugal  would  like  to  apply  a  tax  exemption  to  waste  oils  which  are  reused  as  fuel,  either 
directly after recovery or following a recycling process and where the reuse is subject to duty. 

The  objective  of  the  measure  is  to  support  an  industrial  sector  which  is  under  development 
and  not  yet  consolidated.  Therefore,  the  measure  aims  at  creating  both  fiscal  and  economic 
conditions to ensure that the activities of collection, treatment, regeneration and recycling of 
waste oils will become economically viable. 

In  the  opinion  of  the  Portuguese  authorities,  the  expiry  of  the  derogation  that  they  have 
enjoyed  in  the  past  will  act  as  disincentive  for  this  activity,  with  potentially  negative 
consequences for the environment. 

The request foresees a date of termination by 31 December 2012. 

2.5. 

The request submitted by the United Kingdom 

The United Kingdom would like to apply an exemption to waste oils which are reused as fuel, 
either directly after recovery or following a recycling process, and where the reuse is subject 
to duty. 

The United Kingdom maintains that there are minimal benefits to be derived from the shift to 
the standard tax treatment compared to the costs and other consequences associated with the 
expiry of the derogation.  

The United Kingdom is concerned that its policy  of  maximising  the  collection  and  reuse  of 
waste  oils  could  be  compromised  should  favourable  tax  treatment  no  longer  apply.  In  the 
opinion of the UK authorities, imposing excise duty on waste oils, when used for combustion 
purposes,  could  impact  on  the  demand  for  waste-derived  fuels  and  on  the  price  the  market 
would  be  able  to  bear.  Moreover,  the  United  Kingdom  insists  that  that  there  would  also  be 
increased compliance costs for the industry. In its view, there is a risk that, in order to remain 
profitable, collectors would be obliged to charge for collecting waste oil with the result that 
the illegal disposal of such products would increase with consequential negative consequences 
for the rate of collection and for the environment. 

Furthermore, the United Kingdom stresses the increase in administrative and collection costs 
particularly for small waste oil burners affected with the expiry of the derogation. 

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According to the United Kingdom, there would also be difficulties calculating duty on waste 
derived fuels because of the presence of additives and other mineral oils, components which 
have  already  been  subject  to  excise  duty.  In  order  to  avoid  double  taxation,  the  United 
Kingdom states, it would be necessary to establish a refund system in order to avoid double 
taxation.  

Additionally,  the  United  Kingdom  is  concerned  about  the  impact  of  reviewing  the  fiscal 
treatment of waste oils at a time when the future of the waste oil market is so uncertain: The 
industry is still adjusting to the introduction of the EC Waste Incineration Directive7, whilst 
the ongoing review of EC waste legislation Directive has potential implications for strategic 
decisions on waste oils. 

Finally, the United Kingdom is of the opinion that the derogation has any material effect on 
the operation of the internal market. 

The request foresees a date of termination by 31 December 2011. 

3. 

BACKGROUND TO THE REQUESTS 

According to Article 2(1)(b) of the Energy Taxation Directive, waste oils, (along with other 
mineral oils) are considered to be "energy products" for the purposes of the Directive and are 
thus taxable when used as motor fuel or heating fuel. This principle had originally come into 
force in 1993 under the Mineral Oils Directive8. However, since, then, several Member States 
have been authorised to derogate  from this  general rule and  exempt from excise duty waste 
oils reused as fuel, either directly after recovery or following a recycling process.  

The derogations were extended for the last time until 31 December 2006, a date that was later 
incorporated into the Energy Tax Directive (Article 18 and Annex II).  

In  its  June  2006  Communication  Review  of  derogations  in  Annexes  II  and  III  of  Council 
Directive  2003/96/EC  that  expire  by  the  end  of  2006  (hereafter  referred  to  as  "the  2006 
Communication")9 the Commission stated that favourable tax treatment of waste oils would, 
in its opinion, be inconsistent with Community fiscal and environmental policies, as it would 
favour waste oils over other directly competing energy products, and, at the same time, would 
favour one generic treatment of waste oils over others. 

At  the  same  time,  the  Commission  invited  the  Member  States  to  submit  a  duly  justified 
request  in  accordance  with  Article  19  of  the  Directive  if  they  were  of  the  opinion  that,  for 
specific policy considerations, a further derogation was still necessary. 

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Directive  2000/76/EC  of  the  European  Parliament  and  of  the  Council  of  4  December  2000  on  the 
incineration of waste (OJ L 332 of 28 December 2000, p. 91). 
Council  Directive  92/81/EEC  of  19  October  1992  on  the  harmonization  of  the  structures  of  excise 
duties  on  mineral  oils  (OJ  L  316  of  31.10.1992);  Directive  repealed  together  with  Council  Directive 
92/82/EEC  of  19  October  1992  on  the  approximation  of  the  rates  of  excise  duties  on  mineral  oils  as 
from 31 December 2003 by means of Council Directive 2003/96/EC. 
COM(2006)  342  of  30  June  2006  Review  of  derogations  in  Annexes  II  and  III  of  Council  Directive 
2003/96/EC that expire by the end of 2006. 

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4. 

EVALUATION BY THE COMMISSION 

At  the  outset,  it  must  be  pointed  out  that  an  authorisation  under  Article  19  of  the  Energy 
Taxation Directive may be needed to cover tax treatment of certain uses of energy products. 
However,  such  a  need  can  only  arise  with  regard  to  uses  falling  into  the  scope  of  that 
Directive.  This  does  not  apply  to  mineralogical  processes  as  defined  in  Article  2(4),  last 
indent, of the Directive. Thus, to the extent Austria or any other Member State refer to uses of 
the kind, their requests are devoid of object. 

To the extent they concern use of waste oils as heating fuel or motor fuel within the scope of 
the Energy Taxation Directive, most of the arguments put forward by the applicant Member 
States  are  identical  to  those  already  dealt  with  in  the  2006  Communication.  Neither  these 
arguments  nor  the  more  specific  arguments  put  forward  by  the  applicant  Member  States 
justify the granting of a derogation. Details are set out below.  

To  begin  with,  the  Commission  would  underline  that  arguments  merely  based  on 
consequences  inherent  in  switching  from  the  derogation  to  standard  taxation,  such  as 
administrative burdens or compliance costs, cannot be accepted. Directive 2003/96/EC does 
not, as a general rule, provide for favourable treatment of waste oils used as heating fuel or 
motor fuel, as compared to standard taxation of such fuels. On the contrary, the derogations in 
favour of such use of waste oils have deliberately been limited in time (30th recital and Article 
18  with  annex  II  to  the  Directive).  Therefore,  arguments  such  as  those  invoked  under  the 
present heading cannot be viewed as corresponding to specific policy considerations for the 
purposes of Article 19 of the Energy Tax Directive. 

Next, the interests and policies set out in Article 19 (1), third indent, oppose the granting of an 
authorisation. 

As  mentioned,  favourable  tax  treatment  may  be  justified  on  the  basis  of  environmental 
policy, where applicable. As regards the use of waste oils as fuel, the Commission considers 
that  such  a  justification  does  not  exist,  from  today’s  perspective10.  What  matters  under  the 
environmental aspect is full collection of waste oils and subsequent treatment in conformity 
with  the  applicable  rules,  in  particular  Community  legislation  (cf.  Articles  2  and  3  of 
Directive 75/439/EEC and the “Thematic Strategy on the Prevention and Recycling of Waste”, 
adopted  by  the  Commission  in  December  200511  and  endorsed  by  the  Council12  .  These 
criteria do not justify a tax treatment different from harmonised treatment when it comes to 
use as fuel. Indeed, the effects of suppressing or attenuating normal taxation under the Energy 
Taxation Directive are not limited to furthering appropriate collection. They also prevent that 
the environmental impact specific to the use as fuel be (fully) translated, in accordance with 
the  criteria  of  that  Directive.  Potential  problems  in  collection  of  waste  oils  should  be 
addressed  through  measures  targeted  precisely  at  these  problems,  but  not  through  specific 
advantages  for  use  as  fuel  which  are  not  in  line  with  the  general  system  of  the  Energy 
Taxation Directive. Whatever may be the tax treatment of non-fuels uses under national law, 
in particular of lubricants and hydraulic oils, suppression or attenuation of fuel taxation would 
thus represent an undue favour to this type of use. 

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The Commission points out that already back in 2000 it proposed to abolish the derogations for waste 
oils  because  of  their  contradiction  with  the  Community  environment  policy  (COM  (2000)  678  of  15 
November 2000. 
COM(2005) 666 of 21 December 2005. 
Council Conclusions, 27 June 2006 (10876/1/06 REV1). 

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In  the  same  context,  it  cannot  be  argued,  that  such  a  favour  contributes  to  improving  the 
security of supply of the EU or some particular Member State. Each use of waste oils saves 
primary  energy  resources,  be  it  for  combustion  purposes  or  for  regeneration  purposes 
(lubricating oils and hydraulic oils are otherwise produced from crude oil). 

From the point of view of the internal market and fair competition, it must be pointed out 
that  one  of  the  main  objectives  of  the  Energy  Tax  Directive  is  to  treat  various  competing 
energy  products  equally,  in  order  to  ensure  that  no  distortions  occur  within  the  internal 
market.  More  favourable  fiscal  treatment  of  certain  energy  products  can  be  applied  only  if 
justified, for example, on environmental grounds, which are not applicable here (cf. above). 
Furthermore, with respect to the argument put forward by the United Kingdom and according 
to  which  the  derogation  does  not  have  any  material  effect  on  the  operation  of  the  internal 
market, the Commission would point out that on the contrary such an effect is highly likely. 
The  detaxation  provided  by  the  United  Kingdom  can  indeed  attract  artificial  trade  to  the 
detriment of Member States where regeneration capacity is more developed. An illustration of 
active trade existing in this field is contained in the analytical document attached to the latest 
report on the implementation of Community waste legislation13. 

The specific arguments  put  forward  by the applicant Member States have to be  seen  in this 
context: 

The Commission cannot accept the argument invoked by some Member States whereby a tax 
exemption for waste oil used as fuel favours the collection of waste oils because it increases 
the  revenue  arising  from  their  use.  The  data  available  by  the  Commission  do  not  allow  the 
conclusion  that  a  low  collection  rate  in  a  Member  States  correlates  to  the  existence  of  an 
excise duty on waste oils used as fuel. This suggests that the conditions of collection as such 
are decisive, when it comes to ensure high collection rates. 

As  regards  the  argument  put  forward  by  Ireland,  relating  to  the  small  size  of  the  national 
market and its geographic isolation from larger Member States, it must be pointed out that this 
may have an incidence on collection costs, but this is unrelated to the final use of the waste 
oils recovered.  

Concerning the alleged difficulties invoked by the United Kingdom, namely of factoring out 
harmonised tax already borne by waste oils, the Commission considers that this aspect does 
not  change  the  analysis  either.  By  nature,  waste  oils  are  always  contaminated  through  the 
combustion  of  motor  fuels  used  as  propellant  in  the  engine  together  with  the  lubricant. 
However  the  excise  element  thus  included  in  the  price  of  the  waste  oils  is  marginal. 
Moreover,  the  Commission  also  has  to  reject  the  arguments  put  forward  by  Austria  by 
reference  to  its  national  taxation  on  waste.  The  existence  of  national  tax  rules  in  the  matter 
cannot justify a derogation from the system of harmonised taxation on energy products. 

The Commission cannot either accept the argument raised by the United Kingdom and Ireland 
related  to  the  review  of  EC  waste  legislation  and  the  potential  implications  for  strategic 
decisions on waste oil. Neither the existing Community legislation in the field of waste oils14 

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SEC(2006) 972 of 19 July 2006, in particular pp. 68 to 70 and 75. 
Cf. footnote 5above. 

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nor  the  recent  Commission  proposal  in  this  field15suggest  that  combustion  of  waste  oils 
should be specifically favoured.. 

Italy’s  intention  to  support  the  regeneration  industry,  indirectly,  through  favourable  tax 
treatment  of  recycled  fuels  produced,  this  time,  as  by-products  of  regeneration,  does  not 
justify a different analysis either. Indeed, regeneration plants are flexible and can adjust their 
products  according  to  the  market  needs.  Such  an  incentive  directed  at  a  by-product  can 
increase  the  yield  of  distilled  fuels  at  the  expense  of  the  base  oil  yield.  The  measure  thus 
creates an incentive for the production of fuels and therefore goes beyond what is necessary in 
order to promote regeneration of waste oils into base oil. 

5. 

CONCLUSION 

To the extent the requests refer to uses within the scope of the Energy Taxation Directive, the 
Commission  has  examined  the  arguments  put  forward  by  the  Member  States  concerned,  in 
particular the arguments based on environmental aspects. It concludes that they do not justify 
the  derogations  sought  for,  from  the  general  provisions  of  the  Energy  Taxation  Directive 
against the criteria of Article 19 of this Directive. 

The Commission therefore concludes that, to the extent the requests refer to uses within the 
scope of Directive 2003/96/EC, the conditions set out in Article 19 of that Directive are not 
fulfilled. Consequently, the Commission does not propose the authorisations requested.  

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Cf. footnote 6 above. 

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