Community guidelines on State aid for environmental protection (Text with EEA relevance)
Date: 2008-04-01
Institutions: European Commission
Subjects: State aid, aid system, control of State aid, energy policy, energy saving, environmental protection

1.4.2008

EN

Official Journal of the European Union

C 82/1

IV

(Notices)

NOTICES FROM EUROPEAN UNION INSTITUTIONS AND BODIES

COMMISSION

COMMUNITY GUIDELINES ON STATE AID FOR ENVIRONMENTAL PROTECTION

(Text with EEA relevance)

(2008/C 82/01)

CONTENTS

1.

1.1.

1.2.

1.3.

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

State aid policy and Energy Policy for Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

State aid policy and environmental protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The balancing test and its application to aid for environmental protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.3.1.

The State Aid Action Plan: less and better targeted aid, balancing test for the assessment of aid . . . . . . . . . . . .

1.3.2.

The objective of common interest addressed by the Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.3.3.

Appropriate instrument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.3.4.

Incentive effect and necessity of aid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.3.5.

Proportionality of the aid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.3.6.

Negative effects of environmental aid must be limited so that the overall balance is positive. . . . . . . . . . . . . . . .

1.4.

1.5.

1.5.1.

1.5.2.

Implementing the balancing test: legal presumptions and need for more detailed assessment . . . . . . . . . . . . . . .

Reasons for specific measures covered by these Guidelines. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Aid for undertakings which go beyond Community standards or which increase the level of environmen-
tal protection in the absence of Community standards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Aid for the acquisition of new transport vehicles which go beyond Community standards or which increase
the level of environmental protection in the absence of Community standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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4

4

5

5

6

6

7

7

8

8

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1.5.3.

Aid for early adaptation to future Community standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.5.4.

Aid for environmental studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.5.5.

Aid for energy saving . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

9

9

9

1.5.6.

Aid for renewable energy sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10

1.5.7.

Aid for cogeneration and aid for district heating (DH) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10

1.5.8.

Aid for waste management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11

1.5.9.

Aid for the remediation of contaminated sites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11

1.5.10.

Aid for the relocation of undertakings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11

1.5.11.

Aid involved in tradable permit schemes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11

1.5.12.

Aid in the form of reductions of or exemptions from environmental taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11

2.

2.1.

2.2.

3.

3.1.

3.1.1.

3.1.2.

Scope of application and definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12

Scope of application of the Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12

Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13

compatibility of aid under Article 87(3) of the EC Treaty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

15

Compatibility of aid under Article 87(3)(c) of the EC Treaty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

15

Aid for undertakings which go beyond Community standards or which increase the level of environmen-
tal protection in the absence of Community standards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Aid for the acquisition of new transport vehicles which go beyond Community standards or which increase
the level of environmental protection in the absence of Community standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

15

17

3.1.3.

Aid for early adaptation to future Community standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17

3.1.4.

Aid for environmental studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

18

3.1.5.

Aid for energy saving . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

18

3.1.5.1.

Investment aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

18

3.1.5.2.

Operating aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

18

3.1.6.

Aid for renewable energy sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

19

3.1.6.1.

Investment aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

19

3.1.6.2.

Operating aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

19

3.1.7.

Aid for cogeneration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

20

3.1.7.1.

Investment aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

20

3.1.7.2.

Operating aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

20

3.1.8.

Aid for energy-efficient district heating. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

21

3.1.9.

Aid for waste management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

21

3.1.10.

Aid for the remediation of contaminated sites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

22

3.1.11.

Aid for the relocation of undertakings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

22

3.1.12.

Aid involved in tradable permit schemes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Page

3.2.

3.3.

4.

5.

5.1.

5.2.

Incentive effect and necessity of aid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

24

Compatibility of aid under Article 87(3)(b) of the EC Treaty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

24

Aid in the form of reductions of or exemptions from environmental taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .

25

Compatibility of aid subject to a detailed assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

26

Measures subject to a detailed assessment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

26

Criteria for economic assessment of individual cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

27

5.2.1.

Positive effects of the aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

27

5.2.1.1.

Existence of a market failure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

27

5.2.1.2.

Appropriate instrument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

27

5.2.1.3.

Incentive effect and necessity of aid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

27

5.2.1.4.

Proportionality of the aid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

28

5.2.2.

Analysis of the distortion of competition and trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

28

5.2.2.1.

Dynamic incentives/crowding out. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

29

5.2.2.2.

Maintaining inefficient firms afloat. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

29

5.2.2.3.

Market power/exclusionary behaviour. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

30

5.2.2.4.

Effects on trade and location. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

30

5.2.3.

Balancing and decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

30

6.

7.

7.1.

7.2.

7.3.

7.4.

7.5.

Cumulation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

31

Final provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

31

Annual reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

31

Transparency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

31

Monitoring and evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

31

Appropriate measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

32

Application, validity and revision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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(1)

(2)

(3)

1.

INTRODUCTION

1.1. State aid policy and Energy Policy for Europe

The spring 2007 European Council called on Member
States and EU institutions to pursue actions to develop a
sustainable integrated European climate and energy policy.
The Council stated among other things: ‘Given that energy
production and use are the main sources for greenhouse
gas emissions, an integrated approach to climate and
energy policy is needed to realise this objective. Integration
should be achieved in a mutually supportive way. With this
in mind, the Energy Policy for Europe (EPE) will pursue the
following three objectives, fully respecting Member States’
choice of energy mix and sovereignty over primary energy
sources and underpinned by a spirit of solidarity amongst
Member States:

— increasing security of supply,

— ensuring the competitiveness of European economies

and the availability of affordable energy,

— promoting environmental sustainability and combat-

ing climate change.’

As a milestone in the creation of this Energy Policy for
Europe, the European Council supported a comprehensive
Energy Action Plan for the period 2007-2009 and invited
in particular the Commission to submit the proposals
requested in the Action Plan as speedily as possible. One of
these proposals relates to the review of the Community
guidelines on State aid for environmental protection.

The European Council made a firm independent commit-
ment for the EU to achieve at least a 20 % reduction in
greenhouse gas emissions by 2020 compared to 1990. It
also stressed the need to increase energy efficiency in the
EU so as to achieve the objective of saving 20 % of the EU’s
energy consumption compared to projections for 2020,
and endorsed a binding target of a 20 % share of renew-
able energies in overall EU energy consumption by 2020 as
well as a 10 % binding minimum target to be achieved by
all Member States for the share of biofuels in overall EU
transport petrol and diesel consumption by 2020.

(4)

These new guidelines constitute one of the instruments to
implement the Action Plan and the environmental aspects
of the energy- and climate change-related targets decided
by the European Council.

Commission noted that State aid measures can sometimes
be effective tools for achieving objectives of common inter-
est. Under some conditions, State aid can correct market
failures, thereby improving the functioning of markets and
enhancing competitiveness. It can also help to promote
sustainable development, irrespective of the correction of
market failures (2). The State Aid Action Plan also stressed
that environmental protection can provide opportunities
for innovation, create new markets and increase competi-
tiveness through resource efficiency and new investment
opportunities. Under some conditions, State aid can be
conducive to these objectives, thus contributing to the core
Lisbon strategy objectives of more sustainable growth and
jobs. Decision No 1600/2002/EC of the European Parlia-
ment and of the Council of 22 July 2002 laying down the
Sixth Community Environment Action Programme (3)
(hereafter referred to as the ‘Sixth Environment Action Pro-
gramme’) identifies the priority areas for actions to protect
the environment (4).

(6)

(7)

(8)

The primary objective of State aid control in the field of
environmental protection is to ensure that State aid mea-
sures will result in a higher level of environmental protec-
tion than would occur without the aid and to ensure that
the positive effects of the aid outweigh its negative effects
in terms of distortions of competition, taking account of
the polluter pays principle (hereafter ‘PPP’) established by
Article 174 of the EC Treaty.

Economic activities can harm the environment not least
through pollution. In certain cases, in the absence of gov-
ernment intervention, undertakings can avoid bearing the
full cost of the environmental harm arising from their
activities. As a result, the market fails to allocate resources
in an efficient manner, since the (negative) external effects
of production are not taken into account by the producer,
but are borne by society as a whole.

According to the PPP, these negative externalities can be
tackled by ensuring that the polluter pays for its pollution,
which implies full internalisation of environmental costs by
the polluter. This is intended to ensure that the private
costs (borne by the undertaking) reflect the true social costs
of the economic activity. Full implementation of the PPP
would thus lead to correction of the market failure. The
PPP can be implemented either by setting mandatory envi-
ronmental standards or by market-based instruments (5).
Some of the market-based instruments may involve the
granting of State aid to all or some of the undertakings
which are subject to them.

1.2. State aid policy and environmental protection

(5)

In the ‘State Aid Action Plan — Less and better targeted
State aid: A roadmap for State aid reform 2005-2009’ (1)
(hereafter referred to as the ‘State Aid Action Plan’) the

(1) COM(2005) 107 final.

(2) See State Aid Action Plan, para. 10.
(3) OJ L 242, 10.9.2002, p. 1.
(4) The priority areas are: climate change, nature and biodiversity, envi-
ronment and health and natural resources and waste. Health is not
covered by these guidelines.

(5) With regard to the latter see the Green Paper on market-based instru-
ments for environment and related policy purposes, 28 March 2007,
COM(2007) 140 final.

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(9)

(10)

(11)

(12)

Although there are currently limits to the application of the
PPP, this regulatory failure should not prevent Member
States from imposing requirements for environmental pro-
tection that go beyond Community requirements and from
reducing negative externalities to the greatest possible
extent.

In order to increase the level of environmental protection,
Member States may want to use State aid to create incen-
tives on an individual level (at the level of the undertaking)
to achieve a higher level of environmental protection than
required by Community standards or to increase the envi-
ronmental protection in the absence of Community stan-
dards. They may also set national
standards or
environmental taxation at a higher level than required by
Community legislation or they may use environmental
taxation to implement PPP unilaterally in the absence of
Community legislation.

(15)

(16)

The Commission considers that it is necessary to revise the
State aid guidelines on environmental protection in order
to meet the objectives set out in the State Aid Action Plan,
in particular to ensure better targeted aid, improved eco-
nomic analysis and more effective procedures. Further-
more, the Commission considers it necessary to take into
account developments in environmental policy and envi-
ronmental technologies and to adjust the rules in the light
of experience.

The Commission will apply these Guidelines in the assess-
ment of environmental aid, thereby increasing legal cer-
tainty and the transparency of its decision-making. Aid for
environmental protection will primarily be justified on the
basis of Article 87(3)(c) of the EC Treaty. These Guidelines
replace the Community guidelines on State aid for environ-
mental protection (6) that came into force in 2001.

(13) Guidelines are given for two types of assessments: a stan-
dard assessment for measures involving aid under a certain
threshold or aid granted to installations with a production
capacity below a certain threshold (Chapter 3) and a
detailed assessment for measures involving aid above that
threshold or aid granted to installations with a production
capacity above that threshold as well as for aid granted to
new plants producing renewable energy where the aid
amount is based on a calculation of the external costs
avoided (Chapter 5).

(14)

These Guidelines will be applied to all measures notified to
the Commission (either because the measure is not covered
by a block exemption regulation (hereafter ‘BER’) or a BER
imposes an obligation to notify aid individually, or because
the Member State concerned decides to notify a measure
which could in principle have been exempted under a BER),
as well as in the assessment of all non-notified aid after the
publication of these Guidelines.

(6) OJ C 37, 3.2.2001, p. 3.

1.3. The balancing test and its application to aid for
environmental protection

1.3.1.

The State Aid Action Plan: less and better targeted aid,
balancing test for the assessment of aid

In the State Aid Action Plan, the Commission announced
that ‘to best contribute to the re-launched Lisbon Strategy
for growth and jobs, the Commission will, when relevant,
strengthen its economic approach to State aid analysis. An
economic approach is an instrument to better focus and
target certain State aid towards the objectives of the
re-launched Lisbon Strategy’.

In assessing whether an aid measure can be deemed com-
patible with the common market, the Commission bal-
ances the positive impact of the aid measure in reaching an
objective of common interest against its potentially nega-
tive side effects, such as distortion of trade and competi-
tion. The State Aid Action Plan, building on existing
practice, has formalised this balancing exercise in what has
been termed a ‘balancing test’ (7). It operates in three steps;
the first two steps address the positive effects of the State
aid and the third addresses the negative effects and result-
ing balancing of the positive and negative effects. The bal-
ancing test is structured as follows:

1)

Is the aid measure aimed at a well-defined objective of
common interest? (for example: growth, employ-
ment, cohesion, environment, energy security). In the
context of these Guidelines, the relevant common
interest objective is the protection of the environment.

2)

Is the aid well designed to deliver the objective of
common interest that is to say, does the proposed aid
address the market failure or other objective?

a)

is State aid an appropriate policy instrument?

b)

is there an incentive effect, namely does the aid
change the behaviour of undertakings?

c)

is the aid measure proportional, namely could
the same change in behaviour be obtained with
less aid?

3) Are the distortions of competition and effect on trade
limited, so that the overall balance is positive?

(7) Cf. State Aid Action Plan, para. 11 and 20, as elaborated in more
detail in the Communication on innovation (COM(2005) 436 final
21.9.2005).

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(17)

This balancing test is applicable to the design of State aid
rules as well as to the assessment of cases.

differentiated, not only between undertakings, but also
between Member States. Member States may furthermore
have a different appreciation of the need to introduce high
environmental targets.

1.3.2.

The objective of common interest addressed by the
Guidelines

(18)

The first indent of Article 2 of the Treaty on European
Union stipulates that sustainable development is one of the
objectives in the European Union. This should be based on
economic prosperity, social cohesion and a high level of
protection of the environment. Promoting environmental
protection is thus an important objective of common inter-
est. In addition, Article 6 of the EC Treaty mentions the
need to integrate protection of the environment into all
Community policies and Article 174(2) of the EC Treaty
states that environment policy is to be based on the prin-
ciples of precaution, prevention, rectifying pollution (8) at
source and ‘polluter pays’.

(19)

These Guidelines lay down the conditions for authorising
the granting of State aid to address those market failures
which lead to a sub-optimal
level of environmental
protection.

(20)

The most common market failure in the field of environ-
mental protection is related to negative externalities.
Undertakings acting in their own interest have no incen-
tive to take the negative externalities arising from produc-
tion into account either when they decide on a particular
production technology or when they decide on the produc-
tion level. In other words, the production costs that are
borne by the undertaking are lower than the costs borne by
society. Therefore undertakings have no incentive to reduce
their level of pollution or to take individual measures to
protect the environment.

(21) Governments confronted with this market failure tend to
use regulation in order to ensure that the negative exter-
nalities arising from production are accounted for. Through
the introduction of standards, taxation, economic instru-
ments and other regulation, the undertakings producing
pollution have to pay for the cost to society of pollution in
accordance with the PPP. Internalising these negative exter-
nalities will consequently raise the private costs borne by
those undertakings, thereby negatively affecting their rev-
enue. Moreover, since the generation of pollution is
unevenly spread among industries and undertakings, the
costs of any environmentally friendly regulation tend to be

(8) This can include activities such as the release of chemical pollutants
into the environment, or for instance physically altering the aquatic
environment, and thereby causing disturbances of ecosystems or
activities having a negative impact on the status of water resources.

(22)

In the absence of Community standards and market-based
instruments fully reflecting the PPP level (regulatory fail-
ure), Member States may thus decide unilaterally to pursue
a higher level of environmental protection. This may in
turn create additional costs for the undertakings active in
their territory. For that reason, in addition to regulation,
Member States may use State aid as a positive incentive to
achieve higher levels of environmental protection. They
can do this in two ways:

— positive individual incentives to reduce pollution
and other negative impacts on the environment:
First, Member States can create positive incentives on
an individual level (at the level of the undertaking) to
go beyond Community standards. In this case, the aid
beneficiary reduces pollution because it receives aid to
change its behaviour, and not because it has to pay for
the costs of this pollution. The objective of State aid
here is to address directly the market failure linked
with the negative effects of pollution;

— positive incentives to introduce national environ-
mental regulation going beyond Community
standards: Second, Member States can impose
national regulation going beyond the Community
standards. However, this may lead to additional costs
for certain undertakings, and thus affect their com-
petitive conditions. Moreover, such costs may not
represent the same burden for all undertakings given
their size, market position, technology and other
specificities. In this case, State aid may be necessary,
to lessen the burden on the most affected undertak-
ings and thereby enable Member States to adopt
national environmental regulation that is stricter than
Community standards.

1.3.3. Appropriate instrument

(23)

There is a role for government intervention to ensure more
adequate
environmental protection. Regulation and
market-based instruments are the most important tools to
achieve environmental objectives. Soft instruments, such as
voluntary eco-labels, and the diffusion of environmentally
friendly technologies may also play an important role.
However, even if finding the optimal mix of policy instru-
ments can be complicated, the existence of market failures
or political objectives does not automatically justify the use
of State aid.

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(24) According to the PPP, the polluter should pay all the costs
of its pollution, including the indirect costs borne by soci-
ety. For this purpose, environmental regulation can be a
useful instrument to increase the burden on the polluter.
Respect for the PPP ensures, in theory, that the market fail-
ure linked to negative externalities will be rectified. Conse-
quently,
further
government intervention would not be necessary to ensure
a market-efficient outcome. The PPP remains the main rule
and State aid is in fact a second-best option. Using State aid
in the context of the PPP would relieve the polluter of the
burden of paying the cost of its pollution. Therefore, State
aid may not be an appropriate instrument in such cases.

the PPP were fully implemented,

if

1.3.4.

Incentive effect and necessity of aid

(27)

State aid for environmental protection must result in the
recipient of the aid changing its behaviour so that the level
of environmental protection will be higher than if the aid
had not been granted. However,
investments which
increase the level of environmental protection may at the
same time increase revenues (9) and/or decrease costs (10)
and thus be economically attractive in their own right.
Therefore, it needs to be verified that the investment con-
cerned would not have been undertaken without any
State aid.

(25) However, on account, in particular, of incomplete imple-
mentation of the PPP, the existing level of environmental
protection is often considered to be unsatisfactory for the
following reasons:

(28)

a)

first, the exact cost of pollution is not easy to estab-
lish. It is technically complicated to calculate the extra
costs for society for all types of production, and it may
sometimes be inefficient to take account of the fact
that different producers have different levels of pollu-
tion if the associated administrative costs are very
high. Different sensitivities towards changes in con-
sumer prices (price elasticity) also play a role. Further-
more, the valuation of the cost of pollution can differ
among individuals and societies, depending on societal
choices as regards, for instance, the effect of current
policies on future generations. In addition, some costs
are difficult to express without some uncertainty in
monetary terms, such as shorter life expectancy or
environmental damage. There will therefore always be
a degree of uncertainty involved in calculating the
costs of pollution.

b)

second, raising the price of a series of (industrial) prod-
ucts too abruptly in order to internalise the cost of
pollution may act as an external shock and create dis-
turbances in the economy. Governments may there-
fore consider it more desirable to progress with
moderation towards integrating the full price of pol-
lution into certain production processes.

(26)

In the context of an unsatisfactory level of environmental
protection, State aid, although it does not resolve all the
above-mentioned problems, may provide positive incen-
tives for undertakings to carry out activities or make invest-
ments which are not mandatory and would otherwise not
be undertaken by profit -seeking companies. In addition,
State aid may be an appropriate instrument to enable Mem-
ber States to adopt national environmental regulation
going beyond Community standards, by lowering the bur-
den on the undertakings most affected by that regulation,
and thus making the regulation possible.

The objective is to be sure that undertakings would not,
without the aid, engage in the same activity because of its
intrinsic benefits. The incentive effect is identified through
counterfactual analysis, comparing the levels of intended
activity with aid and without aid. Correct identification of
the counterfactual scenario is key to determining whether
or not State aid has an incentive effect. It is also essential
for the calculation of the extra investment or production
costs incurred to achieve the higher level of environmental
protection.

(29)

Investment may be necessary in order to meet mandatory
Community standards. Since the company would have to
comply with those standards in any event, State aid to meet
mandatory Community standards that are already in force
cannot be justified.

1.3.5.

Proportionality of the aid

(30) Aid is considered to be proportional only if the same result
could not be achieved with less aid. In addition, propor-
tionality may also depend on the degree of selectivity of a
measure.

(31)

In particular, the aid amount must be limited to the mini-
mum needed to achieve the environmental protection
sought. Therefore, eligible costs for investment aid are
based on the notion of the extra (net) cost necessary to
meet the environmental objectives. This concept implies
that, in order to establish how much aid can be granted, all
the economic benefits which the investment gives the com-
pany must in principle be subtracted from the additional
investment costs.

(9) More environmentally friendly production may result, for example, in
more possibilities for recycling waste materials, thus generating addi-
tional revenues. It may also be possible to increase the price or the
sales of products that are perceived as more environmentally-friendly
and thus more appealing to consumers.

(10) More environmentally friendly production may result notably in

reduced consumption of energy and input materials.

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example,

investment. For

(32) However, it is difficult to fully take into account all eco-
nomic benefits which a company will derive from an addi-
according to the
tional
methodology for calculating eligible costs set out
in
points 80 to 84, operating benefits are not taken into
account beyond a certain initial period following the invest-
ment. Likewise, certain kinds of benefits which are not
always easy to measure — such as the ‘green image’
enhanced by an environmental investment — are not taken
into account in this context either. Consequently, in order
for the aid to be proportionate, the Commission considers
that the aid amount must normally be less than the eligible
investment costs, see Annex. It is only in cases where
investment aid is granted in a genuinely competitive bid-
ding process on the basis of clear, transparent and non dis-
criminatory criteria — effectively ensuring that the aid is
limited to the minimum necessary for achieving the envi-
ronmental gain — that the aid amount may reach 100 %
of the eligible investment cost. This is because under such
circumstances it can be assumed that the respective bids
reflect all possible benefits that might flow from the addi-
tional investment.

(33) Moreover, for some measures, it is not possible to calcu-
late the amount of aid on the basis of the extra costs; this is
the case for aid in the form of environmental tax exemp-
tions or reductions and aid in the form of tradable permit
schemes. In those cases, proportionality has to be ensured
through conditions and criteria for granting the exemp-
tions and reductions, which ensure that the beneficiary
does not receive excessive advantages, and that the selec-
tivity of the measure is limited to the strict minimum.

(34)

(35)

The cost of achieving environmental protection is often
higher for small and medium-sized enterprises in relative
terms compared to the size of their activity. In addition, the
ability of small and medium-sized enterprises to bear such
costs is often restricted by capital market imperfections.
For this reason, and in view of the reduced risk of serious
distortions of competition when the beneficiary is a small
or medium-sized enterprise, a bonus can be justified for
such enterprises for some types of aid.

In addition, Member States are encouraged to ensure cost-
effectiveness in achieving environmental benefits,
for
example by choosing measures for which the external costs
avoided are significant in relation to the amount of aid.
However, since there is no direct link between the external
costs avoided and the cost incurred by the undertaking,
only in exceptional cases may external costs avoided be
used as a basis to determine State aid amounts. Normally,
in order to ensure an adequate incentive for the undertak-
ing to change its behaviour, the aid amount must be linked
directly to the cost borne by the undertaking.

1.3.6. Negative effects of environmental aid must be limited so

that the overall balance is positive

unduly distort competition is normally rather limited. Con-
sequently, it is crucial that environmental State aid mea-
sures are well targeted. In cases where aid is not necessary
or proportionate to achieve its intended objective it will
harm competition. This may in particular be the case if aid
leads to:

a) maintaining inefficient firms afloat;

b)

distorting dynamic incentives/crowding out;

c)

creating market power or exclusionary practices;

d)

artificially altering trade flows or the location of
production.

(37)

In some cases, the purpose of the measure is to intervene
in the functioning of the market with a view to favouring,
to the overall benefit of the environment, certain environ-
mentally friendly productions at the expense of other, more
polluting ones. As a result of such measures, the producers
of the environmentally friendly products concerned will be
able to improve their market position in relation to com-
petitors offering environmentally less beneficial products.
In such cases, the Commission will take into account the
overall environmental effect of the measure when looking
at its negative impact on the market position, and thus on
the profits, of non-aided firms. The lower the expected
environmental effect of the measure in question, the more
important the verification of its effect on market shares and
profits of competing products.

1.4.

Implementing the balancing test: legal presump-
tions and need for more detailed assessment

(38) Without prejudice to Articles 4 to 7 of Council Regulation
(EC) No 659/1999 of 22 March 1999 laying down detailed
rules for the application of Article 93 of the EC Treaty (11),
the legal presumptions applied by the Commission differ
according to the type of State aid measure notified.

(39)

In Chapter 3 of these Guidelines, the Commission has iden-
tified a series of measures in respect of which it considers a
priori that State aid will address a market failure hampering
environmental protection or improve on the level of envi-
ronmental protection. The Commission also sets out a
series of conditions and parameters, which are intended to
ensure that State aid actually has an incentive effect, is pro-
portionate and has a limited negative impact on competi-
tion and trade. Chapter 3 thus contains parameters in
respect of the aided activity, aid intensities and conditions
attached to compatibility.

(36)

If environmental State aid measures are well targeted to
counterweigh only the actual extra costs linked to a higher
level of environmental protection, the risk that the aid will

(11) OJ L 83, 27.3.1999, p. 1. Regulation as last amended by Regulation

(EC) No 1791/2006 (OJ L 363, 20.12.2006, p. 1).

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(40) However, for aid amounts above certain thresholds as well
as for certain specific situations, additional scrutiny is nec-
essary, because of higher risks of distortion of competition
and trade. The additional scrutiny will generally consist in
further and more detailed factual analysis of the measure in
accordance with Chapter 5. These measures will be declared
compatible if the balancing test pursuant to Chapter 5
results in an overall positive evaluation. In the context of
this analysis, no compatibility criteria will be presumed to
be fulfilled at the outset. Tax exemptions and reductions
from environmental taxes will be subject only to the assess-
ment laid down in Chapter 4 (12).

(41) As a result of this detailed assessment, the Commission
may approve the aid, declare it incompatible with the com-
mon market or take a compatibility decision subject to
conditions.

1.5. Reasons for specific measures covered by these
Guidelines

(42)

The Commission has identified a series of measures for
which State aid may, under specific conditions, be compat-
ible with Article 87(3)(c) of the EC Treaty.

1.5.1. Aid for undertakings which go beyond Community
standards or which increase the level of environmental
protection in the absence of Community standards

1.5.3. Aid for early adaptation to future Community standards

(45)

These Guidelines do not authorise aid to assist undertak-
ings to comply with Community standards already in force,
because such aid would not lead to a higher level of envi-
ronmental protection. However, State aid may ensure sig-
nificantly quicker
implementation of newly adopted
Community standards which are not yet in force and
thereby contribute to reducing pollution at a faster pace
than would have been the case without the aid. In such
situations, State aid may therefore create individual incen-
tives for enterprises to counterbalance the effects of the
negative externalities linked to pollution.

1.5.4. Aid for environmental studies

(46) Aid to companies for studies on investments aimed at
achieving a level of environmental protection going beyond
Community standards or increasing the level of environ-
mental protection in the absence of Community standards,
as well as studies on energy saving and production of
renewable energy, addresses the market failure linked to
asymmetric information. Often undertakings underesti-
mate the possibilities and benefits related to energy saving
and renewable energy, which leads to under-investment.

(43)

This type of aid provides individual incentives to compa-
nies to achieve higher environmental protection. Normally,
an undertaking does not have an incentive to go beyond
mandatory standards if the cost of doing so exceeds the
benefit for the undertaking. In such cases State aid may be
granted to give an incentive to undertakings to improve
environmental protection. In accordance with the Commu-
nity objective to support eco-innovation, more favourable
treatment can be accepted for eco-innovation projects that
address the double market failure linked to the higher risks
of innovation, coupled with the environmental aspect of
the project. Aid for eco-innovation thus aims to accelerate
the market diffusion of eco-innovations.

(47)

1.5.2. Aid for the acquisition of new transport vehicles which
go beyond Community standards or which increase the
level of environmental protection in the absence of Com-
munity standards

(44)

Transport is responsible for a large share of overall green-
house gas emissions (approximately 30 %), as well as for
local pollution by dust, particulates, NOx and SOx. Hence,
it is important to encourage clean modes of transport, both
in order to fight global climate change and in order to
reduce local pollution, in particular in cities. In this con-
text, it is particularly important to encourage the acquisi-
tion of clean transport vehicles (including clean ships).

1.5.5. Aid for energy saving

This type of aid addresses the market failure linked to nega-
tive externalities by creating individual incentives to attain
environmental targets for energy saving and for the reduc-
tion of greenhouse gas emissions. At Community level, in
the Communication from the Commission to the European
Council and the European Parliament — an Energy Policy
for Europe (13) the aim has been set to achieve at least a
20 % reduction in greenhouse gas emissions by 2020 com-
pared to 1990, as endorsed by the European Council of
8 and 9 March 2007. Furthermore, Member States are
obliged to adopt and aim to achieve an overall national
indicative energy savings target of 9 % over nine years in
accordance with Directive 2006/32/EC of the European
Parliament and of the Council of 5 April 2006 on energy
end-use efficiency and energy services and repealing Coun-
cil Directive 93/76/EEC (14). State aid may be appropriate
where the investments resulting in energy savings are not
compulsory pursuant to applicable Community standards
and where they are not profitable, that is to say where the
cost of energy saving is higher than the related private eco-
nomic benefit. In the case of small and medium-sized
enterprises, more favourable support may be needed to
take into account the fact that these enterprises often
under-estimate the benefits related to energy savings over
long periods, which leads to their under-investment in
energy-saving measures.

(12) Aid granted in the form of fiscal aid in accordance with Chapter 3 will
be subject to a detailed assessment if the thresholds in Chapter 5 are
exceeded.

(13) COM(2007) 1 final.
(14) OJ L 114, 27.4.2006, p. 64.

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1.5.6. Aid for renewable energy sources

energy from traditional biofuels, on the one hand, and of
those biofuels which give additional benefits, on the other
hand.

(48)

This type of aid addresses the market failure linked to nega-
tive externalities by creating individual
incentives to
increase the share of renewable sources of energy in total
energy production. Increased use of renewable energy
sources is one of the Community’s environmental priori-
ties as well as an economic and energy-related priority. It is
expected to play an important role in meeting the targets
for the reduction of greenhouse gas emissions. At Commu-
nity level, in the Communication from the Commission to
the European Council and the European Parliament — an
energy policy for Europe the target has been set for renew-
able energy to account for 20 % of overall EU energy con-
sumption by 2020. State aid may be justified if the cost of
production of renewable energy is higher than the cost of
production based on less environmentally friendly sources
and if there is no mandatory Community standard con-
cerning the share of energy from renewable sources for
individual undertakings. The high cost of production of
some types of renewable energy does not allow undertak-
ings to charge competitive prices on the market and thus
creates a market-access barrier for renewable energy. How-
ever, due to technological developments in the field of
renewable energy and to gradually increasing internalisa-
tion of environmental externalities (resulting, for example,
from Directive 2008/1/EC of the European Parliament and
of the Council of 15 January 2008 concerning integrated
pollution prevention and control (15), air quality legislation
and the emissions trading scheme), the cost difference has
shown a decreasing trend over the past years, thus reduc-
ing the need for aid.

(49)

In addition, as highlighted in the Biofuel Progress
Report (16), biofuel promotion should benefit both security
of supply and climate change policy in a sustainable way.
Therefore, State aid may be an appropriate instrument only
for those uses of renewable energy sources where the envi-
ronmental benefit and sustainability is evident. More par-
ticularly, biofuels not fulfilling the sustainability criteria set
out in Article 15 of the proposal for a Directive of the
European Parliament and the Council on the promotion of
the use of energy from renewable sources (17) will not be
considered eligible for State aid. When designing their sup-
port systems, Member States may encourage the use of bio-
fuels which give additional benefits — including the
benefits of diversification offered by biofuels made from
wastes, residues, cellulosic and ligno-cellulosic material —
by taking due account of the different costs of producing

(15) OJ L 24, 29.1.2008, p. 8.
(16) COM(2006) 845 final.
(17) COM(2008) 19 final. Once the Directive has been adopted by the
European Parliament and the Council, the Commission will apply the
sustainability criteria in the final text.

(50) With regard to hydropower installations it should be noted
that their environmental impact can be twofold. In terms
of low greenhouse gas emissions they certainly provide
potential. Therefore, they can play an important part in the
overall energy mix. On the other hand, such installations
might also have a negative impact, for example on water
systems and biodiversity (18).

1.5.7. Aid for cogeneration and aid for district heating (DH)

(51)

These types of aid address market failure linked to negative
externalities by creating individual incentives to meet envi-
ronmental targets in the field of energy savings. Cogenera-
tion of heat and electricity (hereafter ‘CHP’) is the most
efficient way of producing electricity and heat simulta-
neously. By producing both electricity and heat together,
less energy is wasted in production. The Community strat-
egy outlined in the Commission’s cogeneration strategy of
1997 sets an overall indicative target of doubling the share
of electricity production from cogeneration to 18 % by
2010. Since then the importance of CHP for the EU energy
strategy has been underlined by the adoption of Directive
2004/8/EC of the European Parliament and of the Council
of 11 February 2004 on the promotion of cogeneration
based on a useful heat demand in the internal energy mar-
ket and amending Directive 92/42/EEC (19) and by a chap-
ter on cogeneration in the Commission Action Plan for
Energy Efficiency: Realising the Potential (20). The latter
document also points to the potential of waste heat, for
example from industry or utilities, for useful applications,
for example in district heating (hereafter ‘DH’). Further, DH
may be more energy-efficient than individual heating and
may provide a significant improvement in urban air qual-
ity. Therefore, provided that DH is shown to be less pol-
luting and more energy efficient in the generation process
and the distribution of the heat, but more costly than indi-
vidual heating, State aid can be granted with a view to giv-
ing incentives to attain environmental targets. However, as
in the case of renewable energies, the progressive internali-
sation of environmental externalities in the costs of other
technologies can be expected to reduce the need for aid by
bringing about a gradual convergence of these costs with
those of CHP and DH.

(18) Directive 2000/60/EC of the European Parliament and of the Coun-
cil of 23 October 2000 establishing a framework for Community
action in the field of water policy (OJ L 327, 22.12.2000, p. 1). Direc-
tive as last amended by Decision No 2455/2001/EC (OJ L 331,
15.12.2001, p. 1). In particular Article 4(7) lays down criteria in rela-
tion to allowing new modifications of bodies of water.

(19) OJ L 52, 21.2.2004, p. 50.
(20) COM(2006) 545 final.

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1.5.8. Aid for waste management

1.5.11. Aid involved in tradable permit schemes

(52)

This type of aid aims to give individual incentives to reach
environmental targets linked to waste management (21).
The Sixth Environment Action Programme identifies waste
prevention and management as one of the four top priori-
ties. Its primary objective is to separate waste generation
from economic activity, so that EU growth will not lead to
more and more waste. In this context, State aid may be
granted to the producer of the waste (under section 3.1.1)
as well as to undertakings managing or recycling waste cre-
ated by other undertakings (under section 3.1.9). However,
the positive effects on the environment must be ensured,
the PPP must not be circumvented and the normal func-
tioning of secondary materials markets should not be
distorted.

1.5.9. Aid for the remediation of contaminated sites

(53)

This type of aid is intended to create an individual incen-
tive to counterbalance the effects of negative externalities,
where it is not possible to identify the polluter and make it
pay for repairing the environmental damage it has caused.
In such cases, State aid may be justified if the cost of reme-
diation is higher than the resulting increase in the value of
the site.

1.5.10. Aid for the relocation of undertakings

(54)

This type of investment aid aims to create individual incen-
tives to reduce negative externalities by relocating under-
takings that create major pollution to areas where such
pollution will have a less damaging effect, which will
reduce external costs. In line with the precautionary prin-
ciple, these Guidelines introduce the possibility of granting
aid for the relocation of high risk establishments in accor-
dance with Council Directive 96/82/EC of 9 December
1996 on the control of major-accident hazards involving
dangerous substances (22) (hereafter the ‘Seveso II Direc-
tive’). Past accidents have shown that the location of an
establishment covered by the Seveso II Directive is of cru-
cial importance as regards both the prevention of accidents
and limitation of the consequences of accidents on people
and the environment. State aid may therefore be justified if
the relocation is made for environmental reasons. To
ensure that aid is not granted for relocation for other pur-
poses, an administrative or judicial decision of a competent
public authority or an agreement between the competent
public authority and the undertaking to relocate the firm is
required. The eligible costs must take into account any
advantages that the firm may obtain due to the relocation.

(21) Waste management includes re-utilisation, recycling and recovery.
(22) OJ L 10, 14.1.1997, p. 13. Directive as last amended by Regulation
(EC) No 1882/2003 of the European Parliament and of the Council
(OJ L 284, 31.10.2003, p. 1).

(55)

Tradable permit schemes may involve State aid in various
ways, for example, when Member States grant permits and
allowances below their market value and this is imputable
to Member States. This type of aid may be used to target
negative externalities by allowing market-based instru-
ments targeting environmental objectives to be introduced.
If the global amount of permits granted by the Member
State is lower than the global expected needs of undertak-
ings, the overall effect on the level of environmental pro-
tection will be positive. At the individual level of each
undertaking, if the allowances granted do not cover the
totality of expected needs of the undertaking, the undertak-
ing must either reduce its pollution, thus contributing to
the improvement of the level of environmental protection,
or buy supplementary allowances on the market, thus pay-
ing a compensation for its pollution. To limit the distor-
tion of competition, no over-allocation of allowances can
be justified and provision must be made to avoid undue
barriers to entry.

(56)

The criteria set out in point 55 form the basis for the Com-
mission’s assessment of situations arising during the trad-
ing period ending on 31 December 2012. With respect to
situations arising during the trading period after that date,
the Commission will assess the measures according to
whether they are both necessary and proportional. Finally,
this will inform the revision of these Guidelines taking into
account, in particular, the new Directive on the EU CO2
Emission Trading System, for the trading period after
31 December 2012.

1.5.12. Aid in the form of reductions of or exemptions from

environmental taxes

(57) Reductions of and exemptions from environmental taxes
concerning certain sectors or categories of undertakings
may make it feasible to adopt higher taxes for other under-
takings, thus resulting in an overall improvement of cost
internalisation, and to create further incentives to improve
on environmental protection. Accordingly, this type of aid
may be necessary to target negative externalities indirectly
by facilitating the introduction or maintenance of relatively
high national environmental taxation. For aid to be com-
patible, it must be shown that the exemptions or reduc-
tions are necessary for all the suggested categories of
beneficiaries and that they are proportional in size. This is
assumed to be the case if beneficiaries pay at least the Com-
munity minimum tax level set by the applicable Directive,
if any. Otherwise, the necessity will depend on the extent
to which the national tax impacts on production costs as
well as on the possibility to pass on the tax to consumers
and reduce profit margins. Proportionality will depend on
the extent to which the beneficiaries can further reduce
their consumption or emission, pay a part of the national
tax or enter into environmental agreements to reduce
pollution (23).

(23) The Commission may re-evaluate the approach towards this kind of

aid when Directive 2003/96/EC is reviewed.

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2. SCOPE OF APPLICATION AND DEFINITIONS

(63)

(58)

(59)

(60)

(61)

2.1. Scope of application of the Guidelines

These Guidelines apply to State aid for environmental pro-
tection. They will be applied in accordance with other
Community policies on State aid, other provisions of the
Treaty establishing the European Community and the
Treaty on European Union and legislation adopted pursu-
ant to those Treaties.

These Guidelines apply to aid (24) to support environmen-
tal protection in all sectors governed by the EC Treaty.
They also apply to those sectors which are subject to spe-
cific Community rules on State aid (steel processing, ship-
building, motor vehicles, synthetic fibres, transport, coal
agriculture and fisheries) unless such specific rules provide
otherwise.

The design and manufacture of environmentally friendly
products, machines or means of transport with a view to
operating with fewer natural resources and action taken
within plants or other production units with a view to
improving safety or hygiene are not covered by these
Guidelines.

For agriculture and fisheries, these Guidelines apply to aid
for environmental protection in favour of undertakings
active in the processing and marketing of products. For
undertakings active in the processing and marketing of
fisheries products, if the aid concerns expenses eligible
under Council Regulation (EC) No 1198/2006 of 27 July
2006 on the European Fisheries Fund (25), the maximum
aid rate allowed is the higher of the aid rate provided for in
these Guidelines and the aid rate laid down in that Regula-
tion. In the field of agricultural primary production, these
Guidelines apply only to measures which are not already
governed by the Community guidelines for State aid in the
agriculture and forestry sector 2007 to 2013 (26), and in
the field of fisheries and aquaculture primary production,
they apply only where no specific provisions dealing with
environmental aid exist.

(62)

The financing of environmental protection measures relat-
ing to air, road, railway, inland waterway and maritime
transport infrastructure, including any project of common
interest as identified in Decision No 1692/96/EC of the
European Parliament and of the Council of 23 July 1996
on Community guidelines for the development of the
trans-European transport network (27) is not covered by
these Guidelines.

(24) These guidelines do not discuss the concept of State aid, which derives
from Article 87(1) of the EC Treaty and from the case law of the
Court of Justice of the European Communities.

(25) OJ L 223, 15.8.2006, p. 1.
(26) OJ C 319, 27.12.2006, p. 1.
(27) OJ L 228, 9.9.1996, p. 1. Decision as last amended by Council Regu-

lation (EC) No 1791/2006 (OJ L 363, 20.12.2006, p. 1).

State aid for research, development and innovation in the
environmental field is subject to the rules set out in the
Community framework for State aid for research and devel-
opment and innovation (28). However, the market diffusion
stage of eco-innovation (acquisition of an eco-innovation
asset) is covered by these Guidelines.

(64)

The characteristics of aid for environmental training activi-
ties do not justify separate rules to those on aid for train-
ing activities generally, and the Commission will therefore
examine such aid in accordance with Commission Regula-
tion (EC) No 68/2001 of 12 January 2001 on the applica-
tion of Articles 87 and 88 of the EC Treaty to training
aid (29).

(65) Consultancy services play an important role in helping
small and medium-sized enterprises s to make progress in
environmental protection. In particular, they can be used to
conduct eco-audits or to evaluate the economic benefits of
an environmentally friendly investment for the undertak-
ing and thus give an incentive to those enterprises to
undertake the investment supporting environmental pro-
tection. Aid to small and medium-sized enterprises for
advisory/consultancy services in the environmental field
may be granted under Commission Regulation (EC)
No 70/2001 of 12 January 2001 on the application of
Articles 87 and 88 of the EC Treaty to State aid for small
and medium-sized enterprises (30).

(66)

These Guidelines do not apply to stranded costs as defined
in the Commission Communication relating to the meth-
odology for analysing State aid linked to stranded costs (31).

(67)

(68)

Furthermore, to the extent that the provisions relating to
energy saving set out in section 3.1.5 are not applicable,
these Guidelines do not apply to State aid to investments
in infrastructure related to district heating, which will be
assessed under Article 87(3)(c) of the EC Treaty.

In some Member States, companies may be subject to envi-
ronmental taxes and, at the same time, participate in trad-
able permit schemes. The Commission has not gathered
sufficient experience in assessing the compatibility of
reductions of environmental taxes in such situations. Con-
sequently, it is too early for the Commission to provide
general guidance thereon. Instead, the assessment of such
cases, to the extent that they constitute State aid within the
meaning of Article 87(1) of the EC Treaty, will take place
on the basis of Article 87(3)(c) of the EC Treaty.

(28) OJ C 323, 30.12.2006, p. 1.
(29) OJ L 10, 13.1.2001, p. 20. Regulation as last amended by Regulation
(EC) No 1976/2006 (OJ L 368, 23.12.2006, p. 85). When the new
block exemption regulation covering training aid is adopted, the new
regulation will apply.

(30) OJ L 10, 13.1.2001, p. 33. Regulation as last amended by Regulation
(EC) No 1976/2006. When the new block exemption regulation cov-
ering aid to SMEs is adopted, the new regulation will apply.

(31) Adopted by the Commission on 26 July 2001 and communicated to

Member States by letter ref. SG(2001) D/290869, 6 August 2001.

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(69)

Finally, some of the means to support fossil fuel power
plants or other industrial installations equipped with CO2
capture, transport and storage facilities, or individual ele-
ments of the Carbon Capture Storage chain, envisaged by
Member States, could constitute State aid but, in view of
the lack of experience, it is too early to lay down guidelines
relating to the authorisation of any such aid. Given the stra-
tegic importance of this technology for the Community in
terms of energy security, reduction of greenhouse gas emis-
sions and achievement of its agreed long-term objective to
limit climate change to 2 °C above pre-industrial levels and
given also the Commission’s stated support for the con-
struction of
industrial-scale demonstration plants up
to 2015, provided that they are environmentally safe and
contribute to environmental protection, the Commission
will have a generally positive attitude towards State aid for
such projects (32). Projects could be assessed under
Article 87(3)(c) of the EC Treaty or be eligible as important
projects of common European interest under the condi-
tions set out in Article 87(3)(b) of the Treaty and point 147
of these Guidelines.

2.2. Definitions

(70)

For the purpose of these Guidelines the following defini-
tions shall apply:

1)

environmental protection means any action designed to
remedy or prevent damage to physical surroundings
or natural resources by a beneficiary’s own activities,
to reduce the risk of such damage or to lead to more
efficient use of natural resources, including energy-
saving measures and the use of renewable sources of
energy (33);

2)

energy-saving measure means any action which enables
undertakings to reduce the amount of energy used in
particular in their production cycle;

3) Community standard means

i)

ii)

a mandatory Community standard setting the lev-
els to be attained in environmental terms by indi-
vidual undertakings (34), or

the obligation under Directive 2008/1/EC to use
the best available techniques as set out in the most
recent relevant information published by the
Commission pursuant to Article 17(2) of that
Directive;

(32) See Commission proposal for a Directive of the European Parliament
and of the Council on the geological storage of carbon dioxide
COM(2008) 18 final.

(33) See in particular the Sixth Environment Action Programme.
(34) Consequently, standards or targets set at Community level which are
binding for Member States but not for individual undertakings are
not deemed to be ‘Community standards’.

4)

eco-innovation means all forms of innovation activities
resulting in or aimed at significantly improving envi-
ronmental protection. Eco-innovation includes new
production processes, new products or services, and
new management and business methods, whose use or
implementation is likely to prevent or substantially
reduce the risks for the environment, pollution and
other negative impacts of resources use, throughout
the life cycle of related activities.

The following are not considered innovations:

i) minor changes or improvements;

ii)

an increase in production or service capabilities
through the addition of manufacturing or logisti-
cal systems which are very similar to those already
in use;

iii) changes in business practices, workplace organi-
sation or external relations that are based on
organisational methods already in use in the
undertaking;

iv) changes in management strategy;

v) mergers and acquisitions;

vi) ceasing to use a process;

vii) simple capital replacement or extension;

viii) changes resulting purely from changes in factor
prices, customisation, regular seasonal and other
cyclical changes;

ix)

trading of new or
products;

significantly improved

renewable energy sources means the following renewable
non-fossil energy sources: wind, solar, geothermal,
wave, tidal, hydropower installations, biomass, land-
fill gas, sewage treatment plant gas and biogases;

biomass means the biodegradable fraction of products,
waste and residues from agriculture (including vegetal
and animal substances), forestry and related industries,
as well as the biodegradable fraction of industrial and
municipal waste;

biofuels means liquid or gaseous fuel for transport pro-
duced from biomass;

sustainable biofuels means biofuels fulfilling the sustain-
ability criteria set out in Article 15 of the proposal for
a Directive of the European Parliament and the Coun-
cil on the promotion of the use of energy from renew-
able sources (35);

5)

6)

7)

8)

(35) COM(2008) 19 final. Once the Directive has been adopted by the
European Parliament and the Council, the Commission will apply the
sustainability criteria in the final text.

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9)

energy from renewable energy sources means energy pro-
duced by plants using only renewable energy sources,
as well as the share in terms of calorific value of energy
produced from renewable energy sources in hybrid
plants which also use conventional energy sources. It
includes renewable electricity used for filling storage
systems, but excludes electricity produced as a result of
storage systems;

10) cogeneration means the simultaneous generation in one
thermal energy and electrical and/or

process of
mechanical energy;

11) high-efficiency cogeneration means cogeneration meeting
the criteria of Annex III to Directive 2004/8/EC and
satisfying the harmonised efficiency reference values
established by Commission Decision 2007/74/EC of
21 December 2006 establishing harmonised efficiency
reference values for separate production of electricity
and heat in application of Directive 2004/8/EC of the
European Parliament and of the Council (36);

12) district heating means the supply of heat, either in the
form of steam or hot water, from a central source of
production through a transmission and distribution
system to multiple buildings, for the purpose of
heating;

13) energy-efficient district heating means district heating
which, with regard to generation, either complies with
the criteria for high-efficiency cogeneration or, in the
case of heat-only boilers, meets the reference values
for separate heat production laid down in Decision
2007/74/EC;

14) environmental tax means a tax whose specific tax base
has a clear negative effect on the environment or
which seeks to tax certain activities, goods or services
so that the environmental costs may be included in
their price and/or so that producers and consumers are
oriented towards activities which better respect the
environment;

15) Community minimum tax level means the minimum level
of taxation provided for in Community legislation. For
energy products and electricity, the Community mini-
mum tax level means the minimum level of taxation
laid down in Annex I to Council Directive 2003/96/EC
of 27 October 2003 restructuring the Community
framework for the taxation of energy products and
electricity (37);

16) small and medium-sized enterprises (hereafter ‘SMEs’),
small enterprises and medium-sized enterprises (or ‘under-
takings’) mean such enterprises within the meaning of

Regulation (EC) No 70/2001 or any regulation replac-
ing it;

17) large enterprises and large undertakings means enterprises
which are not within the definition of small and
medium-sized enterprises;

18) aid means any measure fulfilling all the criteria laid

down in Article 87(1) of the EC Treaty;

19) aid intensity means the gross aid amount expressed as
a percentage of the eligible costs. All figures used must
be taken before any deduction of tax or other charge.
Where aid is awarded in a form other than a grant, the
aid amount must be the grant equivalent of the aid.
Aid payable in several instalments must be calculated
at its value at the moment of granting. The interest rate
to be used for discounting purposes and for calculat-
ing the aid amount in a soft loan must be the reference
rate applicable at the time of grant. The aid intensity is
calculated per beneficiary;

20) operating benefits means, for the purposes of calculat-
ing eligible costs, in particular cost savings or addi-
tional ancillary production directly linked to the extra
investment for environmental protection and, where
applicable, benefits accruing from other support mea-
sures whether or not they constitute State aid (operat-
ing aid granted for the same eligible costs, feed-in
tariffs or other support measures). By contrast, pro-
ceeds flowing from the sale by the undertaking of trad-
able permits issued under the European Trading
System will not be deemed to constitute operating
benefits;

21) operating costs means, for the purposes of calculating
eligible costs, in particular additional production costs
flowing from the extra investment for environmental
protection;

22) tangible assets means, for the purposes of calculating
eligible costs, investments in land which are strictly
necessary in order to meet environmental objectives,
in buildings, plant and equipment
investments
intended to reduce or eliminate pollution and nui-
sances, and investments to adapt production methods
with a view to protecting the environment;

23) intangible assets means, for the purposes of calculating
eligible costs,
spending on technology transfer
through the acquisition of operating licences or of pat-
ented and non-patented know-how where the follow-
ing conditions are complied with:

(36) OJ L 32, 6.2.2007, p. 183.
(37) OJ L 283, 31.10.2003, p. 51. Directive as last amended by Directive

2004/75/EC (OJ L 157, 30.4.2004, p. 100).

i)

the intangible asset concerned must be regarded
as a depreciable asset,

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ii)

it must be purchased on market terms, from an
undertaking in which the acquirer has no power
of direct or indirect control,

iii)

it must be included in the assets of the undertak-
ing, and remain in the establishment of the recipi-
ent of the aid and be used there for at least five
years. This condition does not apply if the intan-
gible asset is technically out of date. If it is sold
during those five years, the yield from the sale
must be deducted from the eligible costs and all or
part of the amount of aid must, where appropri-
ate, be reimbursed;

24) internalisation of costs means the principle that all costs
associated with the protection of the environment
should be included in the polluting undertakings’ pro-
duction costs;

25) the polluter pays principle means that the costs of mea-
sures to deal with pollution should be borne by the
polluter who causes the pollution, unless the person
responsible for the pollution cannot be identified or
cannot be held liable under Community or national
legislation or may not be made to bear the costs of
remediation. Pollution in this context is the damage
caused by the polluter by directly or indirectly damag-
ing the environment, or by creating conditions lead-
ing to such damage (38), to physical surroundings or
natural resources;

26) polluter means someone who directly or indirectly
damages the environment or who creates conditions
leading to such damage (39);

27) contaminated site means a site where there is a con-
firmed presence, caused by man, of dangerous sub-
stances of such a level that they pose a significant risk
to human health or the environment taking into
account current and approved future use of the land.

3. COMPATIBILITY OF AID UNDER ARTICLE 87(3)
OF THE EC TREATY

contrary to the common interest. In this context, the dura-
tion of aid schemes should be subject to reasonable time
limits, without prejudice to the possibility for a Member
State to re-notify a measure after the time limit set by the
Commission decision has passed. Member States may sup-
port notifications of aid measures by rigorous evaluations
of similar past aid measures demonstrating the incentive
effect of the aid.

(72)

The measures described in points 73 to 146 may be found
to be compatible under Article 87(3)(c).

3.1.1. Aid for undertakings which go beyond Community
standards or which increase the level of environmental
protection in the absence of Community standards

(73)

Investment aid enabling undertakings to go beyond Com-
munity standards for environmental protection or to
increase the level of environmental protection in the
absence of Community standards will be considered com-
patible with the common market within the meaning of
Article 87(3)(c) of the EC Treaty provided that the condi-
tions set out in points 74 to 84 and section 3.2 are fulfilled.

(74)

The aided investment must fulfil one of the following two
conditions:

a)

the investment enables the beneficiary to increase the
level of environmental protection resulting from its
activities by going beyond the applicable Community
standards, irrespective of the presence of mandatory
national standards that are more stringent than the
Community standard, or

b)

the investment enables the beneficiary to increase the
level of environmental protection resulting from its
activities in the absence of Community standards.

3.1. Compatibility of aid under Article 87(3)(c)
of the EC Treaty

(75) Aid may not be granted where improvements bring under-
takings into compliance with Community standards
already adopted and not yet in force (40).

(71)

State aid for environmental protection is compatible with
the common market within the meaning of Article 87(3)(c)
of the EC Treaty if, on the basis of the balancing test, it
leads to increased environmental protection activities with-
out adversely affecting trading conditions to an extent

(38) Council Recommendation of 3 March 1975 regarding cost allocation
and action by public authorities on environmental matters (OJ L 194,
25.7.1975, p. 1).

(39) Recommendation of 3 March 1975 regarding cost allocation and

action by public authorities on environmental matters.

Aid intensity

(76)

The aid intensity must not exceed 50 % of the eligible
investment cost as defined in points 80 to 84.

(40) However, aid for early adaptation to future standards and for the
acquisition of new transport vehicles is possible under the conditions
developed in sections 3.1.3 and 3.1.2.

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(77) Where the investment aid is granted in a genuinely com-
petitive bidding process on the basis of clear, transparent
and non discriminatory criteria, effectively ensuring that
the aid is limited to the minimum necessary for achieving
the environmental gain, the aid intensity may amount to
up to 100 % of the eligible investment cost as defined in
points 80 to 84. Such a bidding process must be non-
discriminatory and provide for the participation of a suffi-
cient number of undertakings. In addition, the budget
related to the bidding process must be a binding constraint
in the sense that not all participants can receive aid. Finally,
the aid must be granted on the basis of the initial bid sub-
mitted by the bidder,
excluding subsequent
negotiations.

thus

(78) Where the investment concerns the acquisition of an eco-
innovation asset or the launching of an eco-innovation
project, the aid intensity may be increased by 10 percent-
age points, provided that following conditions are fulfilled:

a)

b)

c)

the eco-innovation asset or project must be new or
substantially improved compared to the state of the art
in its industry in the Community. The novelty could,
for example, be demonstrated by the Member States
on the basis of a precise description of the innovation
and of market conditions for its introduction or diffu-
sion, comparing it with state-of-the-art processes or
organisational techniques generally used by other
undertakings in the same industry;

the expected environmental benefit must be signifi-
cantly higher than the improvement resulting from the
general evolution of the state of the art in comparable
activities (41);

the innovative character of these assets or projects
involves a clear degree of risk, in technological, mar-
ket or financial terms, which is higher than the risk
generally associated with comparable non-innovative
assets or projects. This risk could be demonstrated by
the Member State for instance in terms of: costs in
relation to the undertaking’s turnover, time required
for the development, expected gains from the eco-
innovation in comparison with the costs, probability
of failure.

(79) Where the investment aid for undertakings going beyond
Community standards or increasing the level of environ-
mental protection in the absence of such Community stan-
dards is to be given to SMEs, the aid intensity may be

(41) When assessing point 78(b), if quantitative parameters can be used to
compare eco-innovative activities with standard, non-innovative
activities, ‘significantly higher’ means that the marginal improvement
expected from eco-innovative activities, in terms of reduced environ-
mental risk or pollution, or improved efficiency in energy or
resources, should be at least twice as high as the marginal improve-
ment expected from the general evolution of comparable non-
innovative activities.
Where the proposed approach is not appropriate for a given case, or
if no quantitative comparison is possible, the application file for State
aid should contain a detailed description of the method used to assess
this criterion, ensuring a standard comparable to that of the proposed
method.

increased by 10 percentage points for medium-sized enter-
prises and by 20 percentage points for small enterprises, as
set out in the table.

Aid intensity for aid to
undertakings going
beyond Community
standards or increasing
the level of environmental
protection in the absence
of Community standards

Aid intensity for aid to
undertakings going beyond
Community standards
or increasing the level
of environmental protection
in the absence
of Community standards

except for eco-innovation

in the field of eco-innovation

Small enterprises

Medium-sized
enterprises

Large enterprises

70 %

60 %

50 %

80 %

70 %

60 %

Calculation of eligible costs — methodology

(80)

Eligible costs must be limited to the extra investment costs
necessary to achieve a higher level of environmental pro-
tection than required by the Community standards and will
be calculated in two steps. First, the cost of the investment
directly related to environmental protection will be estab-
lished by reference to the counterfactual situation, where
appropriate. Second, operating benefits will be deducted
and operating costs will be added.

(81)

Identifying the part of the investment directly related to
environmental protection:

a) where the cost of investing in environmental protec-
tion can be easily identified in the total investment
cost, this precise environmental protection-related
cost constitutes the eligible costs (42);

b)

in all other cases the extra investment costs must be
established by comparing the investment with the
counterfactual situation in the absence of State aid.
The correct counterfactual is the cost of a technically
comparable investment that provides a lower degree
of environmental protection (corresponding to man-
datory Community standards, if they exist) and that
would credibly be realised without aid (‘reference
investment’). Technically comparable
investment
means an investment with the same production capac-
ity and all other technical characteristics (except those
directly related to the extra investment for environ-
mental protection).
In addition, such a reference
investment must, from a business point of view, be a
under
to the
credible
assessment.

investment

alternative

(42) This could be the case, for example, where an existing production
process is up-graded and where the very parts which improve the
environmental performance can be clearly identified.

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(82)

Identifying operating benefits/costs: eligible costs must,
unless specified otherwise in this chapter, be calculated net
of any operating benefits and operating costs related to the
extra investment for environmental protection and arising
during the first five years of the life of the investment con-
cerned. This means that such operating benefits must be
deducted and such operating costs may be added to the
extra investment costs.

(83)

The eligible investment may take the form of investment in
tangible assets and/or in intangible assets.

(84)

In the case of investments aiming at obtaining a level of
environmental protection higher than Community stan-
dards the counterfactual should be chosen as follows:

a) where the undertaking is adapting to national
standards adopted in the absence of Community
standards, the eligible costs consist of the additional
investment costs necessary to achieve the level of envi-
ronmental protection required by the national
standards;

b) where the undertaking is adapting to, or goes
beyond, national standards which are more strin-
gent than the relevant Community standards or
goes beyond Community standards, the eligible
costs consist of the additional investment costs neces-
sary to achieve a level of environmental protection
higher than the level required by the Community stan-
dards. The cost of investments needed to reach the
level of protection required by the Community stan-
dards is not eligible;

c) where no standards exist, eligible costs consist of
the investment costs necessary to achieve a higher level
of environmental protection than that which the
in question would
undertaking or undertakings
achieve in the absence of any environmental aid.

before their entry into force and where the new Commu-
nity standards, once mandatory, will not apply retroac-
tively to already purchased vehicles.

(86)

For retrofitting operations with an environmental protec-
tion objective in the transport sector the eligible costs are
the total extra net costs involved according to the method-
ology of calculating eligible costs set out in points 80 to 84
if the existing means of transport are upgraded to environ-
mental standards that were not yet in force at the date of
entry into operation of those means of transport or if the
means of transport are not subject to any environmental
standards.

3.1.3. Aid for early adaptation to future Community standards

(87) Aid for complying with new Community standards which
increase the level of environmental protection and are not
yet in force will be considered compatible with the com-
mon market within the meaning of Article 87(3)(c) of the
EC Treaty if the Community standards have been adopted,
provided that the investment is implemented and finalised
at least one year before the entry into force of the standard.

Aid intensity

(88)

The maximum aid intensities are 25 % for small enter-
prises, 20 % for medium-sized enterprises and 15 % for
large enterprises if the implementation and finalisation take
place more than three years before the mandatory date of
transposition or date of entry into force. The aid intensity
is 20 % for small enterprises, 15 % for medium-sized enter-
prises and 10 % for large enterprises if the implementation
and finalisation take place between one and three years
before the mandatory date of transposition or date of entry
into force.

Aid intensity for aid for early adaptation
to Community standards when the implementation
and finalisation take place

More than three years
before the entry into
force of the standard

Between one and three
years before the entry into
force of the standard

Small enterprises

Medium-sized enterprises

Large Enterprises

25 %

20 %

15 %

20 %

15 %

10 %

3.1.2. Aid for the acquisition of new transport vehicles which
go beyond Community standards or which increase the
level of environmental protection in the absence of Com-
munity standards

Eligible costs

(85)

The general rules set out in points 73 to 84 apply to aid for
undertakings improving on Community standards or
increasing the level of environmental protection in the
absence of Community standards in the transport sector.
By derogation from point 75, aid for acquisition of new
transport vehicles for road, railway, inland waterway and
maritime transport complying with adopted Community
standards is permissible, when such acquisition occurs

(89)

(90)

Eligible costs must be limited to the extra investment costs
necessary to achieve the level of environmental protection
required by the Community standard compared to the
existing level of environmental protection required prior to
the entry into force of this standard.

Eligible costs must be calculated net of any operating ben-
efits and operating costs related to the extra investment and
arising during the first five years of the life of this invest-
ment, as set out in points 81, 82 and 83.

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3.1.4. Aid for environmental studies

(91) Aid to companies for studies directly linked to investments
for the purposes of achieving standards under the condi-
tions set out in section 3.1.1, of achieving energy saving
under the conditions set out in section 3.1.5, of producing
renewable energy under the conditions set out in sec-
tion 3.1.6 will be considered compatible with the common
market within the meaning of Article 87(3)(c) of the EC
Treaty if the conditions set out in this chapter are fulfilled.
This will also apply in cases where, following the findings
of a preparatory study, the investment under investigation
is not undertaken.

to up to 100 % of the eligible investment cost as defined in
point 98. Such a bidding process must be non-
discriminatory and must provide for the participation of a
sufficient number of undertakings. In addition, the budget
related to the bidding process must be a binding constraint
in the sense that not all participants can receive aid. Finally,
the aid must be granted on the basis of the initial bid sub-
mitted by the bidder,
excluding subsequent
negotiations.

thus

Eligible costs

(92)

The aid intensity must not exceed 50 % of the costs of the
study.

(98)

Eligible costs must be limited to the extra investment costs
necessary to achieve energy savings beyond the level
required by the Community standards.

(93) Where the study is undertaken on behalf of an SME, the aid
intensity may be increased by 10 percentage points for
medium-sized enterprises and by 20 percentage points for
small enterprises, as set out in the table.

Small enterprises

Medium-sized enterprises

Large enterprises

3.1.5. Aid for energy saving

Environmental studies

70 %

60 %

50 %

(94)

Investment and/or operating aid enabling undertakings to
achieve energy savings will be considered compatible with
the common market within the meaning of Article 87(3)(c)
of the EC Treaty, if the following conditions are fulfilled:

3.1.5.1.

I n v e s t m e n t a i d

Aid intensity

(95)

The aid intensity must not exceed 60 % of the eligible
investment costs.

(96) Where the investment aid for energy saving is to be given
to SMEs, the aid intensity may be increased by 10 percent-
age points for medium-sized enterprises and by 20 per-
centage points for small enterprises, as set out in the table.

Small enterprises

Medium-sized enterprises

Large enterprises

Aid intensity for energy
saving

80 %

70 %

60 %

(97) Where the investment aid is granted in a genuinely com-
petitive bidding process on the basis of clear, transparent
and non discriminatory criteria, effectively ensuring that
the aid is limited to the minimum necessary for achieving
the maximum energy saving, the aid intensity may amount

The calculation of extra costs must respect the following
rules:

a)

b)

c)

the part of the investment directly related to energy saving
must be identified in accordance with the rules laid
down in points 81 and 83 of these Guidelines;

a level of energy saving higher than Community standards
must be identified in accordance with the rules laid
down in point 84 of these Guidelines;

identifying operating benefits/costs: eligible costs must be
calculated net of any operating benefits and operating
costs related to the extra investment for energy saving
and arising during the first three years of the life of this
investment in the case of SMEs, the first four years in
the case of large undertakings that are not part of the
EU CO2 Emission Trading System and the first five
years in the case of large undertakings that are part of
the EU CO2 Emission Trading System. For large under-
takings this period can be reduced to the first three
years of the life of this investment where the deprecia-
tion time of the investment can be demonstrated not
to exceed three years.

3.1.5.2. O p e r a t i n g a i d

(99) Operating aid for energy saving shall be granted only if the

following conditions are met:

a)

the aid is limited to compensating for net extra pro-
duction costs resulting from the investment, taking
account of benefits resulting from energy saving (43).
In determining the amount of operating aid, any
investment aid granted to the undertaking in question
in respect of the new plant must be deducted from
production costs;

(43) The concept of production costs must be understood as being net of

any aid but inclusive of a normal level of profit.

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b)

the aid is subject to a limited duration of five years.

conventional heating system with the same capacity in
terms of the effective production of energy.

(100)

In the case of aid which is gradually reduced, the aid inten-
sity must not exceed 100 % of the extra costs in the first
year but must have fallen in a linear fashion to zero by the
end of the fifth year. In the case of aid which does not
decrease gradually, the aid intensity must not exceed 50 %
of the extra costs.

3.1.6. Aid for renewable energy sources

(101) Environmental investment and operating aid for the pro-
motion of energy from renewable sources will be consid-
ered compatible with the common market within the
meaning of Article 87(3)(c) of the EC Treaty, if the condi-
tions in points 102 to 111 are fulfilled. State aid may be
justified if there is no mandatory Community standard
concerning the share of energy from renewable sources for
individual undertakings. Aid for investment and/or operat-
ing aid for the production of biofuels shall be allowed only
with regard to sustainable biofuels.

3.1.6.1.

I n v e s t m e n t a i d

(106) Eligible costs must be calculated net of any operating ben-
efits and operating costs related to the extra investment for
renewable sources of energy and arising during the first five
years of the life of this investment, as set out in points 81,
82 and 83.

3.1.6.2. O p e r a t i n g a i d

(107) Operating aid for the production of renewable energy may
be justified in order to cover the difference between the
cost of producing energy from renewable energy sources
and the market price of the form of energy concerned. That
applies to the production of renewable energy for the pur-
poses of subsequently selling it on the market as well as for
the purposes of the undertaking’s own consumption.

Aid intensity

(108) Member States may grant aid for renewable energy sources

(102) The aid intensity must not exceed 60 % of the eligible

investment costs.

(103) Where the investment aid for renewable energy sources is
to be given to SMEs, the aid intensity may be increased by
10 percentage points for medium-sized enterprises and by
20 percentage points for small enterprises, as set out in the
table.

Small enterprises

Medium-sized enterprises

Large enterprises

Aid intensity for
renewable energy sources

80 %

70 %

60 %

(104) Where the investment aid is granted in a genuinely com-
petitive bidding process on the basis of clear, transparent
and non discriminatory criteria, effectively ensuring that
the aid is limited to the minimum necessary for delivering
maximum renewable energy, the aid intensity may amount
to up to 100 % of the eligible investment cost as defined in
points 105 and 106. Such a bidding process must be non-
discriminatory and must provide for the participation of a
sufficient number of undertakings. In addition, the budget
related to the bidding process must be a binding constraint
in the sense that not all participants can receive aid. Finally,
the aid must be granted on the basis of the initial bid sub-
mitted by the bidder,
excluding subsequent
negotiations.

thus

Eligible costs

(105) For renewable energy, eligible investment costs must be
limited to the extra investment costs borne by the benefi-
ciary compared with a conventional power plant or with a

as follows:

(109) Option 1

a) Member States may grant operating aid to compensate
for the difference between the cost of producing
energy from renewable sources, including depreciation
of extra investments for environmental protection,
and the market price of the form of energy concerned.
Operating aid may then be granted until the plant has
been fully depreciated according to normal account-
ing rules. Any further energy produced by the plant
will not qualify for any assistance. However, the aid
may also cover a normal return on capital.

b) Where aid is granted in accordance with point (a) any
investment aid granted to the undertaking in question
in respect of the new plant must be deducted from
production costs when determining the amount of
operating aid. When notifying aid schemes to the
Commission, Member States must state the precise
support mechanisms and in particular the methods of
calculating the amount of aid.

c) Unlike most other renewable sources of energy, bio-
mass requires relatively low investment costs, but
higher operating costs. The Commission will, there-
fore, be amenable to operating aid for the production
of renewable energy from biomass exceeding the
amount of investment where Member States can show
that the aggregate costs borne by the undertakings
after plant depreciation are still higher than the mar-
ket prices of the energy.

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(110) Option 2

a) Member States may also grant support for renewable
energy sources by using market mechanisms such as
green certificates or tenders. These market mecha-
nisms allow all renewable energy producers to benefit
indirectly from guaranteed demand for their energy, at
a price above the market price for conventional power.
The price of these green certificates is not fixed in
advance but depends on supply and demand.

b) Where the market mechanisms constitute State aid,
they may be authorised by the Commission if Mem-
ber States can show that support is essential to ensure
the viability of the renewable energy sources con-
cerned, does not in the aggregate result in overcom-
pensation and does not dissuade renewable energy
producers from becoming more competitive. The
Commission will authorise such aid systems for a
period of ten years.

(111) Option 3

Furthermore, Member States may grant operating aid in
accordance with the provisions set out in point 100.

Small enterprises

Medium-sized enterprises

Large enterprises

Aid intensity for
high-efficiency
cogeneration

80 %

70 %

60 %

(116) Where the investment aid is granted in a genuinely com-
petitive bidding process on the basis of clear, transparent
and non discriminatory criteria, effectively ensuring that
the aid is limited to the minimum necessary for achieving
the maximum energy saving, the aid intensity may amount
to up to 100 % of the eligible investment cost as defined in
points 117 and 118. Such a bidding process must be non-
discriminatory and must provide for the participation of a
sufficient number of companies. In addition, the budget
related to the bidding process must be a binding constraint
in a sense that not all participants can receive aid. Finally,
the aid must be granted on the basis of the initial bid sub-
mitted by the bidder,
excluding subsequent
negotiations.

thus

3.1.7. Aid for cogeneration

Eligible costs

(112) Environmental investment and operating aid for cogenera-
tion will be considered compatible with the common mar-
ket within the meaning of Article 87(3)(c) of the EC Treaty,
provided that the cogeneration unit satisfies the definition
of high-efficiency cogeneration set out in point 70(11), and
provided that for investment aid:

(a) a new cogeneration unit will overall make primary
energy savings compared to separate production as
defined by Directive 2004/8/EC and Decision
2007/74/EC;

(b)

improvement of an existing cogeneration unit or con-
version of an existing power generation unit into a
cogeneration unit will result in primary energy savings
compared to the original situation.

(113) For operating aid, an existing cogeneration must satisfy
both the definition of high-efficiency cogeneration set out
in point 70(11) and the requirement that there are overall
primary energy savings compared to separate production
as defined by Directive 2004/8/EC and Decision
2007/74/EC.

3.1.7.1.

I n v e s t m e n t a i d

Aid intensity

(114) The aid intensity must not exceed 60 % of the eligible

investment costs.

(115) Where the investment aid for cogeneration is to be given
to SMEs, the aid intensity may be increased by 10 percent-
age points for medium-sized enterprises and by 20 per-
centage points for small enterprises, as set out in the table.

(117) Eligible costs must be limited to the extra investment costs
necessary to realise a high-efficiency cogeneration plant as
compared to the reference investment.

(118) Eligible costs must be calculated net of any operating ben-
efits and operating costs related to the extra investment and
arising during the first five years of the life of this invest-
ment, as set out in points 81 to 83.

3.1.7.2. O p e r a t i n g a i d

(119) Operating aid for high-efficiency cogeneration may be
granted in accordance with the rules for operating aid for
renewable energy laid down in section 3.1.6.2:

a)

b)

to undertakings distributing electric power and heat to
the public where the costs of producing such electric
power or heat exceed its market price. The decision as
to whether the aid is necessary will take account of the
costs and revenue resulting from the production and
sale of the electric power or heat;

for the industrial use of the combined production of
electric power and heat where it can be shown that the
production cost of one unit of energy using that tech-
nique exceeds the market price of one unit of conven-
tional energy. The production cost may include the
plant’s normal return on capital, but any gains by the
undertaking in terms of heat production must be
deducted from production costs.

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3.1.8. Aid for energy-efficient district heating

Eligible costs

(120) Environmental investment aid in energy-efficient district
heating installations (44) will be considered compatible
with the common market within the meaning of
Article 87(3)(c) of the EC Treaty, provided that it leads to
primary energy savings and that the beneficiary district
heating installation satisfies the definition of energy-
efficient district heating set out in point 70(13) and that:

a)

the combined operation of the generation of heat
(as well as electricity in the case of cogeneration) and
the distribution of heat will result in primary energy
savings; or

b)

the investment is meant for the use and distribution of
waste heat for district heating purposes.

Aid intensity

(121) The aid intensity for district heating installations must not
exceed 50 % of the eligible investment costs. If the aid is
intended solely for the generation part of a district heating
installation, energy-efficient district heating installations
using renewable sources of energy or cogeneration will be
covered by the rules set out in sections 3.1.6 and 3.1.7
respectively.

(122) Where the investment aid for energy-efficient district heat-
ing is to be given to SMEs, the aid intensity may be
increased by 10 percentage points for medium-sized enter-
prises and by 20 percentage points for small enterprises, as
set out in the table.

Aid intensity for
energy-efficient district
heating using
conventional sources
of energy

70 %

60 %

50 %

Small enterprises

Medium-sized enterprises

Large enterprises

(124) Eligible costs must be limited to the extra investment costs
necessary to realise an investment leading to energy-
efficient district heating as compared to the reference
investment.

(125) Eligible costs must be calculated net of any operating ben-
efits and operating costs related to the extra investment and
arising during the first five years of the life of this invest-
ment, as set out in points 81 to 83.

3.1.9. Aid for waste management

(126) Environmental

investment aid for the management of
waste of other undertakings,
including activities of
re-utilisation, recycling and recovery, will be considered
compatible with the common market within the meaning
of Article 87(3)(c) of the EC Treaty, provided that such
management is in accordance with the hierarchical classi-
fication of the principles of waste management (45) and is
in accordance with the conditions set out in point 127.

(127)

Investment aid for waste management shall be granted only
if each of the following conditions are met:

a)

b)

c)

the investment is aimed at reducing pollution gener-
ated by other undertakings (‘polluters’) and does not
extend to pollution generated by the beneficiary of the
aid;

the aid does not indirectly relieve the polluters from a
burden that should be borne by them under Commu-
nity law, or from a burden that should be considered a
normal company cost for the polluters;

the investment goes beyond the ‘state of the art’ (46) or
uses conventional
technologies in an innovative
manner;

d)

the materials treated would otherwise be disposed of,
or be treated in a less environmentally friendly manner;

(123) Where the investment aid is granted in a genuinely com-
petitive bidding process on the basis of clear, transparent
and non discriminatory criteria, effectively ensuring that
the aid is limited to the minimum necessary for achieving
the maximum energy saving, the aid intensity may amount
to up to 100 % of the eligible investment cost as defined in
points 124 and 125. Such a bidding process must be non-
discriminatory and must provide for the participation of a
sufficient number of undertakings. In addition, the budget
related to the bidding process must be a binding constraint
in the sense that not all participants can receive aid. Finally,
the aid must be granted on the basis of the initial bid sub-
excluding subsequent
mitted by the bidder,
negotiations.

thus

(44) To the exclusion of district heating infrastructure the financing of
which does not fall within the scope of the present Guidelines but
which will be assessed only under Article 87(3)(c).

(45) Classification given in the Communication from the Commission on
the review of the Community Strategy for Waste Management
(COM(96) 399 final, 30.7.1996). In that communication, the Com-
mission stresses that waste management is a priority objective for the
Community in order to reduce the risks to the environment. The con-
cept of waste treatment must be looked at from three angles:
re-utilisation, recycling and recovery. Waste whose production is
unavoidable must be treated and eliminated without danger. In its
Communication on a Thematic Strategy for the prevention and recy-
cling of waste (COM(2005) 666), the Commission reiterated its com-
mitment to these principles and allows for concrete measures towards
promoting prevention, such as eco-design of processes and products
or incentives to SMEs to put in place waste prevention measures, and
recycling.

(46) ‘State of the art’ shall mean a process in which the use of a waste
product to manufacture an end product is economically profitable
normal practice. Where appropriate, the concept of ‘state of the art’
must be interpreted from a Community technological and common
market perspective.

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e)

the investment does not merely increase demand for
the materials to be recycled without increasing collec-
tion of those materials.

context, ‘polluter’ refers to the person liable under the law
applicable in each Member State, without prejudice to the
adoption of Community rules in the matter.

Aid intensity

Where the polluter is not identified or cannot be made to
bear the costs, the person responsible for the work may
receive aid.

(128) The aid intensity must not exceed 50 % of the eligible

investment costs.

Aid intensity

(129) Where the investment aid for waste management is to be
given to SMEs, the aid intensity may be increased by 10 per-
centage points for medium-sized enterprises and by 20 per-
centage points for small enterprises, as set out in the table.

Aid intensity for waste
management

70 %

60 %

50 %

Small enterprises

Medium-sized enterprises

Large enterprises

Eligible costs

(130) Eligible costs must be limited to the extra investment costs
necessary to realise an investment leading to waste man-
agement and borne by the beneficiary compared to the ref-
erence investment, that is to say, a conventional production
not involving waste management with the same capacity.
The cost of such reference investment must be deducted
from the eligible cost.

(131) Eligible costs must be calculated net of any operating ben-
efits and operating costs related to the extra investment for
waste management and arising during the first five years of
the life of this investment (47), as set out in points 81 to 83.

3.1.10. Aid for the remediation of contaminated sites

(132)

Investment aid to undertakings repairing environmental
damage by remediating contaminated sites will be consid-
ered compatible with the common market within the
meaning of Article 87(3)(c) of the EC Treaty (48) provided
that it leads to an improvement of environmental protec-
tion. The environmental damage concerned covers damage
to the quality of the soil or of surface water or groundwater.

Where the polluter is clearly identified, that person must
finance the remediation in accordance with the ‘polluter
pays’ principle, and no State aid may be granted. In this

(47) If the investment is concerned solely with environmental protection
without any other economic benefits, no additional reduction will be
applied in determining the eligible costs.

(48) Remediation work carried out by public authorities on their own land
is not as such subject to Article 87 of the Treaty. Problems of State
aid may, however, arise if the land is sold after remediation at a price
below its market value. In this respect, the Commission Communi-
cation on State aid elements in sales of land and buildings by public
authorities (OJ C 209, 10.7.1997, p. 3) is still applicable.

(133) Aid for the remediation of contaminated sites may amount

to up to 100 % of the eligible costs.

The total amount of aid may under no circumstances
exceed the actual expenditure incurred by the undertaking.

Eligible costs

(134) The eligible costs are equal to the cost of the remediation
work less the increase in the value of the land. All expen-
diture incurred by an undertaking in remediating its site,
whether or not such expenditure can be shown as a fixed
asset on its balance sheet, ranks as eligible investment in
the case of the remediation of contaminated sites

3.1.11. Aid for the relocation of undertakings

(135)

Investment aid for relocation of undertakings to new sites
for environmental protection reasons will be considered
compatible with the common market within the meaning
of Article 87(3)(c) of the EC Treaty provided that the fol-
lowing conditions are met:

a)

the change of location must be dictated by environ-
mental protection or prevention grounds and must
have been ordered by the administrative or judicial
decision of a competent public authority or agreed
between the undertaking and the competent public
authority;

b)

the undertaking must comply with the strictest envi-
ronmental standards applicable in the new region
where it is located.

(136) The beneficiary can be:

a)

an undertaking established in an urban area or in a
special area of conservation designated under Council
Directive 92/43/EEC of 21 May 1992 on the conser-
vation of natural habitats and of wild fauna and
flora (49), which lawfully carries out (that is to say, it
complies with all legal requirements including all envi-
ronmental standards applicable to it) an activity that
creates major pollution and must, on account of that
location, move from its place of establishment to a
more suitable area; or

(49) OJ L 206, 22.7.1992, p. 7. Directive as last amended by Directive

2006/105/EC (OJ L 363, 20.12.2006, p. 368).

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b)

an establishment or installation falling within the
scope of the Seveso II Directive.

Aid intensity

(137) The aid intensity must not exceed 50 % of the eligible
investment costs. The aid intensity may be increased by
10 percentage points for medium-sized enterprises and by
20 percentage points for small enterprises, as set out in the
table.

(140) State aid involved in tradable permit schemes may be
declared compatible with the common market within the
meaning of Article 87(3)(c) of the EC Treaty, provided that
the conditions in points (a) to (d) of this point and
point 141 are fulfilled. By derogation point 141 does not
apply for the trading period ending on 31 December 2012
for tradable permit schemes in accordance with Directive
2003/87/EC of the European Parliament and of the Coun-
cil of 13 October 2003 establishing a scheme for green-
trading within the
house gas
Community and amending Council Directive 96/61/EC (50)
(hereafter ‘EU ETS’) (51):

emission allowance

Aid intensity
for relocation

70 %

60 %

50 %

Small enterprises

Medium-sized enterprises

Large enterprises

Eligible costs

(138)

In order to determine the amount of eligible costs in the
case of relocation aid, the Commission will take into
account, in particular:

a)

the following benefits:

i)

ii)

the yield from the sale or renting of the plant or
land abandoned;

compensation paid in the

the
expropriation;

event of

iii) any other gains connected with the transfer of the
plant, notably gains resulting from an improve-
ment, on the occasion of the transfer, in the tech-
nology used and accounting gains associated with
better use of the plant;

iv)

investments relating to any capacity increase;

b)

the following costs:

i)

ii)

the costs connected with the purchase of land or
the construction or purchase of new plant of the
same capacity as the plant abandoned;

any penalties imposed on the undertaking for
having terminated the contract for the renting of
land or buildings, if the administrative or judicial
decision ordering the change of location results in
the early termination of this contract.

3.1.12. Aid involved in tradable permit schemes

a)

b)

c)

d)

the tradable permit schemes must be set up in such a
way as to achieve environmental objectives beyond
those intended to be achieved on the basis of Commu-
nity standards that are mandatory for the undertakings
concerned;

the allocation must be carried out in a transparent way,
based on objective criteria and on data sources of the
highest quality available, and the total amount of trad-
able permits or allowances granted to each undertak-
ing for a price below their market value must not be
higher than its expected needs as estimated for the
situation in absence of the trading scheme;

the allocation methodology must not favour certain
undertakings or certain sectors, unless this is justified
by the environmental logic of the scheme itself or
where such rules are necessary for consistency with
other environmental policies;

in particular, new entrants shall not in principle receive
permits or allowances on more favourable conditions
than existing undertakings operating on the same mar-
kets. Granting higher allocations to existing installa-
tions compared to new entrants should not result in
creating undue barriers to entry.

(141) The Commission will assess the necessity and the propor-
tionality of State aid involved in a tradable permit scheme
according to the following criteria:

a)

the choice of beneficiaries must be based on objective
and transparent criteria, and the aid must be granted
in principle in the same way for all competitors in the
same sector/relevant market if they are in a similar fac-
tual situation;

b)

full auctioning must lead to a substantial increase in
production costs for each sector or category of indi-
vidual beneficiaries;

(139) Tradable permit schemes may involve State aid in various
ways,
for example when permits and allowances are
granted for less than their market value and such granting
is imputable to Member States.

(50) OJ L 275, 25.10.2003, p. 32. Directive as last amended by Directive

2004/101/EC (OJ L 338, 13.11.2004, p. 18).

(51) The Commission has assessed the State aid involved in the National
Allocation Plans under the EU ETS for the trading period ending on
31 December 2012 on the basis of the criteria set out in point 140.

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c)

d)

the substantial increase in production costs cannot be
passed on to customers without leading to important
sales reductions. This analysis may be conducted on
the basis of estimations of inter alia the product price
elasticity of the sector concerned. These estimations
will be made in the relevant geographic market. To
evaluate whether the cost increase from the tradable
permit scheme cannot be passed on to customers, esti-
mates of lost sales as well as their impact on the prof-
itability of the company may be used;

it is not possible for individual undertakings in the sec-
tor to reduce emission levels in order to make the price
of the certificates bearable. Irreducible consumption
may be demonstrated by providing the emission lev-
els derived from best performing technique in the
European Economic Area (hereafter ‘EEA’) and using it
as a benchmark. Any undertaking reaching the best
performing technique can benefit at most from an
allowance corresponding to the increase in production
cost from the tradable permit scheme using the best
performing technique, and which cannot be passed on
to customers. Any undertaking having a worse envi-
ronmental performance shall benefit from a lower
allowance, proportionate
environmental
performance.

to its

3.2.

Incentive effect and necessity of aid

(142) State aid must have an incentive effect. State aid for envi-
ronmental protection must result in the aid recipient
changing its behaviour so that the level of environmental
protection is increased.

(143) The Commission considers that aid does not present an
incentive effect for the beneficiary in all cases in which the
project has already started prior to the aid application by
the beneficiary to the national authorities.

(144)

If the aided project has not started before the aid applica-
tion, the requirement of incentive effect is presumed to be
automatically met for all categories of aid granted to an
SME, except in cases where the aid must be assessed in
accordance with the detailed assessment in chapter 5.

(145) For all other aided projects, the Commission will require
that the incentive effect is demonstrated by the notifying
Member State.

(148)

(146) To demonstrate the incentive effect, the Member State con-
cerned must prove that without the aid, that is to say, in the
counterfactual situation, the more environmentally friendly
alternative would not have been retained. For this purpose,
the Member State concerned must provide information
demonstrating:

a)

that the counterfactual situation is credible;

b)

c)

that the eligible costs have been calculated in accor-
dance with the methodology set out in points 81, 82
and 83, and

that the investment would not be sufficiently profit-
able without aid, due account being taken of the ben-
efits associated with the investment without aid,
including the value of tradable permits which may
become available to the undertaking concerned fol-
lowing the environmentally friendly investment.

3.3. Compatibility of aid under Article 87(3)(b)
of the EC Treaty

(147) Aid to promote the execution of important projects of
common European interest which are an environmental
priority may be considered compatible with the common
market according to Article 87(3)(b) of the EC Treaty pro-
vided that the following conditions are fulfilled:

a)

b)

c)

d)

the aid proposal concerns a project which is specific
and clearly defined in respect of the terms of its imple-
mentation including its participants, its objectives and
effects and the means to achieve the objectives. The
Commission may also consider a group of projects as
together constituting a project;

the project must be in the common European interest:
the project must contribute in a concrete, exemplary
and identifiable manner to the Community interest in
the field of environmental protection, such as by being
of great importance for the environmental strategy of
the European Union. The advantage achieved by the
objective of the project must not be limited to the
Member State or the Member States implementing it,
but must extend to the Community as a whole. The
project must present a substantive contribution to the
Community objectives. The fact that the project is car-
ried out by undertakings in different Member States is
not sufficient;

the aid is necessary and presents an incentive for the
execution of the project, which must involve a high
level of risk;

the project is of great importance with regard to its
volume: it must be substantial in size and produce
substantial environmental effects.

In order to allow the Commission to properly assess such
projects, the common European interest must be demon-
strated in practical terms: for example, it must be demon-
strated that the project enables significant progress to be
made towards achieving specific environmental objectives
of the Community.

(149) The Commission will consider notified projects more
favourably if they include a significant own contribution of
the beneficiary to the project. It will equally consider more
favourably notified projects involving undertakings from a
significant number of Member States.

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(150) When the aid is considered to be compatible with the com-
mon market in accordance with Article 87(3)(b) of the EC
Treaty, the Commission may authorise aid at higher rates
than otherwise laid down in these Guidelines.

(157)

In addition, aid in the form of reductions of or exemptions
from environmental
taxes must be necessary and
proportional.

4. AID IN THE FORM OF REDUCTIONS OF OR
EXEMPTIONS FROM ENVIRONMENTAL TAXES

(158) The Commission will consider the aid to be necessary if the

following cumulative conditions are met:

(151) Aid in the form of reductions of or exemptions from envi-
ronmental taxes will be considered compatible with the
common market within the meaning of Article 87(3)(c) of
the EC Treaty provided that it contributes at least indirectly
to an improvement of the level of environmental protec-
tion and that the tax reductions and exemptions do not
undermine the general objective pursued.

(152)

In order to be approved under Article 87 of the EC Treaty,
reductions of or exemptions from harmonised taxes, in
particular
Directive
harmonised
2003/96/EC, must be compatible with the relevant appli-
cable Community legislation and comply with the limits
and conditions set out therein.

through

those

(153) Aid in the form of tax reductions and exemptions from
harmonised environmental taxes is considered to be com-
patible with the common market within the meaning of
Article 87(3)(c) of the EC Treaty for a period of 10 years
provided the beneficiaries pay at least the Community
minimum tax level
set by the relevant applicable
Directive (52).

taxes other

(154) Aid in the form of reductions of or exemptions from envi-
ronmental
referred to in
point 153 (53) is considered to be compatible with the
common market within the meaning of Article 87(3)(c) of
the EC Treaty for a period of 10 years provided that the
conditions set out in points 155 to 159 are fulfilled.

than those

(155) When analysing tax schemes which include elements of
State aid in the form of reductions of or exemptions from
such tax, the Commission will analyse in particular the
necessity and proportionality of the aid and its effects at the
level of the economic sectors concerned.

(156) For this purpose the Commission will rely on information
provided by Member States. Information should include,
on the one hand, the respective sector(s) or categories of
beneficiaries covered by the exemptions/reductions and, on
the other hand, the situation of the main beneficiaries in
each sector concerned and how the taxation may contrib-
ute to environmental protection. The exempted sectors
should be properly described and a list of the largest ben-
eficiaries for each sector should be provided (considering
notably turnover, market shares and size of the tax base).
For each sector, information should be provided as to the
best performing techniques within the EEA regarding the
reduction of the environmental harm targeted by the tax.

(52) See point 70(15).
(53) For example, reductions of or exemptions from taxes which are not
covered by Community legislation or which are below the Commu-
nity minimum tax level.

a)

b)

c)

the choice of beneficiaries must be based on objective
and transparent criteria, and the aid must be granted
in principle in the same way for all competitors in the
same sector/relevant market (54) if they are in a simi-
lar factual situation;

the environmental tax without reduction must lead to
a substantial increase in production costs for each sec-
tor or category of individual beneficiaries (55);

the substantial increase in production costs cannot be
passed on to customers without leading to important
sales reductions. In this respect, Member States may
provide estimations of inter alia the product price elas-
ticity of the sector concerned in the relevant geo-
graphic market (56) as well as estimates of lost sales
and/or reduced profits for the companies in the
sector/category concerned.

(159) The Commission will consider the aid to be proportional if

one of the following conditions is met:

a)

the scheme lays down criteria ensuring that each indi-
vidual beneficiary pays a proportion of the national
tax level which is broadly equivalent to the environ-
mental performance of each individual beneficiary
compared to the performance related to the best per-
forming technique within the EEA. Under the aid
scheme any undertaking reaching the best performing
technique can benefit, at most, from a reduction cor-
responding to the increase in production costs from
the tax, using the best performing technique, and
which cannot be passed on to customers. Any under-
taking having a worse environmental performance
shall benefit from a lower reduction, proportionate to
its environmental performance;

b)

aid beneficiaries pay at least 20 % of the national tax,
unless a lower rate can be justified in view of a limited
distortion of competition;

(54) As defined in the Commission notice on the definition of the relevant
market for the purposes of Community competition law (OJ C 372,
9.12.1997, p. 5).

(55) With regard to energy products and electricity, ‘energy-intensive busi-
ness’ as defined in Article 17(1)(a) of Directive 2003/96/EC shall be
regarded as fulfilling this criterion as long as that provision remains
in force.

(56) As defined in the Commission notice on the definition of the relevant

market for the purposes of Community competition law.

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c)

the reductions or exemptions are conditional on the
conclusion of agreements between the Member State
and the recipient undertakings or associations of
undertakings whereby the undertakings or associa-
tions of undertakings commit themselves to achieve
environmental protection objectives which have the
same effect as if point (a) or (b) or the Community
minimum tax level were applied. Such agreements or
commitments may relate, among other things, to a
reduction in energy consumption, a reduction in emis-
sions or any other environmental measure and must
satisfy the following conditions:

i)

the substance of the agreements must be negoti-
ated by each Member State and must specify in
particular the targets and fix a time schedule for
reaching the targets;

ii) Member States must ensure independent (57) and
the commitments con-

timely monitoring of
cluded in these agreements;

iii)

these agreements must be revised periodically in
the light of technological and other developments
and stipulate effective penalty arrangements
applicable if the commitments are not met.

5. COMPATIBILITY OF AID SUBJECT TO A DETAILED
ASSESSMENT

5.1. Measures subject to a detailed assessment

(160)

In order to enable the Commission to carry out a more
detailed assessment of any substantial amounts of aid
granted under authorised schemes and to decide whether
such aid is compatible with the common market, Member
States must notify it in advance of any individual case of
investment or operating aid granted under an authorised
scheme or individually where the aid satisfies the follow-
ing conditions (58):

a)

for measures covered by a BER: all cases notified to
the Commission pursuant to a duty to notify aid indi-
vidually as prescribed in the BER;

b)

for individual measures covered by these Guide-
lines (59): all the following cases:

i)

investment aid: where the aid amount exceeds
EUR 7.5 million for one undertaking (even if part
of an approved aid scheme);

(57) It is irrelevant for these purposes whether the monitoring is done by

a public or a private body.

(58) This also applies irrespective of whether the individual beneficiary
benefits at the same time from a tax exemption or reduction assessed
under chapter 4.

(59) Tax exemptions and reductions from environmental taxes falling
under chapter 4 of these guidelines will not be subject to a detailed
assessment. However, aid granted in accordance with chapter 3 in the
form of fiscal aid will be subject to a detailed assessment if the thresh-
olds in this point are exceeded.

ii)

operating aid for energy saving: where the aid amount
exceeds EUR 5 million per undertaking for five
years;

iii) operating aid for the production of renewable electricity
and/or combined production of renewable heat: when
the aid is granted to renewable electricity installa-
tions in sites where the resulting renewable elec-
tricity generation capacity exceeds 125 MW;

iv) operating aid for the production of biofuel: when the
aid is granted to a biofuel production installation
in sites where the resulting production exceeds
150 000 t per year;

v)

operating aid for cogeneration: where aid is granted
to cogeneration installation with the resulting
cogeneration electricity capacity exceeding 200
MW. Aid for the production of heat from cogen-
eration will be assessed in the context of notifica-
tion based on electricity capacity.

(161) Member States may grant operating aid to new plants pro-
ducing renewable energy on the basis of a calculation of
the external costs avoided. Where this method is used to
determine the aid amount, the measure must be notified
and be subject to detailed assessment, regardless of the
thresholds in point 160(b)(iii). The external costs avoided
represent a monetary quantification of the additional socio-
environmental damage that society would experience if the
same quantity of energy were produced by a production
plant operating with conventional forms of energy. They
will be calculated on the basis of the difference between, on
the one hand, the external costs produced and not paid by
renewable energy producers and, on the other hand, the
external costs produced and not paid by non-renewable
energy producers. To carry out these calculations, the
Member State will have to use a method of calculation that
is internationally recognised and has been validated by the
Commission. It will have to provide among other things a
reasoned and quantified comparative cost analysis, together
with an assessment of competing energy producers’ exter-
nal costs, so as to demonstrate that the aid does genuinely
compensate for external costs avoided.

(162)

In any event, the amount of aid granted to producers that
exceeds the amount of aid resulting from option 1 set out
in point 109 for operating aid for renewable sources of
energy must be reinvested by the firms in renewable
sources of energy in accordance with section 3.1.6.1.

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(163) Provided that Member States ensure full cooperation and
supply adequate information in a timely manner, the Com-
mission will use its best endeavours to conduct the inves-
tigation in a timely manner. Member States are invited to
provide all the elements that they consider useful for the
assessment of the case. The Member States may, in particu-
lar, rely on evaluations of past State aid schemes or mea-
sures, impact assessments made by the granting authority
and other studies related to environmental protection.

(164) The detailed assessment is a proportionate assessment,
depending on the distortion potential of the case. Accord-
ingly, the fact that a detailed assessment is carried out does
not necessarily mean that a formal investigation procedure
needs to be opened, although this may be the case for cer-
tain measures.

5.2. Criteria for economic assessment of individual
cases

(165) The detailed assessment will be conducted on the basis of
the positive and negative elements specified in sec-
tions 5.2.1 and 5.2.2 which will be used in addition to the
criteria set out in Chapter 3. The aid intensities set out
therein must in any event not be exceeded. Furthermore,
the detailed assessment will be conducted on the basis of
the specific positive and negative elements, when they are
relevant for the type or form of aid.

5.2.1.

Positive effects of the aid

(166) The fact that the aid induces undertakings to pursue envi-
ronmental protection which they would not otherwise
have pursued constitutes the main positive element to be
taken into consideration when assessing the compatibility
of the aid.

5.2.1.1. E x i s t e n c e o f a m a r k e t

f a i l u r e

(167) The Commission will in general not question whether there
are negative externalities related to certain types of conduct
or the use of certain goods which have harmful effects on
the environment. However, the Commission will verify
whether the State aid is targeted at this market failure by
having a substantial impact on environmental protection.
In this context, the Commission will pay attention in par-
ticular to the expected contribution of the measure to envi-
ronmental protection (in quantifiable terms) and the level
of environmental protection targeted, as compared to exist-
ing Community standards and/or standards in other Mem-
ber States.

(168) The Commission will also examine the considerations that
may justify aid for adapting to national standards going
beyond Community standards. The Commission will take
into account in particular the nature, type and location of
the main competitors of the aid beneficiary, the cost of
implementation of the national standards (or tradable per-
mit schemes) for the aid beneficiary had no aid been given,
and the comparative costs of implementation of those
standards for the main competitors of the aid beneficiary.

5.2.1.2. A p p r o p r i a t e i n s t r u m e n t

(169) Account will be taken of whether State aid is an appropri-
ate instrument to obtain the objective of environmental
protection, given that other less distortive instruments may
achieve the same results and since State aid may breach the
PPP.

(170)

In its compatibility analysis, the Commission will in par-
ticular take account of any impact assessment of the pro-
posed measure which the Member State may have made,
including considerations of using policy options other than
State aid, and take account of evidence that the PPP will be
respected.

5.2.1.3.

I n c e n t i v e e f f e c t a n d n e c e s s i t y o f a i d

(171) State aid must always have an incentive effect, when it is
provided for environmental purposes, that is to say it must
result in the recipient changing its behaviour to increase
the level of environmental protection. Aid cannot be con-
sidered necessary solely because the level of environmental
protection is increased. The advantages of new investments
or production methods are normally not limited to their
environmental effects.

(172)

In addition to the calculation of extra costs outlined in
Chapter 3, the Commission will take into account the fol-
lowing elements in its analysis:

a)

counterfactual situation: evidence must be provided
about the specific action(s) that would not have been
taken by the undertaking without the aid, for instance,
a new investment, a more environmentally friendly
production process and/or a new product that is more
environmentally friendly;

b)

expected environmental effect
linked to the
change in behaviour: at least one of the following
elements must be present:

i)

ii)

increase in the level of environmental protection: reduc-
tion of a specific type of pollution that would not
be reduced without the aid;

increase in speed of the implementation of future stan-
dards: reduction in pollution starting at an earlier
point in time owing to the aid;

c)

production advantages: if there are other advantages
linked to the investment in terms of increased capac-
ity, productivity, cost reductions or quality, the incen-
tive effect is normally lower. This is in particular the
case if the benefits over the life time of the investment
are substantial, possibly to the extent that the extra
environmental costs can be recouped even without
aid;

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d) market conditions: in some markets, notably due to
product image and the labelling of production meth-
ods, there may be competitive pressure to maintain a
high level of environmental protection. If there is evi-
dence that the level of environmental protection result-
ing from the aid goes beyond the normal behaviour in
the market, it is more likely that the aid has an incen-
tive effect;

5.2.2. Analysis of the distortion of competition and trade

(175)

In assessing the negative effects of the aid measure, the
Commission will focus its analysis of the distortions of
competition on the foreseeable impact the environmental
aid has on competition between undertakings in the prod-
uct markets affected (60).

e)

f)

g)

possible future mandatory standards: if there are
negotiations at Community level to introduce new or
higher mandatory standards which the measure con-
cerned would seek to target, the incentive effect of aid
is normally lower;

(176)

level of risk: if there is a particular risk that the invest-
ment will be less productive than expected, the incen-
tive effect of aid will normally be higher;

level of profitability: if the level of profitability of the
action pursued is negative over the time horizon by
which the investment is fully depreciated or the oper-
ating aid is intended to be in force, account being taken
of all the advantages and risks identified in this point,
aid will normally have an incentive effect.

If the aid is proportional, notably if the calculation of the
extra investment or operating costs has taken into account
all advantages to the undertaking, the negative impact of
the aid is likely to be limited. However, as mentioned in
section 1.3.6 even where aid is necessary and proportional
for the specific undertaking to increase the environmental
protection, the aid may result in a change in behaviour of
the beneficiary which distorts competition. A profit-
seeking undertaking will normally only increase the level of
environmental protection beyond mandatory requirements
if it considers that this will result at least marginally in
some sort of advantage for the undertaking.

(173) Where the undertaking is adapting to a national standard
going beyond Community standards or adopted in the
absence of Community standards, the Commission will
verify that the aid beneficiary would have been affected
substantially in terms of increased costs and would not
have been able to bear the costs associated with the imme-
diate implementation of national standards.

5.2.1.4. P r o p o r t i o n a l i t y o f

t h e a i d

(174) The Member State should provide evidence that the aid is
necessary, that the amount is kept to the minimum and
that the selection process is proportional. In its analysis the
Commission will consider the following elements:

(177) As a starting point, the Commission will assess the likeli-
hood that the beneficiary will be able to increase or main-
tain sales as a result of the aid. The Commission will in
particular consider the following elements:

a)

reduction in or compensation of production unit
costs: if the new equipment (61) will lead to reduced
costs per unit produced compared to the situation
without the aid or if the aid compensates a part of the
operating cost, it is likely that the beneficiary will
increase its sales. The more price elastic the product,
the greater the competition distortion;

a)

b)

accurate calculation of the eligible costs: evidence
that the eligible costs are indeed limited to the extra
costs necessary to achieve the level of environmental
protection;

selection process: the selection process should be
conducted in a non-discriminatory, transparent and
open manner, without unnecessarily excluding com-
panies that may compete with projects to address the
same environmental objective. The selection process
should lead to the selection of beneficiaries that can
address the environmental objective using the least
amount of aid or in the most cost-effective way;

c)

aid limited to the minimum: evidence that the aid
amount does not exceed the expected lack of profit-
ability including a normal return over the time hori-
zon for which the investment is fully depreciated.

b) more environmentally friendly production pro-
cess: if the beneficiary obtains a more environmentally
friendly production process and if it is common
through labelling or image to differentiate the product
towards consumers on the basis of the level of envi-
ronmental protection, it is likely that the beneficiary
can increase its sales. The greater the consumer pref-
erence for environmental product characteristics, the
greater the competition distortion;

(60) A number of markets may be affected by the aid, because the impact
of the aid may not be restricted to the market corresponding to the
activity that is supported but may extend to other markets, which are
connected to that market either because they are upstream, down-
stream or complementary, or because the beneficiary is already
present on them or may be so present in the near future.

(61) The calculation of extra costs may not fully capture all operating ben-
efits, since the benefits are not deducted over the life time of the
investment. In addition, certain types of benefits, for example linked
to increased productivity and increased production with unaltered
capacity, may be difficult to take into account.

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c) new product: if the beneficiary obtains a new or
higher quality product it is likely that it will increase its
sales and possibly gain a ‘first mover’ advantage. The
greater the consumer preference for environmental
product characteristics, the greater the competition
distortion.

5.2.2.1. D y n a m i c i n c e n t i v e s / c r o w d i n g o u t

(178) State aid for environmental protection may be used strate-
gically to promote innovative environmentally friendly
technologies with the aim of giving domestic producers a
‘first mover’ advantage. Consequently, the aid may distort
the dynamic incentives and crowd out investments in the
specific technology in other Member States and lead to a
concentration of this technology in one Member State. This
effect is higher the more competitors reduce their innova-
tive effort as compared to the no-aid counterfactual.

(179)

In its analysis, the Commission will consider the following
elements:

a)

b)

amount of aid: the higher the amount of aid, the more
likely it is that part of the aid can be used to distort
competition. This is in particular the case if the aid
amount is high compared to the size of the general
activity of the beneficiary;

frequency of aid:
repeatedly,
dynamic incentives;

if an undertaking receives aid
it is more likely that this will distort

c)

duration of the aid: if operating aid is granted for a
long period, this is more likely to distort competition;

d)

e)

f)

gradual decrease of aid: if operating aid is reduced
over time, the undertaking will have an incentive to
improve efficiency and the distortion of dynamic
incentives will therefore be reduced over time;

readiness to meet future standards: if the aid will
enable the undertaking concerned to meet new Com-
munity standards expected to be adopted in the fore-
seeable future, the aided investment will reduce the
costs of investments that the undertaking would have
had to make in any event;

level of the regulatory standards in relation to the
environmental objectives: the lower the level of
mandatory requirements the higher the risk that aid to
go beyond mandatory requirements is not necessary
and will crowd out investments or be used in a way
that distorts dynamic incentives;

g)

h)

i)

risk of cross-subsidisation: where the undertaking
produces a wide range of products or produces the
same product using a conventional and an environ-
mentally
cross-
subsidisation is higher;

friendly process,

risk of

the

technological neutrality: where a measure focuses
on one technology only, the risk of distorting dynamic
incentives is higher;

competing innovation: where foreign competitors
develop competing technologies (innovation compe-
tition), the more likely the aid will distort dynamic
incentives.

5.2.2.2. M a i n t a i n i n g i n e f f i c i e n t

f i r m s a f l o a t

(180) State aid for environmental protection may be justified as
a transitional mechanism to move towards a full allocation
of environmentally negative externalities. It should not be
used to grant unnecessary support to undertakings which
are unable to adapt to more environmentally friendly stan-
dards and technologies because of their low levels of effi-
ciency. In its analysis, the Commission will consider the
following elements:

a)

type of beneficiaries: where the beneficiary has a
relatively low level of productivity and is in poor
financial health, it is more likely that the aid will con-
tribute to artificially maintaining the undertaking in
the market;

b) overcapacity in the sector targeted by the aid: in
sectors where there is overcapacity, the risk is higher
that investment aid will sustain the overcapacity and
maintain inefficient market structures;

c) normal behaviour in the sector targeted by the aid:
if other undertakings in the sector have reached the
same level of environmental protection without aid, it
is more likely that the aid will serve to maintain inef-
ficient market structures. Thus, the weaker the evi-
dence that PPP is respected by the beneficiary and the
greater the fraction of external environmental cost
internalised by the beneficiary’s competitors, the more
significant the competition distortion;

d)

relative importance of the aid: the greater the
reduction/compensation to variable production costs,
the greater the competition distortion;

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e)

f)

selection process: if the selection process is con-
ducted in a non-discriminatory, transparent and open
manner it is less likely that the aid will contribute to
artificially maintaining the undertaking in the market.
The more extensive (in terms of relevant market cov-
erage) and the more competitive (in terms of
auctioning/procurement) the allocation of a subsidy,
the lower the competition distortion;

selectivity: if the measure under which the aid is
granted covers a relatively high number of potential
beneficiaries, if it covers all undertakings in the rel-
evant market and if it does not exclude companies that
could address the same environmental objective, it is
less likely that the aid will maintain inefficient firms in
the market.

5.2.2.3. M a r k e t p o w e r / e x c l u s i o n a r y b e h a v i o u r

(181) Aid for environmental protection given to a beneficiary
may be used to strengthen or maintain its market power in
the given product market. The Commission will assess the
market power of the beneficiary concerned before the aid
is granted, and the change in market power which can be
expected as a result of the aid. Aid for environmental pro-
tection given to a beneficiary with substantial market
power may be used by this beneficiary to strengthen or
maintain its market power, by further differentiating its
products or excluding rivals. The Commission is unlikely to
identify competition concerns related to market power in
markets where each aid beneficiary has a market share
below 25 % and in markets whose Herfindahl-Hirschman
Index of market concentration is below 2 000.

(182)

In its analysis, the Commission will consider the following
elements:

a) market power of aid beneficiary and market struc-
ture: Where the recipient is already dominant on the
affected market (62), the aid measure may reinforce
this dominance by further weakening the competitive
constraint that competitors can exert on the recipient
undertaking;

b) new entry: where the aid concerns product markets
or technologies that compete with products where the
aid recipient is an incumbent and has market power,
the aid may be used strategically to prevent new entry.
Thus,
if the aid is not available to potential new
entrants, the risk that the aid distorts competition is
higher;

(62) A number of markets may be affected by the aid, because the impact
of the aid may not be restricted to the market corresponding to the
activity that is supported but may extend to other markets, which are
connected to that market either because they are upstream, down-
stream or complementary, or because the beneficiary is already
present on them or may be present in the near future.

c)

product differentiation and price discrimination:
the aid may have the negative effect of facilitating
product differentiation and price discrimination by the
aid recipient, to the detriment of consumers;

d) buyer power: where there are strong buyers in the
market, it is less likely that an aid beneficiary with
market power can increase prices vis-à-vis the strong
buyers. Thus, the stronger the buyer power the less
likely it is that the aid will harm consumers.

5.2.2.4. E f f e c t s o n t r a d e a n d l o c a t i o n

(183) State aid for environmental protection may result in some
territories benefiting from more favourable production
conditions, notably because of comparatively lower pro-
duction costs as a result of the aid or because of higher pro-
duction standards achieved through the aid. This may result
in companies re-locating to the aided territories, or to dis-
placement of trade flows towards the aided area.

(184) Consequently, the aid will shift profits to the Member State
in the product market concerned by the aid as well as in
input markets.

(185)

In its analysis, the Commission will consider whether there
is evidence that the beneficiary had considered other loca-
tions for its investment, in which case it is more likely that
the aid significantly distorts competition.

5.2.3. Balancing and decision

(186)

In the light of these positive and negative elements, the
Commission will balance the effects of the measure and
determine whether the resulting distortions adversely affect
trading conditions to an extent contrary to the common
interest. Ideally, the positive effects and the negative effects
should be expressed using the same referential (for example
external cost avoided versus the loss of competitor’s prof-
its in monetary unit).

(187)

In general, the higher the environmental benefit and the
more clearly it is established that the aid amount is limited
to the minimum necessary, the more likely a positive
appraisal. On the other hand, the larger the indication that
the aid will significantly distort competition, the less likely
a positive appraisal. If the expected positive effects are
extensive and the distortions are likely to be very signifi-
cant, the appraisal will depend on the extent to which the
positive effects are considered to outweigh the negative
effects.

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(188) The Commission may raise no objections to the notified
aid measure without initiating the formal investigation pro-
cedure or, following the formal investigation procedure
laid down in Article 6 of Regulation (EC) No 659/1999,
may decide to close the procedure with a decision in accor-
dance with Article 7 of that Regulation. Where it takes a
conditional decision within the meaning of Article 7(4) of
that Regulation, it may, for instance, consider attaching the
following conditions, which must reduce the resulting dis-
tortions or effect on trade and be proportionate:

a)

b)

lower aid intensities than the maximum intensities
allowed in Chapter 3;

separation of accounts in order to avoid cross-
subsidisation from one market to another market,
when the beneficiary is active in multiple markets;

c)

additional requirements to be met to improve the
environmental effect of the measure;

d) no discrimination against other potential beneficia-

ries (reduced selectivity).

6. CUMULATION

(189) The aid ceilings fixed under these Guidelines shall apply
regardless of whether the support for the aided project is
financed entirely from State resources or is partly financed
by the Community.

(190) Aid authorised under these Guidelines may not be com-
bined with other State aid within the meaning of
Article 87(1) of the EC Treaty or with other forms of Com-
munity financing if such overlapping results in an aid
intensity higher than that laid down in these Guidelines.
However, where the expenditure eligible for aid for envi-
ronmental protection is eligible in whole or in part for aid
for other purposes, the common portion will be subject to
the most favourable aid ceiling under the applicable rules.

(191) Aid for environmental protection must not be cumulated
with de minimis aid in respect of the same eligible costs if
such cumulation would result in an aid intensity exceeding
that fixed in these Guidelines.

7.

FINAL PROVISIONS

7.1. Annual reporting

(192)

In accordance with the requirements of Regulation (EC)
No 659/1999 and Commission Regulation
(EC)
No 794/2004 of 21 April 2004 implementing Council
Regulation (EC) No 659/1999 laying down detailed rules
for the application of Article 93 of the EC Treaty (63), Mem-
ber States must submit annual reports to the Commission.

(63) OJ L 140, 30.4.2004, p. 1. Regulation as last amended by Regulation

(EC) No 1935/2006 (OJ L 407, 30.12.2006, p. 1).

(193) Beyond the requirements stipulated in those provisions,
annual reports for environmental aid measures must con-
tain, for each approved scheme, the following information
as regards large undertakings:

— the names of the beneficiaries,

— the aid amount per beneficiary,

— the aid intensity,

— a description of the objective of the measure and of
what type of environmental protection it is intended
to promote,

— the sectors of activity where the aided projects are

undertaken,

— an explanation of how the incentive effect has been
respected, notably using the indicators and criteria
mentioned in Chapter 5.

(194)

In the case of tax exemptions or reductions, the Member
State need provide only the legislative and/or regulatory
text(s) establishing the aid and details of the categories of
undertakings benefiting from tax reductions or exemptions
and the sectors of the economy most affected by those tax
exemptions/reductions.

(195) The annual reports will be published on the internet site of

the Commission.

7.2. Transparency

(196) The Commission considers that further measures are nec-
essary to improve the transparency of State aid in the Com-
munity. In particular, it is necessary to ensure that the
Member States, economic operators, interested parties and
the Commission itself have easy access to the full text of all
applicable environmental aid schemes.

(197) This can easily be achieved through the establishment of
linked internet sites. For this reason, when examining envi-
ronmental aid schemes, the Commission will systematically
require the Member State concerned to publish the full text
of all final aid schemes on the internet and to communi-
cate the internet address of the publication to the Commis-
sion. The scheme must not be applied before the
information is published on the internet.

7.3. Monitoring and evaluation

(198) Member States must ensure that detailed records regarding
the granting of aid for all environmental measures are
maintained. Such records, which must contain all informa-
tion necessary to establish that the eligible costs and maxi-
mum allowable aid intensity have been observed, must be
maintained for 10 years from the date on which the aid
was granted and be provided to the Commission upon
request.

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(199) The Commission will ask Member States to provide this
information in order to carry out an evaluation of these
Guidelines four years after their publication (64).

7.4. Appropriate measures

(200) The Commission herewith proposes to Member States, on
the basis of Article 88(1) of the EC Treaty, the following
appropriate measures concerning their respective existing
environmental aid schemes:

Member States should amend, where necessary, such
schemes in order to bring them into line with these Guide-
lines within 18 months after their publication, with the fol-
lowing exceptions:

i) Member States should amend, where necessary,
schemes concerning aid in the form of tax reduction
or exemption covered by Directive 2003/96/EC before
31 December 2012;

ii)

the new thresholds mentioned in point 160 for indi-
vidual projects will apply as from the first day follow-
ing the publication of these Guidelines in the Official
Journal of the European Union;

iii)

the duty to provide more detailed annual reports will
apply to aid granted under existing aid schemes as of
1 January 2009.

(201) The Member States are invited to give their explicit uncon-
ditional agreement to these proposed appropriate measures
within two months from the date of publication of these
Guidelines in the Official Journal of the European Union. In
the absence of any reply, the Commission will assume that
the Member State in question does not agree with the pro-
posed measures.

7.5.

Application, validity and revision

(202) These Guidelines will be applied from the first day follow-
ing their publication in the Official Journal of the European
Union and will replace the Community Guidelines on State
aid for environmental protection of 3 February 2001 (65).

(203) These Guidelines will be applicable until 31 December
2014. After consulting the Member States, the Commis-
sion may amend them before that date on the basis of
important competition policy or environmental policy
considerations or in order to take account of other Com-
munity policies or international commitments. Such
amendments might in particular be necessary in the light
of future international agreements in the area of climate
change and future European climate change legislation.
Four years after the date of their publication, the Commis-
sion will undertake an evaluation of these Guidelines based
on factual information and the results of wide consulta-
tions conducted by the Commission on the basis, notably,
of data provided by the Member States. The results of the
evaluation will be made available to the European Parlia-
ment, the Committee of the Regions and the European
Economic and Social Committee and to the Member States.

(204) The Commission will apply these Guidelines to all notified
aid measures in respect of which it is called upon to take a
decision after the Guidelines are published in the Official
Journal, even where the projects were notified prior to their
publication. This includes individual aid granted under
approved aid schemes and notified to the Commission pur-
suant to an obligation to notify such aid individually.

(205)

In accordance with the Commission notice on the determi-
nation of the applicable rules for the assessment of unlaw-
ful State aid (66), the Commission will apply, in the case of
non-notified aid,

a)

b)

these Guidelines, if the aid was granted after their
publication;

the guidelines applicable when the aid was granted, in
all other cases.

(67) In that process, Member States may want to assist the Commission
by providing their own ex post assessment of schemes and individual
measures.

(68) OJ C 37, 3.2.2001, p. 3.
(69) OJ C 119, 22.5.2002, p. 22.

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ANNEX

TABLE ILLUSTRATING THE AID INTENSITIES FOR INVESTMENT AID AS A PART OF ELIGIBLE COSTS

Aid for undertakings going beyond
Community standards or increasing the
level of environmental protection in the
absence of Community standards

Small enterprise

Medium-sized enterprise

Large enterprise

70 %
80 % if eco-
innovation
100 % if bidding
process

60 %
70 % if
eco-innovation
100 % if bidding
process

50 %
60 % if eco-innovation
100 % if bidding
process

Aid for environmental studies

70 %

60 %

50 %

Aid for early adaptation to future
Community standards

— more than 3 years

— between 1 and 3 years

before the entry into force

Aid for waste management

Aid for renewable energies

Aid for energy saving
Aid for cogeneration installations

Aid for district heating using conventional
energy

Aid the remediation of contaminated sites

Aid for relocation of undertakings

25 %

20 %

70 %

80 %
100 % if bidding
process

80 %
100 % if bidding
process

70 %
100 % if bidding
process

100 %

70 %

20 %

15 %

60 %

70 %
100 % if bidding
process

70 %
100 % if bidding
process

60 %
100 % if bidding
process

100 %

60 %

15 %

10 %

50 %

60 %
100 % if bidding
process

60 %
100 % if bidding
process

50 %
100 % if bidding
process

100 %

50 %