CELEX: 62001TJ0166
Language: en
Date: 2006-09-19
Title: Judgment of the Court of First Instance (Fifth Chamber, extended composition) of 19 September 2006. # Lucchini SpA v Commission of the European Communities. # ECSC - State aid - Environmental aid - Aid by Italy in favour of the Lucchini steel company - Refusal to authorise the proposed aid - Applicable legal framework - Eligibility of the notified investments as aid for environmental protection - Conditions governing the compatibility of aid with the common market - Statement of reasons. # Case T-166/01.

Case T‑166/01
      Lucchini SpA
      v
      Commission of the European Communities
      (ECSC – State aid – Environmental aid – Aid by Italy in favour of the Lucchini steel company – Refusal to authorise the proposed aid – Applicable legal framework – Eligibility of the notified investments as aid for environmental protection – Conditions governing the compatibility of aid with the common market – Statement of reasons)
      Judgment of the Court of First Instance (Fifth Chamber, Extended Composition), 19 September 2006 
      Summary of the Judgment
      1.     ECSC – Aid to the steel industry – Not allowed – Derogation – Aid falling under the Sixth Steel Aid Code
      (Arts 4(c) CS and 95 CS; General Decision No 2496/96)
      2.     ECSC – Aid to the steel industry – Not allowed – Derogation – Aid falling under the Sixth Steel Aid Code 
      (General Decision No 2496/96, Art. 3)
      3.     ECSC – Aid to the steel industry – Not allowed – Derogation – Aid falling under the Sixth Steel Aid Code 
      (General Decision No 2496/96, Art. 3)
      4.     ECSC – Aid to the steel industry – Aid plans for investments contributing to environmental protection 
      (Arts 4(c) CS and 95 CS; General Decision No 2496/96)
      5.     ECSC – Aid to the steel industry – Not allowed – Derogation – Aid falling under the Sixth Steel Aid Code
      (General Decision No 2496/96)
      6.     Acts of the institutions – Statement of reasons – Obligation – Scope 
      (Arts 15 CS and 33 CS)
      1.     By derogation from the principle laid down under Article 4(c) CS, in terms of which subsidies or aids in any form whatsoever
         to the steel industry are prohibited, and in implementation of Article 95 CS, the Sixth Steel Aid Code sets out the conditions
         under which aid to the steel industry financed by way of State resources may be considered to be compatible with the proper
         functioning of the common market.
      
      Aid which is not covered by the Code thus remains subject to Article 4(c) CS. Similarly, the Code must be strictly interpreted,
         since it constitutes a derogation from a principle that something is prohibited.
      
      (see paras 49-50)
      2.     It follows from Article 3 of the Sixth Steel Aid Code, which provides that aid for environmental protection granted to the
         steel industry may be deemed compatible with the common market ‘if it is in compliance with the rules laid down in [the Guidelines],
         in conformity with the criteria for their application to the ECSC steel industry outlined in the Annex to [the Code]’, that
         the provisions of the Community guidelines on State aid for environmental protection, which apply under the EC Treaty, may
         be transposed to the steel industry, which falls under the ECSC Treaty, when those provisions satisfy the criteria for their
         application set out in the Annex to the Code. It is thus particularly significant that the heading to that Annex states that
         it establishes the ‘criteria for the application of Community guidelines on State aid to the steel industry for environmental
         protection’. The Code accordingly does not provide for the automatic application of the Guidelines to the steel industry,
         but specifies in its Annex the conditions which govern that application.
      
      (see paras 51-53)
      3.     Article 3 of the Sixth Steel Aid Code provides for the Annex to the Code and the Community guidelines on State aid for environmental
         protection to apply cumulatively, without making any distinction at that stage between different types of investment. The
         reference made by Article 3 of the Code to the Annex to the Code and the guidelines is accordingly cumulative and not alternative.
      
      That also applies to investment which is purely environmental. The introduction to the Annex to the Code, which provides that
         ‘the Commission will, as appropriate, impose strict conditions and safeguards so as to avoid general investment aid for new
         plants or equipment being granted under cover of environmental protection’, obliges the Commission to investigate, should
         the need arise, whether investment which is notified as being purely environmental in nature does not in truth permit other
         objectives prohibited by the relevant provisions to be achieved.
      
      (see paras 61-62)
      4.     As regards planned aid to the steel industry, when the Commission decides to initiate the formal investigation procedure,
         it is for the Member State and the potential recipient of the aid to put forward arguments to demonstrate that the planned
         aid meets the exceptions specified in accordance with the Treaty, since the object of the procedure is precisely to ensure
         that the Commission is fully informed of all the facts of the case.
      
      Although the Commission is required to express its doubts clearly as to the compatibility of the aid when it initiates a formal
         procedure in order to allow the Member State and other parties concerned to respond as fully as possible, the fact remains
         that it is for the provider of the aid and, where relevant, the recipient of it to dispel those doubts and to establish that
         its investment satisfies the condition which allows it to be granted. It follows that, as regards planned investments put
         forward as having an environmental basis, it is for the authorities of the Member State concerned and for the recipient of
         the aid to establish that those investments are eligible for aid for environmental protection and, in particular, that they
         have the environmental objective required by the Community guidelines on State aid for environmental protection and the Annex
         to the Sixth Steel Aid Code.
      
      (see paras 83-84)
      5.     Although the Annex to the Sixth Steel Aid Code prohibits investment aid which would have been necessary in any event on economic
         grounds or which is due to the age of an undertaking’s existing plant, that Annex does not prohibit investment aid which is
         capable of having an effect on the production process. In such a case, the Annex to the Code requires only that any advantage
         in regard to lower production costs be deducted. Thus, in order to be eligible for environmental aid, it is not necessary
         for the notified investments to serve purposes that relate only to environmental protection, to the exclusion of all others,
         nor is it necessary for the investments to have no impact on production capacity. Investment made for environmental purposes
         cannot be declared ineligible by reason only of the fact that it may have an impact on production.
      
      (see para. 92)
      6.     The statement of reasons required by Article 15 CS, an insufficiency or a lack of reasoning in which constitutes an infringement
         of essential procedural requirements within the meaning of Article 33 CS and is a matter of public policy which the Community
         judicature must raise of its own motion must be appropriate to the measure at issue and must disclose in a clear and unequivocal
         fashion the reasoning followed by the institution which adopted the measure in question in such a way as to enable the persons
         concerned to ascertain the reasons for the measure and to enable the Community judicature to exercise its power of review.
         It is not necessary for the reasoning to go into all the relevant facts and points of law, since the question whether the
         statement of reasons meets the requirements of Article 15 CS must be assessed with regard not only to its wording but also
         to its context and to all the legal rules governing the matter in question.
      
      Since the second part of the Annex to the Sixth Steel Aid Code excludes investment made for economic reasons from aid to encourage
         firms to contribute to significantly improved environmental protection, and since, in order for investment made in an undertaking’s
         plant to be eligible as aid for environmental protection, the onus is on the authorities of the Member State concerned to
         establish that it was made for reasons of environmental protection and was the consequence of the voluntary decision of the
         undertaking to improve on environmental protection, the Commission will, in the absence of evidence put forward by those authorities
         in that regard, satisfy its duty to state reasons if it merely records that there has been a failure to provide such evidence.
         
      
      (see paras 130-134, 144-145)
JUDGMENT OF THE COURT OF FIRST INSTANCE (Fifth Chamber, Extended Composition)
      19 September 2006 (*)
      
      (ECSC – State aid – Environmental aid – Aid by Italy in favour of the Lucchini steel company – Refusal to authorise the proposed aid – Applicable legal framework – Eligibility of the notified investments as aid for environmental protection – Conditions governing the compatibility of aid with the common market – Statement of reasons)
      In Case T‑166/01,
      Lucchini SpA, established in Brescia (Italy), represented by G. Vezzoli and G. Belotti, lawyers,
      
      applicant,
      v
      Commission of the European Communities, represented by V. Kreuschitz and V. Di Bucci, acting as Agents, with an address for service in Luxembourg, 
      
      defendant,
      APPLICATION for the annulment of Article 1 of Commission Decision 2001/466/ECSC of 21 December 2000, in so far as it declares
         the State aid which Italy was planning to implement for the steel company Lucchini SpA amounting to ITL 13.5 thousand million
         (EUR 6.98 million) to be incompatible with the common market (OJ 2001 L 163, p. 24),
      
      THE COURT OF FIRST INSTANCE OF THE EUROPEAN COMMUNITIES (Fifth Chamber, Extended Composition),
      
      composed of P. Lindh, President, R. García-Valdecasas and J.D. Cooke, Judges, 
      Registrar: J. Palacio González, Principal Administrator,
      having regard to the written procedure and further to the hearing on 18 March 2004,
      gives the following
      Judgment
       Legal framework
      1       Article 4 CS states:
      ‘The following are recognised as incompatible with the common market for coal and steel and shall accordingly be abolished
         and prohibited within the Community, as provided in this Treaty:
      
      …
      (c)      subsidies or aids granted by States, or special charges imposed by States, in any form whatsoever;
      …’
      A –  Steel Aid Code 
      2       In order to meet the restructuring needs of the steel industry, the Commission relied on the provisions of Article 95 of the
         ECSC Treaty to introduce, as from the early 1980s, a Community scheme authorising the grant of State aid to the steel industry
         in specific and limited cases. That scheme underwent a series of amendments in order to deal with the cyclical problems encountered
         by the steel industry. The decisions successively adopted for that purpose are commonly known as ‘the Steel Aid Codes’.
      
      3       Commission Decision No 2496/96/ECSC of 18 December 1996 establishing Community rules for State aid to the steel industry (OJ 1996
         L 338, p. 42) (‘the Code’) is the sixth Steel Aid Code and was in force from 1 January 1997 until 22 July 2002. The Code lays
         down the conditions under which aid to the steel industry financed by Member States or their regional or local authorities
         or through State resources may be deemed compatible with the orderly functioning of the common market.
      
      4       Article 1 of the Code states:
      ‘1. Aid to the steel industry … financed by Member States … may be deemed Community aid and therefore compatible with the
         orderly functioning of the common market only if it satisfies the provisions of Articles 2 to 5.
      
      …
      3. Aid falling within the terms of this Decision may be granted only after the procedures laid down in Article 6 have been
         followed …’
      
      5       Article 3, entitled ‘Aid for environmental protection’, provides:
      ‘Aid for environmental protection may be deemed compatible with the common market if it is in compliance with the rules laid
         down in the Community guidelines on State aid for environmental protection, as set out in Official Journal of the European Communities No C 72 of 10 March 1994, in conformity with the criteria for their application to the ECSC steel industry outlined in the
         Annex to this Decision.’
      
      6       Paragraphs (1) and (2) of Article 6, entitled ‘Procedure’, state that any aid plans and any plans for transfers of State resources
         to steel undertakings must be notified to the Commission, which will determine their compatibility with the common market.
         By virtue of Article 6(4), the planned measures may be put into effect only with the approval of and subject to any conditions
         laid down by the Commission. 
      
      7       Article 6(5) of the Code states:
      ‘If the Commission considers that a certain financial measure may represent State aid within the meaning of Article 1 or doubts
         whether a certain aid is compatible with the provisions of this Decision, it shall inform the Member State concerned and give
         notice to the interested parties and other Member States to submit their comments. If, after having received the comments
         and after having given the Member State concerned the opportunity to respond, the Commission finds that the measure in question
         is an aid incompatible with the provisions of this Decision, it shall take a decision not later than three months after receiving
         the information needed to assess the proposed measure. Article 88 of the Treaty shall apply in the event of a Member State’s
         failing to comply with that decision.’
      
      B –  Guidelines on environmental aid
      8       Point 3 of the Community guidelines on State aid for environmental protection (OJ 1994 C 72, p. 3) (‘the Guidelines’), which
         apply to the EC Treaty, sets out the conditions which government financial assistance to specific enterprises for environmental
         protection must satisfy in order to be authorised.
      
      9       Point 3.2 of the Guidelines concerns aid for investment. Point 3.2.1 states:
      ‘Aid for investment in … plant and equipment intended to reduce or eliminate pollution and nuisances or to adapt production
         methods in order to protect the environment may be authorised within the limits laid down in these guidelines. The eligible
         costs must be strictly confined to the extra investment costs necessary to meet environmental objectives. General investment
         costs not attributable to environmental protection must be excluded. Thus, in the case of new or replacement plant, the cost
         of the basic investment involved merely to create or replace production capacity without improving environmental performance
         is not eligible. Similarly, when investment in existing plant increases its capacity as well as improving its environmental
         performance, the eligible costs must be proportionate to the plant’s initial capacity. In any case aid ostensibly intended
         for environmental protection measures but which is in fact for general investment is not covered by these guidelines. ...’
      
      10     Point 3.2.3 of the Guidelines goes on to provide that aid for environmental investment can be authorised if it does not exceed
         certain levels.  It distinguishes between, first (point 3.2.3.A), aid to help firms adapt to new mandatory standards, secondly
         (point 3.2.3.B), aid to encourage firms to improve on mandatory standards and, thirdly (point 3.2.3.C), aid in the absence
         of mandatory standards.
      
      11     In the first case (Case A), aid for investment to comply with new mandatory standards or other new legal obligations and involving
         adaptation of plant and equipment to meet the new requirements can be authorised up to the level of 15% gross of the eligible
         costs. Such aid may be granted only in respect of plant which has been in operation for at least two years when the new standards
         or obligations enter into force. In addition, firms which, instead of simply adapting existing plant which is more than two
         years old, opt to replace it by new plant meeting the new standards, may receive aid in respect of that part of the investment
         costs that does not exceed the cost of adapting the old plant.
      
      12     In the second case (Case B), aid for investment that allows significantly higher levels of environmental protection to be
         attained than those required by mandatory standards may be authorised up to a maximum of 30% gross of the eligible costs.
         The relevant provisions state that ‘the level of aid actually granted for exceeding standards must be in proportion to the
         improvement of the environment that is achieved and to the investment necessary for achieving the improvement’ and that ‘where
         a project partly involves adaptation to standards and partly improvement on standards, the eligible costs belonging to each
         category are to be separated and the relevant limit applied’. 
      
      13     In the third case (Case C), investment may benefit from aid at the same levels and subject to the same conditions as those
         laid down in the second case.
      
      C –  Annex to the Code
      14     The Annex to the Code, entitled ‘Criteria for the application of … [the Guidelines] … to the steel industry …’, states in
         its introduction that for all cases of State aid for environmental protection the Commission is, as appropriate, to impose
         strict conditions and safeguards so as to avoid general investment aid for new plant or equipment being granted under cover
         of environmental protection.
      
      15     That annex is divided into two parts. The first part, entitled ‘Aid to help firms adapt existing installations to new mandatory
         standards’, states at point (b):
      
      ‘In relation to firms that, instead of adapting existing plant or equipment which is more than two years old, decide to replace
         such plant or equipment by new plant meeting the new standards, the following approach will be adopted:
      
      …
      (ii)  the Commission will analyse the economic and environmental background of a decision to opt for the replacement of existing
         plant or equipment. In principle a decision to undertake new investment which would have been necessary in any event on economic
         grounds or due to the age of the existing plant or equipment will not be eligible for aid. The existing plant must have significant
         useful life left (at least 25%) for the new investment to be eligible for aid.’
      
      16     The second part, entitled ‘Aid to encourage firms to contribute to significantly improved environmental protection’, provides:
      ‘(a)      In the case of firms which decide to improve significantly on mandatory standards, in addition to complying with the criteria
         [set out] in point (b)(ii) above, the investor will have to demonstrate that a clear decision was taken to opt for higher
         standards which necessitated additional investment, that is, that a lower-cost solution existed which would meet the new environmental
         standards. In any event, the higher aid level will only apply to the additional environmental protection achieved. Any advantage
         in regard to lower production costs resulting from these significantly higher levels of environmental protection will be deducted;
      
      (b)      in relation to firms which significantly improve on environmental protection, the criteria [set out in the first part at]
         point (b)(ii) above must be complied with and, in addition, any advantage in regard to lower costs of production from these
         significant improvements will be deducted;
      
      (c)       in conjunction with the above criteria, investments undertaken solely for environmental protection will be examined on the
         basis of their compliance with the criteria set out in [the Guidelines].’
      
       Facts
      17     The applicant, Lucchini SpA, is a steel company which manufactures products referred to in Annex I to the ECSC Treaty.
      A –  Notifications relating to production investments  
      18     On 10 December 1997, pursuant to Commission Decision No 3010/91/ECSC of 15 October 1991 on the information to be furnished
         by steel undertakings about their investments (OJ 1991 L 286, p. 20), the Italian authorities submitted two notifications
         to the Commission relating to production investment projects carried out at Lucchini’s Piombino factory. According to the
         letter from the Italian authorities of 18 July 2000, those notifications related, first, to the replacement of the blast furnace
         with a new one in the pig-iron production installations (point 10 of the contested decision) and, secondly, to the replacement
         of existing converters with new ones in the steelworks. 
      
      B –  Notifications relating to environmental investment plans 
      19     By letter of 16 March 1999, the Italian authorities notified to the Commission, for the purposes of Article 3 of the Code,
         a first plan for aid for environmental protection intended to be granted to Lucchini for investments in the Piombino factory
         (‘the first aid plan’). The notified investments concerned environmental measures comprising the replacement of or additions
         to the coking plant, the blast furnace and the steelworks, and involved in particular the fume extraction equipment for the
         converters at the steelworks.
      
      20     By letter of 19 April 1999, the Commission requested further information regarding the plan. That letter referred, first of
         all, to point (b)(ii) of the first part of the Annex to the Code, which provides that environmental investment in the steel
         industry made on economic grounds or due to the age or condition of the existing plant will not be eligible for aid where
         the useful life left of the plant is less than 25%. The letter requested the Italian authorities to produce a report from
         an independent expert as to the useful life left of the environmental equipment to be replaced in order to determine whether
         the notified investments satisfied that condition. The letter also requested the Italian authorities to provide information
         as to the level of environmental contamination from the existing plant and expected to be emitted by the new plant on completion
         of the notified measures, together with the levels of contamination which were to be achieved under the standards currently
         in force.  
      
      21     By letter of 29 November 1999, the Italian authorities replied to the Commission’s request for information. First, they provided
         an expert’s report dated 30 September 1999 (‘the expert’s report’), which states that the plant to be replaced had a useful
         life left of at least 25%. Secondly, the Italian authorities submitted a fresh version of the first aid plan, incorporating
         minor changes, which included in particular an annex with comparative tables setting out information as to the contamination
         levels requested by the Commission (that is to say, the levels achieved before and after the measures, and the levels laid
         down under the mandatory standards) for each type of investment in the coking plant, the blast furnace and the steelworks.
      
      22     By separate letter of 29 November 1999, the Italian authorities notified to the Commission,  for the purposes of Article 3
         of the Code, a second aid plan for environmental protection granted to Lucchini for investments in the Piombino factory (‘the
         second aid plan’). The notified investments involved additional environmental measures in the coking plant and the water supply
         and discharge system, with a view to further reducing contaminating emissions.
      
      23     By two letters of 17 January 2000, the Commission requested additional information on the investments covered by each of the
         notified aid plans. With respect to the first aid plan, the Commission requested the Italian authorities to clarify the relationship
         between the environmental investments notified in that plan and the production investments relating to the blast furnace and
         the steelworks which had been the subject of the notifications submitted in December 1997. In addition, the Commission asked
         for details of the estimated energy savings resulting from the measures in the steelworks. With respect to the second aid
         plan, the Commission requested the Italian authorities to provide details of the investments in the coking plant and the water
         supply and discharge system, as regards the previous levels of environmental contamination and the levels of contamination
         arising from the planned measures, by comparison with the legal requirements.
      
      24     By two letters of 15 February 2000, the Italian authorities replied to the Commission’s requests relating to each of the notified
         aid plans, by supplying the information requested, together with tables setting out the data requested for the various levels
         of environmental contamination.
      
      C –  Decision to initiate the investigation procedure laid down under Article 6(5) of the Code and observations of the Italian
            authorities
      25     By letter of 26 April 2000, the Commission informed the Italian authorities of its decision to initiate the procedure laid
         down under Article 6(5) of the Code as regards each of the aid plans notified in favour of Lucchini for a total amount of
         ITL 13.5 thousand million (ITL 10.7 thousand million under the first aid plan and ITL 2.8 thousand million under the second
         aid plan), relating to the investments in the Piombino factory costing in total ITL 190.9 thousand million (ITL 152.5 thousand
         million under the first aid plan and ITL 38.4 thousand million under the second aid plan). The decision to initiate the investigation
         procedure was published on 1 July 2000 (OJ 2000 C 184, p. 2) (‘the decision to initiate’). 
      
      26     That decision stated, in particular, that an initial assessment of the information provided led to the conclusion that the
         investments had been made above all for economic reasons, that even if the notified investments were not directly linked to
         new production equipment they would have been necessary to ensure the modernisation and the extension of the production plant
         or to enable all the new production capacity installed to be utilised and that the Italian authorities had failed to prove
         that the investments had been made on environmental, as opposed to economic, grounds. The decision to initiate also stated
         that the Italian authorities had not shown that, when equipment or plant was being replaced, the investor had clearly taken
         a decision to opt for higher standards which necessitated additional investment, meaning that a lower-cost solution existed
         which would have met the legal standards. 
      
      27     In addition, the decision to initiate stated that it was not certain that all the notified investments had no effect on production.
      28     By letter of 18 July 2000, the Italian authorities replied to the doubts expressed by the Commission in the decision to initiate
         by reaffirming the exclusively environmental, and not economic or productive, aim of the notified investments.
      
      D –  Contested decision
      29     On 21 December 2000, the Commission adopted Decision 2001/466/ECSC on the State aid which Italy is planning to implement in
         favour of the steel companies Lucchini SpA and Siderpotenza SpA (OJ 2001 L 163, p. 24) (‘the contested decision’).
      
      30     The Commission concludes as regards its assessment of the aid in the light of Article 3 of the Code and the provisions to
         which that article refers, namely the Annex to the Code and the Guidelines (see points 22 to 24 of the contested decision)
         that ‘the aid notified … for Lucchini … in the coking plant, the steelworks and the blast furnace of ITL 13.5 [thousand million]
         is not eligible for environmental aid because the Italian authorities failed to demonstrate that the investments were not
         made for economic reasons’.  It goes on to state that ‘in any case, when assessed in the light of the detailed criteria, the
         notified aid does not meet the various requirements’. In particular, ‘the notified costs do not refer only to the extra costs
         necessary for the additional improvement in environmental protection, not all costs have been deducted and, in some cases,
         the reduction in pollution levels does not allow such improvement to be considered “significant”’ (point 39 of the contested
         decision).
      
      31     Article 1 of the contested decision accordingly states:
      ‘The State aid which Italy is planning to implement for Lucchini …, amounting to ITL 13.5 [thousand million] (EUR 6.98 million)
         … is incompatible with the common market. 
      
      The aid may accordingly not be implemented.’ 
       Procedure and forms of order sought
      32     By application lodged at the Court Registry on 23 July 2001, the applicant brought the present action.
      33     The applicant has, by way of measures of inquiry, requested the Court to make an order pursuant to Article 23 of the ECSC
         Statute of the Court of Justice for the production of the Commission’s administrative file and, in particular, the documents
         and technical information included in it pursuant to which the Commission found that the notified investments were not of
         an environmental nature. The Commission has lodged the file with the Court, asking that it should not be placed in the Court
         file and that, accordingly, it should not be passed to the applicant, and has lodged a request for confidential treatment
         in that regard.
      
      34     Following an exchange of letters between the Commission and the Court, the Commission informed the Court, by letter of 14
         November 2002, that the administrative file contained no technical material or reports apart from those supplied by the Italian
         authorities and already produced by the applicant in the annex to its application. 
      
      35     By letter of 7 February 2003, the applicant withdrew its request for access to the administrative file. 
      36     On receiving the report of the Judge‑Rapporteur, the Court (Fifth Chamber, Extended Composition) decided to open the oral
         procedure.
      
      37     At the hearing on 18 March 2004, the parties presented oral argument and replied to the questions put by the Court (Fifth
         Chamber, Extended Composition), composed of P. Lindh, President, R. García‑Valdecasas,  J.D. Cooke, P. Mengozzi and M.E. Martins
         Ribeiro, Judges. 
      
      38     The applicant claims that the Court should:
      –       annul Article 1 of the contested decision;
      –       order the production of such expert’s report as may be necessary in relation to the category of investments notified to the
         Commission, for the purposes of demonstrating that the previous environmental protection plant was capable of operating in
         conjunction with the new production equipment;
      
      –       order the Commission to pay the costs.
      39     The Commission contends that the Court should:
      –       dismiss the action as inadmissible;
      –       order the applicant to pay the costs.
      40     The oral procedure was closed at the end of the hearing on 18 March 2004. Pursuant to Article 32 of the Rules of Procedure
         of the Court, as a member of the Chamber was prevented from taking part in the judicial deliberations following the expiry
         of his mandate on 3 May 2006, the most junior judge within the meaning of Article 6 of the Rules of Procedure accordingly
         abstained from taking part in the deliberations and the Court’s deliberations were continued by the three judges whose signatures
         the present judgment bears.
      
       Law 
      41     The applicant essentially puts forward three pleas in law in support of its application for the annulment of the contested
         decision. The first plea alleges an error as to the rules which are applicable to the case and infringement of the principle
         of sound administration. The second plea alleges that the Commission’s findings as to the ineligibility of the notified aid
         were incorrect, infringement of the principle of non‑discrimination, reversal of the burden of proof and failure to state
         adequate reasons. The third plea alleges that the Commission’s findings that there had been a failure to comply with the conditions
         as to compatibility of the aid laid down by the relevant provisions were incorrect, infringement of the principle of non-discrimination,
         reversal of the burden of proof, failure to state adequate reasons and an inherent contradiction in the reasoning set out
         in the contested decision. 
      
      A –  The first plea, alleging an error as to the rules which are applicable to the case and infringement of the principle of sound
            administration 
      1.     Arguments of the parties
      42     The applicant claims that the contested decision was adopted on an incorrect legal basis. It points out that, by way of exception
         to the general principle laid down by Article 4(c) CS that subsidies or aids granted by Member States are prohibited, Article
         3 of the Code provides that aid for environmental protection may be authorised, subject to certain conditions, under the criteria
         set out in the Annex to the Code and in the Guidelines. The applicant distinguishes between three types of investment aid
         which is to be notified to the Commission by the Member States: first, general investment and investment which seeks to increase
         production capacity, which is not eligible as aid inasmuch as it is incompatible with the common market, and in respect of
         which the relevant provisions are those of the Annex to the Code, together with the third sentence and the remainder of point 3.2.1,
         and point 3.2.3 of the Guidelines; secondly, mixed investment, which seeks both to increase production capacity and to protect
         the environment, as regards which the national authorities are under a duty to distinguish between the costs connected with
         the increase in production capacity and those which relate to environmental protection, since only investment for environmental
         purposes may benefit from aid, with the relevant provisions in that case being those set out in the Annex to the Code; thirdly,
         purely environmental investment, which is eligible for aid where it complies with the conditions laid down in the first and
         second sentences of point 3.2.1 of the Guidelines, and to which the remainder of the Guidelines and the Annex to the Code
         do not apply.
      
      43     The applicant states that such a categorisation does not mean that the purely environmental investments notified by the Italian
         authorities fall outside the scope of the Code. It argues that Article 3 of the Code makes reference both to the Annex to
         the Code and to the Guidelines, and that that double reference is not cumulative, but alternative. Accordingly, it is logical
         to take the view that the Annex to the Code applies to general investment and to mixed investment, while purely environmental
         investment is covered solely by the Guidelines, to the exclusion of the Annex to the Code. In support of its position, the
         applicant argues that the terms of the introductory paragraph to the Annex to the Code mean that its provisions apply solely
         where there is an overlap between environmental aid and aid for general investment and that point (c) of the second part of
         the Annex to the Code indicates that such investment falls to be analysed solely in the light of the additional criteria set
         out in the Guidelines. 
      
      44     In order to show that point 3.2.3 of the Guidelines does not apply to purely environmental investment, the applicant argues
         that the distinction made in that provision between aid to help firms to adapt to new mandatory standards, aid to encourage
         firms to improve on mandatory standards and aid in the absence of mandatory standards is founded exclusively on the threshold
         which may be authorised and is relevant only where an application for authorisation of aid is made for a threshold which is
         between 16% and 30% of eligible costs. Thus, when the threshold is significantly lower than the ordinary threshold of 15%
         (in the present case it was 7%), the distinction made in point 3.2.3 becomes irrelevant and there is no need to carry out
         the further analysis set out there. Accordingly, in applying point 3.2.3 of the Guidelines to the environmental aid notified
         in the present case, the Commission confused the rules governing the compatibility of aid, which are limited to those contained
         in point 3.2.1 of the Guidelines, with those relating to its intensity.
      
      45     The applicant accordingly contends that, since the notified investments had a purely environmental objective, the provisions
         on which the Commission should have based the contested decision were only those set out in the first and second sentences
         of point 3.2.1 of the Guidelines. The contested decision accordingly ought not to have taken into consideration the provisions
         of the Annex to the Code, together with the third sentence and the remainder of point 3.2.1, and point 3.2.3 of the Guidelines.
      
      46     Lastly, the applicant maintains that the Commission’s decision not to apply the relevant provisions of the Guidelines and
         to apply, in addition, the Annex to the Code, constitutes an infringement of the principle of sound administration.
      
      47     The Commission argues that this plea is wholly unfounded. The applicant is distorting the relevant legal provisions by relying
         on partial and incorrect references to the rules which are relevant to the case and, in particular, the Annex to the Code.
         The contested decision is, moreover, based on the relevant legal provisions and there was accordingly no infringement of the
         principle of sound administration.
      
      2.     Findings of the Court
      48     In the present case, the contested decision was adopted on the basis of Article 4(c) CS and took into account the rules set
         out in the Code. Having assessed the notified aid in the light of Article 3 of the Code and the provisions to which that article
         refers, namely the Annex to the Code and the Guidelines (see points 22 to 24 of the contested decision), the Commission reached
         the conclusion that the aid did not satisfy the conditions set out in those provisions in order for environmental aid to be
         authorised under the ECSC Treaty. As a consequence, that aid was declared incompatible with the common market and could not
         be implemented (see point 39 and Article 1 of the contested decision).
      
      49     It should be pointed out first of all that, by derogation from the principle laid down under Article 4(c) CS, in terms of
         which subsidies or aids in any form whatsoever to the steel industry are prohibited, and in implementation of Article 95 CS,
         the Code sets out the conditions under which aid to the steel industry financed by way of State resources may be considered
         to be compatible with the proper functioning of the common market.
      
      50     Aid which is not covered by the Code thus remains subject to Article 4(c) CS (Case T-239/94 EISA v Commission [1997] ECR II‑1839, paragraph 72, and Case T-158/96 Acciaierie di Bolzano v Commission [1999] ECR II‑3927, paragraph 60). Similarly, the Code must be strictly interpreted, since it constitutes a derogation from
         a principle that something is prohibited (see, to that effect, Joined Cases C-280/99 P to C-282/99 P Moccia Irme and Others v Commission [2001] ECR I‑4717, paragraph 40, and Case T-150/95 UK Steel Association v Commission [1997] ECR II‑1433, paragraph 114).
      
      51     Next, it must be noted that Article 3 of the Code provides that aid for environmental protection granted to the steel industry
         may be deemed compatible with the common market ‘if it is in compliance with the rules laid down in [the Guidelines], in conformity
         with the criteria for their application to the ECSC steel industry outlined in the Annex to [the Code]’. 
      
      52     That means that the provisions of the Guidelines, which apply under the EC Treaty, may be transposed to the steel industry,
         which falls under the ECSC Treaty, when those provisions satisfy the criteria for their application set out in the Annex to
         the Code. It is thus particularly significant that the heading to that Annex states that it establishes the ‘criteria for
         the application of Community guidelines on State aid to the steel industry for environmental protection’. The Code accordingly
         does not provide for the automatic application of the Guidelines to the steel industry (UK Steel Association v Commission, paragraph 100), but specifies in its Annex the conditions which govern that application. 
      
      53     It follows that, applying Article 3 of the Code, the provisions which are relevant to the present case are those which are
         set out in the Annex to the Code and those laid down in the Guidelines, provided they comply with the criteria for application
         to the ECSC steel industry laid down in the Annex to the Code.
      
      54     The Annex to the Code is in two parts. The first refers to aid to help firms adapt existing installations to new mandatory
         standards. The second covers aid to encourage firms to contribute to significantly improved environmental protection. The
         notifications of the aid plans submitted by the Italian authorities, the letters from the Italian authorities of 15 February
         2000, and the observations of the Italian authorities of 18 July 2000 on the decision to initiate state that the notified
         investments were intended to encourage the applicant to contribute to significantly improved environmental protection and
         to encourage it to improve on mandatory standards.
      
      55     Thus, the observations of the Italian authorities on the decision to initiate indicated that the notified aid in favour of
         the applicant related to investments made by that company ‘with a view to improving environmental protection compared with
         the results previously achieved, which, moreover, complied with the legislation in force’.
      
      56     Those observations also stated that the replacement of the environmental equipment for the blast furnace and the steelworks
         ‘[had been] undertaken as a separate matter from the replacement of the means of production (blast furnace and steelworks
         converters), the sole purpose being to reduce emissions to a greater degree than required by the legislation in force, with
         which the previous plant had already complied’.
      
      57     In addition, those observations stated that ‘Lucchini [had] decided to opt for significantly higher levels of environmental
         protection, as a separate matter from the production investments, which did not require any investment in the form of an environmental
         protection system in order to comply with the emissions standards in force and [that], accordingly, all the notified investments
         should be treated as being additional investment’.
      
      58     It follows that the applicant could not benefit from aid granted pursuant to the first part of the Annex to the Code, which
         covers ‘aid to help firms adapt existing installations to new mandatory standards’. Similarly, and as the Commission rightly
         argues, as the aid in question was intended to encourage the applicant to make a significant contribution to environmental
         protection and to improve on mandatory standards, the provisions which are relevant to the present case are those set out
         in points 3.2.1 and 3.2.3.B of the Guidelines, as defined and adapted for the purposes of the ECSC steel industry by the second
         part of the Annex to the Code.
      
      59     Accordingly, the Commission was fully entitled to adopt the contested decision on the basis of Article 4(c) CS, taking into
         account Article 3 of the Code and the provisions to which that article refers, namely the Annex to the Code and the Guidelines.
      
      60     As that is the context which is relevant, none of the arguments put forward by the applicant can be accepted. 
      61     First, the applicant’s contention that the relevant provisions will vary depending on the three categories of investment which
         may be notified as State aid is not well founded. That argument is inconsistent with the wording of Article 3 of the Code,
         which provides for the Annex to the Code and the Guidelines to apply cumulatively in the manner described above, without making
         any distinction at that stage between different types of investment. It cannot therefore be accepted that the reference made
         by Article 3 of the Code to the Annex to the Code and the Guidelines is not cumulative but alternative. 
      
      62     Secondly, the applicant’s assertion that the Annex to the Code does not apply to investment which is purely environmental
         lacks any basis in law. As stated above, Article 3 of the Code provides that environmental aid to the ECSC steel industry
         must comply with both the Annex to the Code and the Guidelines. Similarly, the introduction to the Annex to the Code, which
         provides that ‘the Commission will, as appropriate, impose strict conditions and safeguards so as to avoid general investment
         aid for new plants or equipment being granted under cover of environmental protection’, cannot be relied on by the applicant
         in support of its contention that the Annex to the Code does not apply to purely environmental aid. In fact, that wording
         merely obliges the Commission to investigate, should the need arise, whether investment which is notified as being purely
         environmental in nature does not in truth permit other objectives prohibited by the relevant provisions to be achieved. Accordingly,
         the notified aid, which clearly falls under the ECSC Treaty, is covered in full both by the criteria set out in the Guidelines
         and by those laid down in the Annex to the Code.
      
      63     Thirdly, the applicant’s assertion that point 3.2.3 of the Guidelines does not apply to investment which is purely environmental
         also lacks any basis in law. That provision lays down criteria for compatibility of aid and sets a maximum level of intensity
         by reference to the purpose of the investment, namely adaptation to meet new mandatory standards (Case A), encouragement to
         improve on mandatory standards (Case B) or the protection of the environment in the absence of mandatory standards (Case C).
         Accordingly, the applicant’s reliance on the fact that the intensity of the aid notified is lower than the threshold of 15%
         referred to in Case A does not of itself mean that Case B, which provides for a threshold of 30%, does not apply. The notified
         aid remains aid to encourage the applicant to improve on mandatory standards and must therefore be investigated under the
         provisions set out in point 3.2.3.B of the Guidelines. 
      
      64     It follows from the above that, as the contested decision states, the relevant legal basis for assessing the aid in question
         in this case comprises Article 3 of the Code and the provisions to which that article refers, namely the Annex to the Code
         and the Guidelines. 
      
      65     The objection based on the application of the wrong legal framework and the objection based on infringement of the principle
         of sound administration are accordingly unfounded and the first plea must be rejected in its entirety.
      
      B –  The second plea, alleging that the Commission’s findings as to the ineligibility of the notified aid were incorrect, infringement
            of the principle of non-discrimination, reversal of the burden of proof and failure to state adequate reasons
      1.     Arguments of the parties
      66     By this plea, the applicant challenges the findings made in points 25 to 29, 35 and 39 of the contested decision that the
         notified aid was ineligible.
      
      67     The applicant contends, first of all, that the Commission was wrong to state that the Italian authorities have not shown that
         the notified investments were intended to improve on environmental protection. The Commission was wrong to impose the burden
         of proof on the Italian authorities, since those authorities were never requested to provide evidence in that regard and the
         lack of any such evidence is a crucial factor in the contested decision.  Unlike the expert’s report produced by the Italian
         authorities in response to a request from the Commission, the latter never formally requested those authorities to provide
         evidence that the notified investments were intended to improve the environment, even after the Italian authorities had stated
         on several occasions that the aid was of an environmental nature. It is only where a specific request for clarification and
         additional information has been made and the national authorities have failed to respond to it that the Commission is entitled
         to conclude that those authorities have failed to substantiate their assertions and have not provided the information necessary
         to enable the Commission to assess the matter in hand (see, to that effect and by way of analogy, Case C-241/94 France v Commission [1996] ECR I‑4551, paragraphs 36 and 37).
      
      68     The Commission replies that the applicant fails to have regard to the obligation referred to in point (a) of the second part
         of the Annex to the Code, which requires the investor to demonstrate that a clear decision was taken to opt for higher standards
         which necessitated additional investment. That obligation is justified by the particularly strict framework applicable to
         environmental aid in the ECSC sector. In the same way, although the applicant is correct to refer to point 3.2.1 of the Guidelines,
         it then fails to provide any information whatsoever that might show that it was required to bear extra costs that are strictly
         necessary in order to achieve more ambitious environmental objectives. Accordingly, the Commission contends that it was for
         the applicant and the Italian authorities to prove that the company receiving the aid had decided to opt for higher environmental
         standards which necessitated additional investment, that the notified investments were not for production purposes, that it
         was technically possible to continue to use the old environmental equipment by adapting it to the new production installations
         and, in short, that the conditions for authorisation were satisfied. In the decision to initiate, the Commission referred
         to all of those doubts, thereby allowing both the Member State and the applicant to determine all the evidence to be supplied
         and without it being necessary to make an express request for the production of a particular expert’s report.
      
      69     The applicant next argues that the Commission was wrong to find that the notified investments were necessary by reason of
         the age of the existing environmental installations and the impossibility of adapting those installations to the new production
         equipment. The Commission made findings as to the age of that plant without basing them on objective factors and without having
         regard to the principle laid down in the Annex to the Code that, when assessing the condition of equipment, regard must be
         had to the useful life left of the plant. In the same way, the Commission failed to take into account the expert’s report
         of 30 September 1999, provided by the Italian authorities at the Commission’s request, which shows that the environmental
         installations had a useful life left equal to or higher than 25%. Furthermore, it is clear that, technically speaking, the
         old environmental plant was quite capable of bearing the pollution load of the new production equipment. 
      
      70     In that regard, the applicant requests the Court, by way of measures of inquiry and pursuant to Articles 65 and 66 of the
         Rules of Procedure and Article 25 of the ECSC Statute of the Court of Justice, to order that an expert’s report be commissioned
         with a view to showing that the old environmental equipment was capable of operating in conjunction with the new production
         equipment, so that the validity of the contested decision may be assessed.
      
      71     In reply to that argument, the Commission states that the applicant confuses the condition referred to in point (b)(ii) of
         the first part of the Annex to the Code, which requires that the existing plant must have a useful life left of at least 25%,
         with the obsolescence of the plant, which may encourage firms to replace it as a separate matter from the question of its
         useful life left. In the present case, the Commission did indeed take into account the expert’s report of 30 September 1999
         and does not question the findings that the useful life left of the plant was at least 25%. However, the contested decision
         is not based on a failure to comply with that requirement, but on the fact that that plant was obsolete and would have been
         replaced in any event as part of the renovation of the production plant. The contested decision does not accept that the company
         could renew all its production installations while maintaining the old environmental equipment in operation, as there was
         nothing to show that such an option was technically feasible.
      
      72     In that regard, the Commission notes that the letter from the Italian authorities of 15 February 2000 states that the production
         investments had been decided upon for reasons that did not involve the condition of the plant but its obsolescence, as that
         plant no longer met production requirements. Furthermore, the expert’s report of 30 September 1999 shows that the environmental
         investments consisted in replacing, adding to or modifying part of the production plant. At no stage of the administrative
         procedure or the proceedings before the Court was the applicant able to explain the economic and production logic which would
         have led to the old environmental equipment being reused when the production plant to which it was linked was replaced.
      
      73     As regards the applicant’s request for measures of inquiry, the Commission takes the view that it is of no relevance to the
         resolution of the dispute, since the Court cannot substitute its own assessment for that of the Commission, given the wide
         powers of assessment the latter possesses, thereby altering the Commission’s position (order of the President of the Fourth
         Chamber of the Court of First Instance (Extended Composition) of 2 April 1998 in Case T-86/96 R Arbeitsgemeinschaft Deutscher Luftfahrt‑Unternehmen and Hapag Lloyd v Commission [1998] ECR II‑641, paragraph 74).
      
      74     The applicant lastly argues that the Commission’s finding in point 28 of the contested decision, that the investments were
         not eligible for aid since the company was required to undertake new environmental investments by reason of the location of
         the premises in a densely‑populated area and, accordingly, that such investments were necessary from an economic perspective
         in order to allow the applicant to carry on its business, is also vitiated by serious errors and is discriminatory.
      
      75     The applicant claims that that finding is unfounded, as any failure on its part to carry out the environmental works would
         not mean that it was legally obliged to cease carrying on its business, since it already complied with the environmental standards
         in force. In addition, the letter from the Italian authorities of 15 February 2000, which contained the information referred
         to by the Commission, was wrongly interpreted, as that letter does not show that, were the notified investments not to have
         been made, it would have been impossible for the company to remain in the centre of Piombino, but only that the carrying out
         of the environmental investments might facilitate its remaining in that location thereafter.
      
      76     In addition, the applicant questions whether other cases exist in which the principle on which the Commission based its finding
         in point 28 of the contested decision has been applied. According to the applicant, Commission Decision 2000/66/ECSC of 28
         October 1998 on aid which Italy plans to grant to the steel company Acciaierie di Bolzano SpA (OJ 2000 L 23, p. 65) is the
         only previous example. That case was decided in a way which was contrary to that chosen by the Commission in the contested
         decision. Accordingly, the contested decision is vitiated by a serious discrepancy of treatment by comparison with other similar
         cases.
      
      77     In reply, the Commission contends that the applicant confuses the principles applicable to aid to adapt existing installations
         to mandatory standards and those which apply to aid to encourage firms to improve on those standards. The present case involves
         no new mandatory standard and, accordingly, the decisive factor to be taken into consideration is the fact that the company
         was faced with very strong social pressure which obliged it to carry out the investments in question if it was to remain in
         operation in Piombino. Furthermore, the decision relating to the Acciaierie di Bolzano cannot be compared with this case,
         because, in that matter, the company had provided evidence that it had ‘invest[ed] on a far larger scale’ than that required
         by the standards in force in the environmental field.
      
      78     In addition, the applicant maintains that the contested decision is vitiated by a failure to state adequate reasons, because
         the Commission has not set out either the reasons or the objective evidence which led it to conclude that the notified investments
         were production-related and were not for environmental protection. Thus, the contested decision merely contests the environmental
         objective of the notified investments put forward by the Italian authorities, without providing any reasons for the refusal
         to accept that objective and without providing other technical material to contest the expert’s report produced by those authorities,
         which clearly demonstrated the environmental nature of the notified measures. In the same way, the contested decision does
         not state the reasons why the old environmental equipment needed to be replaced in any event and the reasons why that equipment
         was not technically compatible with the new production equipment. Lastly, the contested decision does not state in what way
         the replies from the Italian authorities were inadequate.  Since documents had been provided to the Commission, it was required
         to take them into consideration and should have adjudicated on them, either by accepting the views put forward by the Italian
         authorities or by formally rejecting them, pursuant to its duty to adopt a position on the objections and observations put
         forward by a Member State (Joined Cases T‑298/97, T‑312/97, T‑313/97, T‑315/97, T‑600/97 to T‑607/97, T‑1/98, T‑3/98 to T‑6/98
         and T‑23/98 Alzetta and Others v Commission [2000] ECR II‑2319, paragraph 105).
      
      79     The Commission argues that the obligation to provide reasons is not absolute and that it is not required to respond to all
         the issues of fact and law raised by the persons concerned, but solely to take account of all the relevant factors of the
         case in question. Furthermore, an error in the statement of reasons does not always lead to annulment, provided that the remainder
         of the statement provides a sufficient basis for the adoption of the measure (Case 119/86 Spain v Council and Commission [1987] ECR 4121). In the present case, the Commission cannot be criticised for not providing the material necessary to substantiate
         facts which do not fall within the regulatory framework or to substantiate facts which it is not for the Commission, but for
         the Member State and the company receiving the aid, to prove. In any event, the Commission provided a full and detailed statement
         of its concerns in the decision to initiate and indicated there the matters in relation to which the Italian authorities and
         the applicant were to provide the necessary evidence, which they failed to do.
      
      2.     Findings of the Court
      a)     Preliminary observations
      80     In proceedings for annulment brought against a Commission decision adopted on the basis of the ECSC Treaty, the second sentence
         of Article 33 CS provides that the Court of First Instance ‘may not … examine the evaluation of the situation, resulting from
         economic facts or circumstances, in the light of which the [decision was taken], save where the Commission is alleged to have
         misused its powers or to have manifestly failed to observe the provisions of [the ECSC] Treaty or any rule of law relating
         to its application.’
      
      81     In point 24 of the contested decision, the Commission held that the present case fell to be assessed in the light of the criteria
         laid down in point (a) of the second part of the Annex to the Code, which also refers to the criteria set out in point (b)(ii)
         of the first part of the Annex to the Code. It should be noted in that regard that the criteria enshrined in those provisions
         are as follows. First, where firms decide to replace their plant, the investment in question cannot, in principle, benefit
         from environmental aid if the investment was necessary on economic grounds or due to the age of the existing plant. The useful
         life left of the existing plant must be at least 25% of its total life. Secondly, the aid in question must encourage the firm
         to contribute to ‘significantly improved’ environmental protection. Such significantly improved protection may be demonstrated
         where the investor can show that it has taken a clear decision to opt for higher standards which necessitated additional investment,
         that is, that a lower-cost solution existed which met the new environmental standards.
      
      82     In addition, point 3.2.1 of the Guidelines establishes the principle whereby ‘aid ostensibly intended for environmental protection
         but which is in fact for general investment’ cannot be eligible under the Guidelines. That point thus adopts the same approach
         as that which is set out in the first criterion laid down in the Annex to the Code and described above.
      
      83     It should also be noted that, when the Commission decides to initiate the formal investigation procedure, it is for the Member
         State and the potential recipient of the aid to put forward arguments to demonstrate that the planned aid meets the exceptions
         specified in accordance with the Treaty, since the object of the procedure is precisely to ensure that the Commission is fully
         informed of all the facts of the case (see, by way of analogy, Case 84/82 Germany v Commission [1984] ECR 1451, paragraph 13). 
      
      84     Although the Commission is required to express its doubts clearly as to the compatibility of the aid when it initiates a formal
         procedure in order to allow the Member State and other parties concerned to respond as fully as possible, the fact remains
         that it is for the provider of the aid and, where relevant, the recipient of it to dispel those doubts and to establish that
         its investment satisfies the condition which allows it to be granted (see, to that effect and by way of analogy, Case C-17/99
         France v Commission [2001] ECR I-2481, paragraphs 41 and 45 to 49). It was therefore for the Italian authorities and the applicant to establish
         that the investments in question were eligible for aid for environmental protection and, in particular, that they had the
         environmental objective required by the Guidelines and the Annex to the Code (see, to that effect and by way of analogy, Joined
         Cases C-278/92 to C-280/92 Spain v Commission [1994] ECR I‑4103, paragraph 49, and Case C-113/00 Spain v Commission [2002] ECR I-7601, paragraph 70). 
      
      85     In the contested decision, the Commission takes the view that the investments in environmental protection made by Lucchini
         in the coking plant, the steelworks and the blast furnace were ineligible for aid for environmental protection because they
         had been made as a condition or as a consequence of necessary production investments and because the Italian authorities had
         not demonstrated that the investments were the result of a voluntary decision by the company to improve on environmental protection
         (point 29). In so doing, the Commission relies on the following points: the investments were made because of the need to ensure
         that the company could carry on its business in a very densely‑populated area (point 28) and, since the replacement of the
         production plant was made as a result of its technical obsolescence, it was difficult to accept that the old environmental
         equipment could have been retained in the circumstances and remained compatible with the new production equipment (points
         26 and 29).
      
      b)     Whether the notified environmental investments were intended to allow the company to continue to carry on its business by
         reason of its being located in a densely-populated area
      
      86     The contested decision states that the Italian authorities indicated that it became apparent that the improvement in environmental
         protection was necessary, even before the investment plan for the modernisation and rationalisation of the production plant,
         because the factory is located in a densely-populated area. As a result, according to the contested decision, the Commission
         could only conclude that ‘the environmental investments were necessary for the company to be allowed to continue to do business
         and hence that the decisive reason for the investments was of an economic nature’ (point 28). 
      
      87     However, the fact that the applicant’s premises are located in a densely‑populated area did not oblige it in any way ‘on economic
         grounds’ to undertake the new investments, since the only obligation imposed on the applicant was to comply with the mandatory
         standards in force. That is the context in which it is necessary to interpret the statement by the Italian authorities to
         the Commission, made in the course of the administrative procedure, that the applicant wished to improve on mandatory standards
         in order to permit ‘steelmaking reality and, accordingly, the related employment opportunities, to coexist with the corresponding
         social reality’ (the first subparagraph of point 9 of the first notification of the first aid plan). It is not in dispute
         in that regard that the existing plant in the Piombino factory met the mandatory standards in force. 
      
      88     Accordingly, the Commission cannot infer from the applicant’s wish to improve on the relevant mandatory standards by making
         a significant contribution to environmental protection, in order to respond to the concerns of those living near its premises,
         that that ‘investment would have been necessary in any event on economic grounds’ for the purposes of point (b)(ii) of the
         first part of the Annex to the Code. 
      
      89     Accordingly and without it being necessary to rule on the alleged infringement of the principle of non-discrimination by reference
         to the Acciaierie di Bolzano case, it must be held that, in stating in point 28 of the contested decision that, because of
         the location of the factory in a densely-populated area, the environmental investments were necessary for the applicant to
         be allowed to continue to do business and hence that the decisive reason for the investments was of an economic nature, the
         Commission wrongly relied on a criterion which is not included among the criteria which are relevant for this purpose. Point
         28 is therefore vitiated by an error of law.
      
      c)     Whether the investments in environmental protection were made as a condition or as a consequence of necessary production investments,
         the evidence provided by the Italian authorities and whether a lower-cost solution existed 
      
       i) The investments in the coking plant 
      –       Whether the investments in the coking plant were made as a condition or as a consequence of necessary production investments
         
      
      90     It should be pointed out first of all that the investment programme for the modernisation and rationalisation of the production
         plant carried out at the Piombino factory in 1997 involved, as is mentioned in paragraph 18 above, first, the replacement
         of the blast furnace with a new one in the pig-iron production installations (point 10) and, secondly, the replacement of
         the existing converters by new converters in the steelworks (point 11). The coking plant was not included in the production
         measures made known to the Commission by letter of 10 December 1997 in connection with the two notifications from the Italian
         authorities relating to the production investment projects carried out in that factory. 
      
      91     In the decision to initiate, the Commission took the view that it was doubtful whether the notified investments involving
         the coking plant – namely the new environmentally-friendly conveyor system for moving coal, the loading systems for the furnaces,
         the sealing of the furnace using a special type of ceramic sintering, the new doors for the coking chambers, the additional
         electricity substation and the modifications to the loading arrangements for the series of 27 furnaces in the coking plant,
         amongst others – constituted investments which were targeted solely at environmental protection and had no effects on the
         production process (see the second sentence of the third subparagraph of the left‑hand column of p. 9 of the decision to initiate).
         In so doing, the Commission did not claim that those investments were intended to replace the production installations in
         the coking plant, but none the less doubted that their purpose was solely environmental and that they had no impact on the
         production process.
      
      92     However, such reasoning is irrelevant in the context of the relevant provisions given that, although the Annex to the Code
         prohibits investment aid which would have been necessary in any event on economic grounds or which is due to the age of the
         existing plant, that annex does not prohibit investment aid which is capable of having an effect on the production process.
         In such a case, the Annex to the Code requires only that any advantage in regard to lower production costs be deducted. Thus,
         in order to be eligible for environmental aid, it is not necessary for the notified investments to serve purposes that relate
         only to environmental protection, to the exclusion of all others, nor is it necessary for the investments to have no impact
         on production capacity. Investment made for environmental purposes cannot be declared ineligible by reason only of the fact
         that it may have an impact on production.
      
      93     In any event, the contested decision did not adopt that line of reasoning, as it does no more than find that the investments
         in the coking plant – in the same way, moreover, as the other investments notified by the Italian authorities concerning the
         applicant – were made as a condition or as a consequence of necessary production investments. That reasoning can be further
         explained by the decision to initiate, which stated that even though the notified investments were not directly linked to
         new production equipment, they would have been necessary in order to ensure that the investments for the modernisation and
         extension of the production equipment were of a long‑term nature or for all the new production capacity to be utilised (see
         the second sentence of the penultimate subparagraph of the left-hand column of p. 3 of the decision to initiate).
      
      94     None the less, the Court finds that the contested decision was wrong to hold that the investments in the coking plant were
         made as a condition or as a consequence of necessary production investments. It is clear from the notifications of the Italian
         authorities relating to the production investment projects at the Piombino factory that the coking plant was not included
         in those production investments, unlike the blast furnace and the steelworks. In doing so, the contested decision erred in
         that regard, as the coking plant was not the subject of production investments.  
      
      95     Furthermore, if the contested decision and the decision to initiate were to be interpreted as meaning that the investments
         in the coking plant were the condition or the necessary consequence of the renovation of production equipment in the blast
         furnace and the steelworks, it is plain that there is no explanation in either the contested decision or the decision to initiate
         which could provide a basis to support such a finding and that the contested decision would accordingly be vitiated by a failure
         to state adequate reasons. 
      
      96     Lastly, if the contested decision and the decision to initiate were to be interpreted as meaning that the investments in the
         coking plant were the condition or the necessary consequence of the renovation of the production equipment in general, it
         must be observed that throughout the administrative procedure the Commission received detailed explanations from the Italian
         authorities as to the environmental nature of the various investments in the coking plant, in particular as regards the way
         in which those investments would reduce gas and dust emissions, and that, given those explanations, the Commission was not
         entitled merely to state that the investments in the coking plant had been made as a condition or as a consequence of necessary
         production investments, without providing any reasons for doing so. It should be pointed out in that regard that the Annex
         to the Code provides that the Commission is to make use of independent expertise in examining State aid for environmental
         protection. Had it done so, the Commission might have been in a position to substantiate its reasoning in that respect.
      
      –       The evidence provided by the Italian authorities 
      97     The Court further finds that the contested decision is wrong to state that the Italian authorities provided no evidence to
         show that the reason for environmental investments in the coking plant was a voluntary decision by the company to improve
         on environmental protection. A number of documents provided by the Italian authorities in the course of the administrative
         procedure show that those authorities on a number of occasions supplied material to the Commission which demonstrated that
         the applicant wished to opt for environmental standards in the coking plant that were higher than the mandatory standards,
         and thereby to make a significant contribution to environmental protection.  
      
      98     Thus, the notifications of the first and second aid plans made by the Italian authorities on 16 March and 29 November 1999
         included a description of the investments planned for the coking plant (see paragraph 9 of the letters of 16 March and 29
         November 1999) and an analysis of the environmental benefits that might be achieved as a result of those investments (see
         paragraph 10 of the letter of 16 March 1999 and paragraph 10 of the letter of 29 November 1999). 
      
      99     In the same way, in response to the express request made by the Commission on 19 April 1999 for information to be provided
         to it regarding the levels of environmental contamination arising from the existing plant, together with the levels of contamination
         which would result from the planned measures by comparison with the mandatory standards in force, the Italian authorities
         provided the necessary information in the annex to their letter of 29 November 1999. That annex comprised a table setting
         out for the coking plant and for each investment envisaged for that installation, first, the level of contaminating emissions
         which would satisfy the mandatory standards, secondly, the level of contaminating emissions arising from the existing equipment
         and, thirdly, the level of contaminating emissions which was expected to be achieved as a result of the notified investments.
         That information is set out in the decision to initiate. The table shows, in the first place, that the existing equipment
         in the coking plant complied with the mandatory standards relating to polluting emissions and, in the second place, that the
         levels achieved as a result of the planned measures were lower than the levels arising from the existing equipment, and accordingly
         also lower than the levels laid down under the mandatory standards.
      
      100   In addition, in reply to another request, made by the Commission on 19 April 1999, for an independent expert’s report to be
         provided in order to establish that the notified aid did not relate to investments which would have been necessary in any
         event due to the age of the existing equipment and that the useful life left of that equipment remained significant (at least
         25%, according to the Annex to the Code), the Italian authorities provided the expert’s report. That report specifies that
         the useful life left of the equipment to which the notified aid relates is higher than 25%. The report also examines all the
         planned works in order to determine the position before the measures were implemented and the position thereafter. In undertaking
         that examination, it provides a clear description of each measure and specifies the improvement that might be expected to
         result from the investments. 
      
      101   Lastly, in reply to a subsequent request, made by the Commission on 17 January 2000, for details to be provided to it regarding
         the levels of environmental contamination expected to result from the planned measures in the coking plant under the second
         aid plan, by comparison with the mandatory standards and by comparison with the investments made previously, together with
         particulars of the changes made to each item of equipment, the Italian authorities provided the information required in their
         letter of 15 February 2000.  The decision to initiate (‘Effects of the investment on the environment’, Table 1) sets out in
         respect of the different types of investments planned for the coking plant, first, the level of contaminating emissions to
         be met to satisfy the mandatory standards; secondly, the level of contaminating emissions prior to the investments covered
         by the first aid plan; thirdly, the level of contaminating emissions achieved as a result of the investments covered by the
         first aid plan; and, fourthly, the level of contaminating emissions which should be achieved as a result of the investments
         notified in the second aid plan. The table shows that there was a reduction of approximately 25% as between the level of contaminating
         emissions prior to the first plan and those expected as a result of the second plan. 
      
      102   Neither in the decision to initiate nor in the contested decision did the Commission put forward arguments to refute the evidence
         provided by the Italian authorities, which specified in a detailed and quantifiable manner the various environmental improvements
         which would result from the planned investments in the coking plant. 
      
      103   Accordingly, the contested decision is inadequately reasoned when it states, without analysing the information referred to
         above, that the Italian authorities provided no evidence to show that the reason for the environmental investments in the
         coking plant was a voluntary decision to improve on environmental protection.
      
      –       Whether a lower-cost solution existed
      104   As regards the question whether a lower-cost solution existed or whether the old environmental equipment might have been compatible
         with the ‘new production plant’, suffice it to note that the production investments notified by the Italian authorities to
         the Commission on 10 December 1997 did not include the coking plant, unlike the blast furnace and the steelworks. 
      
      105   As there were no production investments of that kind and having regard to the useful life left of the old environmental equipment
         in the coking plant, as shown by the expert’s report provided at the Commission’s request, together with the information provided
         by the Italian authorities in order to compare the levels of environmental contamination prior to and after the notified investments,
         those authorities were therefore fully entitled to maintain that the environmental equipment in the coking plant was still
         capable of operating and that it accordingly represented the lowest-cost solution which would meet the environmental standards
         in force. In those circumstances, it was for the Commission to show that the old environmental equipment was unable to operate.
      
      106   The contested decision is accordingly inadequately reasoned when it states that ‘no proof was provided that … the old equipment
         could indeed have been compatible with the new production equipment’ (contested decision, point 26) and that ‘it is therefore
         difficult to believe that once the main production equipment was replaced because it was technologically obsolete, the environmental
         protection equipment that went with it might have stayed in place’ (point 27).
      
      –       Whether the investments in the coking plant allowed for a significant improvement in environmental protection 
      107   The contested decision (point 35) states that the environmental improvements arising from the second investment project notified
         in November 1999 fall to be compared with those arising from the first project notified in March 1999 and not with the levels
         which existed prior to the first project. The contested decision states that ‘the Italian authorities did not notify the second
         part of the investments as an addendum to the first notification’ and that the Italian authorities themselves ‘considered
         as departing pollution levels the ones that had been obtained as a result of the investments notified in March [1999]’. On
         that basis, the decision finds that the improvements achieved as a result of the second aid plan are not significant, and
         accordingly that the investments notified in the second aid plan are not eligible for environmental aid. 
      
      108   That reasoning is factually incorrect. It is wrong to say that the Italian authorities did not notify the second part of the
         investments as an addendum to the first part, as the first aid plan was first notified on 16 March 1999 and resubmitted on
         29 November 1999, together with the second aid plan. The two plans are inherently connected. The purpose of both the first
         aid plan and the second aid plan is to eliminate emissions of dust from coal and gas. In order to eliminate dust, each of
         the plans provided for the installation of new environmental equipment for the oven and the hopper (action A.4 in the first
         aid plan and action A.1 in the second aid plan). Similarly, in order to eliminate gas emissions, both plans provided for the
         installation of new environmental equipment for the doors of the coking chambers (actions A.6 to A.8 in the first aid plan
         and actions A.3 to A.6 in the second aid plan).
      
      109   In addition, in reply to the questions put by the Commission on 17 January 2000 regarding the measures planned for the coking
         plant in the second aid plan, the Italian authorities clearly stated in their letter of 15 February 2000 that ‘the work to
         the coking plant which it is intended to carry out under the plan concerned represents a continuation of the work previously
         notified (No 145/99)’ and that, although that work had been decided upon subsequently and as part of a separate exercise,
         its ‘purpose is to optimise the results achieved from the previous measures, by further reducing the pollution levels resulting
         from emissions that cannot be discharged’. In the same way, in their observations on the decision to initiate, the Italian
         authorities stated that ‘although notified in two stages, the environmental investments in the coking plant were subsequently
         made under a single programme; accordingly, the results as to emission limits to be compared with the previous situation are
         those which are given in relation to the position which applies on completion of the last investment’ (letter of 18 July 2000,
         page 5).
      
      110   In addition, the contested decision cannot maintain that the Italian authorities saw the original pollution levels as being
         those which had been achieved with the investments notified in March 1999, without having regard to the fact that, in doing
         so, the Italian authorities were merely supplying to the Commission the information that the latter had requested. In their
         letter of 15 February 2000, the Italian authorities provided a table which gave details of the level of contaminating emissions
         to be met in order to comply with the mandatory standards, the level subsequent to the first plan and that subsequent to the
         second plan, in each case in order to reply to the questions put by the Commission in its letter of 17 January 2000. 
      
      111   It follows that the contested decision is vitiated by a failure to state adequate reasons in that it simply takes the view
         that the results of the investments relating to environmental improvement achieved in the second aid plan are to be compared
         with the results achieved on completion of the first plan and to the situation which existed prior to the first plan, without
         setting out the factors which led the Commission to oppose the reasoning put forward by the Italian authorities in the course
         of the administrative procedure. 
      
      –       Conclusion as regards the coking plant
      112   It follows from the above that, as regards the investments notified by the Italian authorities in relation to the coking plant,
         the contested decision is flawed for the reasons set out below.
      
      113   In the first place, the statement that the environmental investments were made as a condition or as a consequence of necessary
         production investments is incorrect as regards the coking plant, because the Italian authorities did not refer to production
         investments in relation to that installation, , and inadequately reasoned for the purposes of Article 15 CS in that the contested decision does not disclose in what way,
         having regard to the explanations provided in that regard by the Italian authorities, the investments in the coking plant
         could have been made as the condition or the necessary consequence of the renovation of the production equipment in the blast
         furnace and the steelworks or as a condition or as a consequence of necessary production investments in general. 
      
      114   In the second place, the statement that the Italian authorities provided no evidence to show that the reason for the environmental
         investments in the coking plant was a voluntary decision to improve on environmental protection is inadequately reasoned for
         the purposes of Article 15 CS, in so far as the contested decision does not consider the information provided in that regard
         by the Italian authorities in the course of the administrative procedure. 
      
      115   In the third place, the statements that ‘no proof was provided that … the old equipment could indeed have been compatible
         with the new production equipment’ and that ‘it is therefore difficult to believe that once the main production equipment
         was replaced because it was technologically obsolete, the environmental protection equipment that went with it might have
         stayed in place’ are inadequately reasoned for the purposes of Article 15 CS, in so far as the contested decision does not
         set out the reasons why it was appropriate to disregard the information provided in that respect by the Italian authorities
         in the course of the administrative procedure. 
      
      116   Finally, in the fourth place, the statement that the result of the investments as regards the environmental improvement achieved
         with the second aid plan relating to the coking plant is to be compared with the result achieved on completion of the first
         plan and with the situation which existed prior to the first plan is incorrect, in that the Commission does not set out the
         reasons why it took the view that it had to disregard the information provided in that regard by the Italian authorities in
         the course of the administrative procedure. 
      
       ii) The investments in the blast furnace and the steelworks 
      117   As regards the investments notified by the Italian authorities with respect to the blast furnace and the steelworks, the applicant’s
         argument that the Commission was wrong to state that the Italian authorities did not provide proof that the reason for those
         investments was a voluntary decision by the company to improve on environmental protection cannot be accepted. 
      
      118   Unlike the investments relating to the coking plant, where no new production installations were involved, it was essential
         to show that there were no economic reasons underlying the investments in the environmental equipment relating to the blast
         furnace and the steelworks, since changes were made to the production equipment at those installations. 
      
      119   Admittedly, it is true that, in the same way as with the coking plant, the Italian authorities provided information to the
         Commission to show that the new environmental equipment in the blast furnace and the steelworks improved on environmental
         protection. Thus, the notification of the first aid plan made by the Italian authorities on 16 March and 29 November 1999
         also included a description of the investments proposed for each of those installations and a description of the advantages
         which might be achieved as a result of those investments. Similarly, in reply to the Commission’s request of 19 April 1999
         with respect to the levels of environmental contamination produced by the existing plant and those which would arise from
         the planned measures in comparison with the mandatory standards in force, the Italian authorities set out two tables in their
         letter of 29 November 1999 providing the required information as regards both the blast furnace and the steelworks. Those
         tables show that the existing equipment in each of those installations also complied with the levels of contaminating emissions
         to be met in order to comply with the mandatory standards and that the levels achieved after the measures were put in place
         were lower than the previous levels. Furthermore, the expert’s report produced by the Italian authorities also examined the
         investments relating to the blast furnace and the steelworks, in order to establish the position prior to and after the measures
         and set out details of the improvement to be achieved as a result of the proposed investments in the equipment in each of
         those installations.
      
      120   However, while it is true that that information demonstrates the applicant’s willingness to adopt higher environmental standards
         and thereby to make a significant contribution to environmental protection, the Italian authorities have not shown that the
         reason for the notified investments relating to the blast furnace and the steelworks was a voluntary decision by the company
         to improve on environmental protection and that the investments were not made for economic reasons.
      
      121   In the decision to initiate, the Commission clearly set out its doubts as to whether the reason for the notified investments
         in those installations was environmental or economic and as to the failure to provide evidence in that regard on the part
         of the Italian authorities. 
      
      122   Thus, the decision stated first of all that the reason why the investor had decided to undertake those investments was determinative,
         since the Annex to the Code for aid to the steel industry excluded investments that were made for economic reasons. The decision
         went on to state that an initial assessment of the information provided led to the conclusion that the investments had been
         made above all for economic reasons. 
      
      123   The decision to initiate also stated that the Italian authorities had not demonstrated that the investments had been made
         on environmental, and not on economic, grounds. That decision further stated that the Italian authorities had not proved that,
         where equipment or installations were replaced, the investor had clearly decided to opt for higher standards which necessitated
         additional investment, meaning that a lower-cost solution, which would have met the legal standards, existed.
      
      124   The Italian authorities replied to the concerns expressed in the decision to initiate by the letter of 18 July 2000, where
         they simply stated once again that the purpose of the notified investments in the blast furnace and the steelworks was environmental
         and not economic, without providing any additional explanation or evidence in support of that statement.
      
      125   Thus, the Italian authorities stated that ‘it is clear from what was mentioned above that the environmental investment plan
         notified was carried out in order to achieve a significant improvement in environmental protection, as a separate matter from
         the investments in production …’ and ‘that it is clear from what was mentioned above that Lucchini decided to opt for significantly
         higher levels of environmental protection, as a separate matter from the production investments which did not require any
         investment in the form of systems of environmental protection in order to comply with the emission standards in force and,
         accordingly, that all of the notified investments fall to be treated as additional investment’. 
      
      126   Those replies were not accompanied by further information which might have shown that a lower-cost solution existed and that,
         as a result, the company had clearly opted for the application of higher standards which necessitated additional investment.
         In such circumstances, those assertions cannot override the doubts expressed by the Commission in the decision to initiate
         as to the economic, and not environmental, grounds for the notified investments in the two installations in question.
      
      127   In addition, as regards the question whether the existing environmental equipment would, or would not, have been compatible
         with the new production installations, the contested decision states that the Italian authorities provided no evidence to
         support the statement that the old environmental equipment could indeed have been compatible with the new production equipment,
         on the grounds that the former equipment was not obsolete and could have continued to be used with the new production equipment
         and still have complied with the environmental standards (points 25 and 26).  
      
      128   Following the same approach, the contested decision states, first, that that statement by the Italian authorities is even
         less credible, since it is difficult to accept that the environmental equipment could have been kept in service in conjunction
         with the new production installations when account is taken of the age of the equipment, which dated from 1971 and 1978, secondly,
         that the expert’s report states that the useful life left of the environmental equipment is the same as that of the whole
         plant, of which it constitutes a component, and, thirdly, that, having regard to the need to replace the production equipment
         because it was obsolete, it is difficult to believe that the environmental protection equipment that went with it might have
         stayed in place (point 27). 
      
      129   If the old environmental equipment for the blast furnace and the steelworks had been compatible with the new production plant
         and if that equipment could thus allow the mandatory standards in force to be met, the reason for the notified investments
         would have been a voluntary decision of the company to improve on environmental protection, as that would necessarily involve
         additional investments allowing even higher standards to be adopted than the mandatory standards in force, which the previous
         equipment already met. It is however clear that the Italian authorities provided no evidence as to the purported compatibility
         of the old environmental equipment for the blast furnace and the steelworks with the new production equipment at those installations.
         In those circumstances, the Commission was not required to provide further reasoning on the point.
      
      130   Lastly, as regards the objection put forward by the applicant alleging a lack of adequate reasons for the Commission’s finding
         that the notified investments relating to the blast furnace and the steelworks were ineligible, the case-law regarding Article
         253 EC, which also applies to Article 15 CS, provides that the statement of reasons required by the latter article must be
         appropriate to the measure at issue and must disclose in a clear and unequivocal fashion the reasoning followed by the institution
         which adopted the measure in question in such a way as to enable the persons concerned to ascertain the reasons for the measure
         and to enable the Court to exercise its power of review. It is not necessary for the reasoning to go into all the relevant
         facts and points of law, since the question whether the statement of reasons meets the requirements of Article 15 CS must
         be assessed with regard not only to its wording but also to its context and to all the legal rules governing the matter in
         question (see, by way of analogy, Case C-367/95 P  Commission v Sytraval and Brink’s France [1998] ECR I‑1719, paragraph 63, and Case C-197/99 P Belgium v Commission [2003] ECR I‑8461, paragraph 72). 
      
      131   It is clear from those parts of the contested decision referred to above that the Commission had set out its doubts in detail
         as to the investments in the blast furnace and the steelworks. In the absence of any explanations on the part of the Italian
         authorities, the contested decision was fully entitled to find that the Italian authorities had not proved that the investments
         in the blast furnace and the steelworks had been made for reasons of environmental protection. Since the burden of proof rested
         on Italy, the contested decision was entitled to do no more than find that those explanations had not been provided.
      
      132   Accordingly, the objection alleging a lack of adequate reasoning in the contested decision as regards the Commission’s finding
         that the notified investments relating to the blast furnace and the steelworks were ineligible is unfounded.
      
      133   It follows that the contested decision is not flawed when it states that the Italian authorities provided no evidence in support
         of the assertion that the reason for the investments made in the environmental equipment for the blast furnace and the steelworks
         was the voluntary decision of the applicant to improve on environmental protection and concludes as a result that the notified
         aid is ineligible. 
      
      d)     Conclusion on the second plea
      134   It follows from the above that, as regards the environmental investments in the blast furnace and the steelworks and notwithstanding
         the fact that the contested decision is incorrect to state that those investments were necessary by reason of the fact that
         the factory is located in a densely‑populated area, the failure of the Italian authorities to prove that the company receiving
         the aid had made a voluntary decision to improve the environment is sufficient to justify the conclusion reached in the contested
         decision that the notified investments relating to each of those installations were ineligible as aid for environmental protection.
         
      
      135   By contrast, as regards the environmental investments relating to the coking plant, the contested decision is inadequately
         reasoned and sometimes incorrect. 
      
      136   It follows from the above that the second plea is well founded as regards the coking plant and that it must be rejected as
         regards the blast furnace and the steelworks.
      
      C –  The third plea, alleging that the Commission’s findings that there had been a failure to comply with the conditions as to
            compatibility of the aid laid down by the relevant provisions were incorrect, infringement of the principle of non-discrimination,
            reversal of the burden of proof, failure to state reasons and an inherent contradiction in the reasoning set out in the contested
            decision
      137   In the third plea, the applicant contests the validity and the reasoning of the findings set out in points 30 to 32 of the
         contested decision and restated in the third sentence of point 39 and argues that they are vitiated by an error of assessment
         of the facts, an incorrect allocation of the burden of proof, an infringement of the principle of non-discrimination, a failure
         to state adequate reasons and an inherent contradiction in the reasoning.
      
      138   The Court notes that point 39 of the contested decision states that the aid notified by the Italian authorities does not meet
         the various requirements imposed by the relevant provisions since, first, ‘the notified costs do not refer only to the extra
         costs necessary for the additional improvement in environmental protection’ and, secondly, ‘not all cost advantages have been
         deducted’. Similarly, the Commission states in point 32 that ‘the investment costs notified by the Italian authorities do
         not represent only costs related exclusively to environmental protection’ and that ‘the cost of equipment that can be used
         for production has not been deducted accordingly’. The latter findings are based on points 30 and 31 of the contested decision,
         in which the Commission replies to the arguments put forward by the Italian authorities in their observations on the decision
         to initiate.
      
      139   Accordingly, as the Court has rejected the applicant’s arguments seeking the annulment of the contested decision as regards
         the aid relating to the blast furnace and the steelworks, the applicant’s objections regarding those installations put forward
         under the third plea are irrelevant. Since the Commission was correct to find, in points 25 to 29 of the contested decision,
         that the investments in relation to the blast furnace and the steelworks are ineligible for aid for environmental protection,
         that is sufficient to show that the application is without merit as regards those installations, without it being necessary
         to consider the validity of the arguments put forward under the third plea. 
      
      140   By contrast, as regards the aid relating to the coking plant, the Court has held that the second plea was well founded in
         so far as the contested decision was incorrect in certain respects and inadequately reasoned in others. Accordingly, the Court
         finds that the Commission cannot properly contend, on the basis of the reasons set out in the contested decision, which are
         analysed in relation to the second plea, that the environmental investments notified by the Italian authorities with respect
         to the coking plant were ineligible for environmental aid. 
      
      141   In those circumstances, the Court cannot consider the third plea and the question whether the Italian authorities correctly
         distinguished between the costs connected with production investments and those connected with environmental investments.
         Such a distinction can, in fact, be undertaken only after the Commission has analysed the eligibility of the aid for the coking
         plant by taking into account the findings made by the Court in this judgment and once the Commission has determined, in the
         light of the points set out in paragraph 107 et seq. above, whether or not that aid enables significantly higher levels of
         environmental protection to be achieved. 
      
      142   Accordingly, in order to enable the parties to give due effect to the annulment pronounced under the second plea, and thus
         to recommence the procedure at the stage at which it was flawed, that is to say at the point where the environmental investments
         for the coking plant were analysed, there is no need to examine the arguments of the parties set out under the third plea
         in relation to the distinction between production and environmental costs, which presupposes that the aid in question does
         indeed have an environmental objective, in the terms of the Annex to the Code and the Guidelines. Thus, the Commission will
         be able to clarify the issues relating to the eligibility of the aid for the coking plant and, if necessary, to ask the Italian
         authorities to deduct the costs relating to the effect on production.
      
      143   It follows from the above that the arguments put forward under the third plea are irrelevant as regards the blast furnace
         and the steelworks, since the correctness of the Commission’s finding, set out in points 25 to 29 of the contested decision,
         that the aid for those installations is ineligible, is sufficient to establish the validity of the contested decision in that
         regard and that it is unnecessary to consider the third plea in so far as it relates to the coking plant, given the effect
         of the annulment pronounced by the Court under the second plea regarding the procedure under which the aid relating to that
         installation was investigated.
      
      D –  The reasons set out in the contested decision in relation to the amount of the aid declared incompatible with the common market
            
      144   It should be noted that an insufficiency or a lack of reasoning constitutes an infringement of essential procedural requirements
         within the meaning of Article 33 CS and is a matter of public policy which the Community judicature must raise of its own
         motion (see, by way of analogy, Case C-166/95 P Commission v Daffix [1997] ECR I-983, paragraph 24; Commission v Sytraval and Brink’s France, paragraph 67; Case T-206/99 Métropole télévision v Commission [2001] ECR II‑1057, paragraph 43; and Case T-102/03 CIS v Commission [2005] ECR II‑0000, paragraph 46).
      
      145   It should also be recalled that, according to settled case-law, the statement of reasons for an individual decision adversely
         affecting a person must disclose in a clear and unequivocal fashion the reasoning followed by the institution which adopted
         the measure in such a way as to enable the persons concerned to ascertain the reasons for the measure and to enable the competent
         court to exercise its power of review (see, by way of analogy, Commission v Sytraval and Brink’s France, paragraph 63; Métropole télévision v Commission, paragraph 44; and CIS v Commission, paragraph 47).
      
      146   Point 39 of the contested decision states that ‘the aid notified … for Lucchini … in the coking plant, the steel works and
         the blast furnace, of ITL 13.5 [thousand million] is not eligible for environmental aid because the Italian authorities failed
         to demonstrate that the investments were not made for economic reasons’. That conclusion follows on from point 29 of the contested
         decision, in which the Commission indicates that ‘as regards the primary reasons for the investments … in the coking plant,
         the steel works and blast furnace, [it] considers that the Italian authorities have not demonstrated, as required by the Annex
         to the [Code], that a clear decision was taken to invest for environmental reasons’.
      
      147   However, it is clear from the decision to initiate (the section entitled ‘Description of the aid’) and from point 6 of the
         contested decision that the investments made by the applicant and notified as qualifying as environmental aid, for a total
         of ITL 190.9 thousand million, for which aid of a total of ITL 13.5 thousand million was requested (that is to say an aid
         intensity of 7%), relate to the following four installations: the coking plant, the steelworks, the blast furnace and the
         water and sewerage network. 
      
      148   Accordingly, in so far as points 29 and 39 of the contested decision do not refer to the equipment for the water and sewerage
         system and there is nothing in the contested decision to show how the State aid intended for that equipment is incompatible
         with the common market, it must be held that the statement of reasons in the contested decision is inadequate for the purposes
         of Article 15 CS in relation to the amount of aid declared incompatible with the common market in Article 1 of the contested
         decision. 
      
      149   The decision to initiate (the section entitled ‘Description of the aid’) shows that the amount of the investments corresponding
         to the water and sewerage system was ITL 19.7 thousand million and, accordingly, that the aid requested for that equipment
         was ITL 1.38 thousand million. 
      
      150   Article 1 of the contested decision must accordingly be annulled in so far as it includes within the amount of the State aid
         in favour of the applicant declared to be incompatible the sum of ITL 1.38 thousand million which corresponds to the notified
         investments relating to the water and sewerage system.
      
      E –  General conclusion
      151   It follows from all of the above that the action must be dismissed as regards the environmental investments in the blast furnace
         and the steelworks.
      
      152   With respect to the aid for the coking plant, the Court has accepted the second plea and the contested decision must therefore
         be annulled as regards the environmental investments in the coking plant.
      
      153   The contested decision must likewise be annulled as regards the environmental investments relating to the water and sewerage
         system, since there is nothing in the contested decision to show how the State aid intended for that equipment is incompatible
         with the common market.
      
      154   Article 1 of the contested decision must accordingly be annulled in so far as it includes in the declaration of incompatibility
         of the State aid in favour of the applicant the sum of ITL 2.7 thousand million which corresponds to the notified environmental
         investments relating to the coking plant and the sum of ITL 1.38 thousand million which corresponds to the notified environmental
         investments relating to the water and sewerage system.
      
       Costs
      155   Pursuant to Article 87(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have
         been applied for in the successful party’s pleadings. However, Article 87(3) of the Rules of Procedure provides that the Court
         may order that the costs be shared or that each party is to bear its own costs where each party succeeds on some and fails
         on other heads.
      
      156   In the present case, the action has been upheld in part. The Court considers on a fair assessment of the circumstances that
         each party must be ordered to bear half the costs. 
      
      On those grounds,
      THE COURT OF FIRST INSTANCE (Fifth Chamber, Extended Composition)
      hereby: 
      1.      Annuls Article 1 of Commission Decision 2001/466/ECSC of 21 December 2000 on the State aid which Italy is planning to implement
            in favour of the steel companies Lucchini SpA and Siderpotenza SpA in so far as it includes, in the amount of the State aid
            granted to Lucchini SpA and declared incompatible with the common market, the sums of ITL 2.7 thousand million (EUR 1.396
            million) and ITL 1.38 thousand million (EUR 713 550) which correspond to the environmental investments notified by the Italian
            authorities for the coking plant and the water and sewerage networks respectively;
      2.      Dismisses the remainder of the action;
      3.      Orders each party to bear half the costs. 
      
               Lindh
            
            
               García-Valdecasas 
            
            
               Cooke 
            
         Delivered in open court in Luxembourg on 19 September 2006.
      
               Registrar 
            
             
            
                      President
            
         
               E. Coulon 
            
             
            
                      P. Lindh
            
         
      Table of contents
      
      Legal framework
      A –  Steel Aid Code
      B –  Guidelines on environmental aid
      C –  Annex to the Code
      Facts
      A –  Notifications relating to production investments
      B –  Notifications relating to environmental investment plans
      C –  Decision to initiate the investigation procedure laid down under Article 6(5) of the Code and observations of the Italian
         authorities
      
      D –  Contested decision
      Procedure and forms of order sought
      Law
      A –  The first plea, alleging an error as to the rules which are applicable to the case and infringement of the principle
         of sound administration
      
      1.  Arguments of the parties
      2.  Findings of the Court
      B –  The second plea, alleging that the Commission’s findings as to the ineligibility of the notified aid were incorrect,
         infringement of the principle of non-discrimination, reversal of the burden of proof and failure to state adequate reasons
      
      1.  Arguments of the parties
      2.  Findings of the Court
      a)  Preliminary observations
      b)  Whether the notified environmental investments were intended to allow the company to continue to carry on its business
         by reason of its being located in a densely-populated area
      
      c)  Whether the investments in environmental protection were made as a condition or as a consequence of necessary production
         investments, the evidence provided by the Italian authorities and whether a lower-cost solution existed
      
      i) The investments in the coking plant
      –  Whether the investments in the coking plant were made as a condition or as a consequence of necessary production investments
      –  The evidence provided by the Italian authorities
      –  Whether a lower-cost solution existed
      –  Whether the investments in the coking plant allowed for a significant improvement in environmental protection
      –  Conclusion as regards the coking plant
      ii) The investments in the blast furnace and the steelworks
      d)  Conclusion on the second plea
      C –  The third plea, alleging that the Commission’s findings that there had been a failure to comply with the conditions as
         to compatibility of the aid laid down by the relevant provisions were incorrect, infringement of the principle of non-discrimination,
         reversal of the burden of proof, failure to state reasons and an inherent contradiction in the reasoning set out in the contested
         decision
      
      D –  The reasons set out in the contested decision in relation to the amount of the aid declared incompatible with the common
         market
      
      E –  General conclusion
      Costs
      
      * Language of the case: Italian.