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Brussels, 21 December 2000

Commission adopts new Community guidelines on state aid for environmental protection

The Commission has adopted new guidelines setting out the conditions under which Member States may grant firms aid to promote environmental protection. The guidelines, which have been adopted following close cooperation with the Member States and all those concerned, are an effective tool for promoting measures to protect the environment while preventing any state aid that is not justified. They are also fully consistent with the draft European Parliament and Council Directive on the development of renewable energy sources.

"Competition policy and environmental policy are not at variance with one another," said Mr Monti, the Competition Commissioner. "However, taking environmental requirements into account does not mean that all forms of aid must be authorised. Consideration has to be given to the effects of aid in terms of sustainable development and full application of the 'polluter pays' principle."

Mr Monti also explained why the Commission had brought in the new guidelines: "The current rules, which date from 1994, have proved effective, but Member States now intervene more frequently, for example in the energy sector, providing aid in forms that were rather uncommon until recently, notably tax reductions or exemptions. Similarly, new forms of operating aid are proliferating. New guidelines were needed, therefore, in order to familiarise Member States and firms with the criteria that the Commission will apply in deciding whether or not planned aid is compatible with the common market."

The Commission policy on environmental protection is based on the 'polluter pays' principle, that is to say, the costs of protecting the environment must be borne by the firms causing the pollution. In the Commission's view, this is the most effective way of bringing home to everyone the importance of the environment. State aid may here be counter productive in that firms will be able to avoid internalising the costs of pollution caused by them. However, the Commission is aware that aid may be justified in some cases where it serves as an incentive or provides a temporary solution. Take, for example, firms that decide to do more in terms of environmental protection than is required by Community rules. A further example is the development of renewable energy sources, where production costs are higher than the market price of the energy.

An approach that looks very favourably upon aid for renewable energy sources has thus been adopted. Member States can here choose between several options for granting investment and operating aid. In the case of investment aid, the basic rate of aid has been increased from 30% (1994 guidelines) to 40% for investments in support of renewable energy, energy saving and the combined production of energy and heat. A bonus of 10 percentage points is available for SMEs, firms located in assisted regions, and investments in renewable energy that serve the needs of an entire community such as an island. This means that, depending on the case in question, the rate of investment aid may easily reach 50%.

In the case of renewable energy, Member States will also be able to choose between four options for granting operating aid:

They may grant aid to compensate for the difference between the production costs of renewable energy and the market price of electricity until the plant has been fully depreciated. The length of the depreciation period is left to the discretion of the Member States. Where necessary, the aid may also cover a fair return on capital in order to attract investment to this type of activity.

Member States may also have recourse to market mechanisms such as green certificates. In the Commission's view, these are mechanisms that can make an effective contribution to promoting renewable energy and should, therefore, be authorised. Member States will though have to ensure that such mechanisms do not result in overcompensation.

Member States may similarly grant aid on the basis of the external costs avoided. This is because the production of renewable energy makes it possible to avoid high external costs for society that can now be quantified. Until such time as these external costs are borne by the firms responsible, aid may be granted to renewable-energy producers in proportion to the costs avoided, in order to compensate for the handicap they face. However, conditions will be laid down in order to avoid any risk of overcompensation.

Member States will also still be able to grant aid in accordance with the general rules governing operating aid, i.e. aid may be granted for not more than five years and must, in principle, be wound down over time ("degressive aid"). This is only one of the four options but it will allow Member States to grant ad hoc aid to a project that does not require long-term aid.

The Commission was also keen to allay the concerns of Member States regarding tax reductions.

It takes the view that the harmonisation of eco-taxes in the Community should be a priority. In the absence of such harmonisation, the Member States that are most advanced in terms of green taxes find themselves obliged to grant tax reductions to some firms so as not to create an uneven playing field for them vis-à-vis their competitors in Member States not applying such taxes. The difficulties stem basically from the lack of harmonisation and not from the application of state aid rules.

However, in order to enable Member States to introduce new taxes, the Commission has provided for derogations for certain firms lasting up to ten years provided that the recipient firms undertake to make improvements in terms of environmental protection or continue to pay a significant proportion of the taxes after the reduction.

The new guidelines also contain specific provisions for SMEs, which may be eligible for investment aid when adapting to new Community standards. The Commission here allows a derogation from the principle that compliance with the standards, i.e. the law, cannot normally provide justification for granting aid.

Specific aid provisions have also been included for the rehabilitation of polluted sites and the relocation of firms. The latter possibility is concerned notably with firms established in urban areas and whose presence there gives rise to major problems for the local inhabitants. In the Commission's view, such firms should be helped to relocate to sites further away so as to avoid any risk to the local population.

Taken together, the guidelines, which will enter into force once they have been published in the Official Journal, constitute a coherent set of measures that will reconcile the requirements of environmental protection with the provisions of the EC Treaty governing the control of state aid. The new guidelines will be valid until the end of 2007.

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