G8 Environmental Futures Forum 2000

Detailed Description of Best Practices
European Union No.1

I. Title of the Best Practice

Guidelines on State Aid for Environmental Protection

II. Overview of the Best Practice

A. Introduction
Community rules authorise state aid of up to 40% for environmental investments that result in emission reductions beyond the legal norms. State aid is also allowed for energy saving investments, if the economy in energy charges is taken into account when calculating the eligible costs.

Support for renewable energy has been allowed as long as the aid is not larger than the extra cost of production, compared to traditional means of producing energy. Through systems such as guaranteed selling price, low-interest loans, bonus payments and direct investment subsidies, the share of renewable energy such as wind and solar has increased rapidly in the EU over the last decade.

B. Use of revenues
The principles according to which aid schemes pursuing environmental objectives shall be assessed by the Commission are set out in the Community guidelines on State aid for environmental protection*. The assessment is normally made by weighing the adverse effects on competition with the benefits for the environment.

* EC Official Journal No C 72, 10.3.1994, p. 3.

When assessing state aid cases, the Commission takes into account both the origin and the use of revenue in order to get a complete picture. An analysis of the use of revenues in isolation, which did not take the origin into account, would give an incomplete figure as it would seem as if there was simply a redistribution of public funds.

In order to facilitate the assessment by the Commission, Member States are encouraged to state clearly how the revenues from environmental levies are to be used. In all cases it is desirable that the criteria used are open, transparent, non-arbitrary and provide incentives for desirable behaviour.

Examples of factors the Commission takes into account when assessing compatibility of support for environmental investments with EC state aid rules are:

  • whether the revenue is spent in the same sector of economic activity as it was collected, or in a different sector, i.e. if any sector receives a net benefit,
  • whether the activities financed by the proceeds of the levies can be provided on a normal commercial basis with a satisfactory result, or whether some form of aid is needed,
  • whether the money paid to firms can be considered compensation for undertaking activities that they would otherwise not perform, and that are in the public interest,
  • the intended duration of the measure,
  • if the aid element is intended to be reduced over time.

C. Exemption rules favourable to domestic firms
Exemptions from emission or product levies might constitute state aid. Temporary relief from new emission levies may be authorised where it is necessary to offset losses in competitiveness, since emission levies usually only apply to domestic firms. To ensure that these exemptions do not distort competition unduly, and to give an incentive for the aid recipients to implement measures to reduce pollution, the Commission requires that the tax relief or compensation:

  • is temporary,
  • does not provide the sector with a net benefit, and
  • in principle, reduces over time.
Detailed Description of Best Practices - European Union No.1

Back to Top image Home