State aid gives certain firms an advantage over their competitors in other countries not receiving such aid, although competitors are subject to the same environmental constraints. Article 92 of the EU Treaty prohibits - subject to possible exemptions - governmental financial assistance to specific enterprises when competition between Member States is distorted or threatened to be distorted. Based on the Treaty provisions, the 'Community Guidelines on State Aid for Environmental Protection' (94/C/72/03) specify EU policies in this field. The application of the EU rules on state aid must reflect the role economic instruments can play in environmental policy. State aid and environmental policy must support one another in ensuring stricter application of the polluter pays principle.The European Commission adopted in 1994 Community Guidelines on State Aid for Environmental Protection. These guidelines aim to strike a balance between the requirements of competition and environmental policy, given the widespread use of state aid. Generally, state aid is justified when adverse effects on competition are outweighed by the benefits for the environment. The guidelines also state the criteria the Commission applies in assessing whether state aid of various types for environmental protection is compatible with Article 92 of the EU Treaty. The guidelines apply for all environmental aid specifically defined, for aid for energy conservation (if it aims to achieve significant benefits for the environment), and, also aid for renewable energy (when the development of which is a special priority in the Union). The main types of environmental aid that can be authorized by the Commission under the provisions of the Guidelines can be divided into three broad categories: investment aid, horizontal support and operational aid.
To achieve or restore a satisfactory quality of the environment in heavy industrialized areas, it is necessary to gradually invest into the technological changes in order to meet environmental standards. Investment aid can be in form of temporal investment aid to speed up the process of implementing new standards or investment that reduces emissions to levels well below those required by current or new standards. Such aid can be authorized up to the level of 15% gross of the eligible costs (for small and medium sized enterprises, 25% can be granted). Aid may be granted only to plants which have been in operation for at least two years after new standards entered into force. For firms that plan to improve on mandatory environmental standards, a maximum of 30% gross of the eligible costs can be authorized. The level of aid granted must be in proportion to the environmental improvement achieved and to the investment cost necessary to achieve this target. Another possibility for investment aid is in case of absence of mandatory standards. In such a situation, aid can be granted on the basis of agreement with a company that takes majors steps to combat pollution without being legally required to do so. The rules for investment aid also apply for repairing past environmental damage when firms are not under any legal obligation to remedy past damage or when the person responsible for past pollution cannot be identified.
Horizontal support measures are designed to help finding solutions to environmental problems and to disseminate knowledge about such solutions. This may cover research and development of technologies, consultations and training (up to 50% of the eligible costs are allowed), provision of technical information, environmental audits in firms, information and awareness raising.
Even if the Commission does not normally approve operating aid, it may make exceptions under certain well-defined circumstances: The introduction of environmental taxes and charges may create certain financial burden for some firms and can lead to losses in competitiveness. In such a situation, such firms can require temporally relief. Another form is delay in the introduction of full charging, or, cross-subsidizing some users (for example, to cover extra production costs of renewable energies). A grant to cover all or part of the operating costs of a public waste disposal or recycling facility, water treatment plant or similar installation is considered as operational aid. Finally, aid can be approved that encourages consumers and firms to purchase environmentally friendly products rather than cheaper conventional ones (based on eco-label award).
The Community Guidelines on State Aid for Environmental Protection are relevant for CEE countries in the EU approximation process. Especially expenditure policies of environmental funds in CEECs should be gradually brought in line with the guidelines.
Community Guidelines on State Aid for Environmental Protection (94/C/72/03). Official Journal of the European Communities.