The Court of Justice of the European Union held, in a recent judgment (C-238/20, ‘Sātiņi-S’), that compensation granted by a Member State for the losses suffered by an undertaking as a result of protective measures applicable in a Natura 2000 network area under the Birds Directive confers an advantage capable of constituting State aid within the meaning of Article 107 TFEU. The judgment highlights that Member State authorities cannot freely compensate undertakings for adverse economic consequences resulting from environmental protection measures.
Facts
Sātiņi-S owns two properties in a protected nature reserve that is part of the Latvian Natura 2000 network. The properties largely consist of ponds, which Sātiņi-S develops economically through aquaculture. Because the property is located in a Natura 2000 network, the means available to Sātiņi-S to protect its aquaculture against birds and other protected animals are limited by the Habitats and Birds directives. In 2017, Sātiņi-S applied to the Latvian Environmental Protection Agency (EPA) for an award of compensation for losses caused by birds and other protected animals. The EPA rejected the application due to the fact that Sātiņi-S had already obtained the total amount of de minimis aid of EUR 30,000 as provided for by Regulation No 717/2014 on de minimis aid in the fishery and aquaculture sector. After unsuccessful appeals in the first and second instances, Sātiņi-S appealed to the Latvian Supreme Court, which is the referring court.
Decision
Firstly, the Court of Justice decided that Article 17 of the Charter of Fundamental Rights of the EU does not require Member States to provide full compensation for damage resulting from protective measures applicable in a Natura 2000 area under the Birds Directive.
Secondly, the Court of Justice held that the compensation claimed by Sātiņi-S is an advantage capable of constituting State aid within the meaning of Article 107 TFEU. The Court considered that the costs of complying with regulatory obligations for the protection of the environment are part of the normal operating costs of an undertaking. Granting compensation for such costs would constitute an economic advantage to which an undertaking is not entitled under normal market conditions and, consequently, have the same effect as a subsidy. Further to this, the Court rejected the argument that complying with national and EU obligations under the Birds Directive amounted to a public service obligation because the Altmark criteria were not met. The Court also differentiated the compensation claimed by Sātiņi-S from compensation paid by a government on the basis of its non-contractual liability since it did not concern compensation for damages but solely for costs that are normally borne by an undertaking in the context of its economic activity. Likewise, the compensation claimed could not be equated to compensation paid for expropriation measures or reimbursement of charges paid but not due.
Thirdly, the Court of Justice clarified that the de minimis ceiling of EUR 30,000 provided for in Regulation No 717/2014 was applicable to the compensation claimed.
Comment
Compensation schemes for losses resulting from environmental protection measures will become an important policy tool for governments in realising their climate and environmental objectives. This will be particularly so in the fishery and aquaculture sector as well as in the agricultural sector.
The Court of Justice clarifies in this judgment that the costs associated with complying with national regulatory obligations arising from the implementation of EU law cannot be equated to damages resulting from unlawful government action but are part of the normal operating costs of an undertaking. This means that Member States will have to comply with EU State aid law when devising compensation schemes for this purpose.
The matter would only be different if an obligation imposed on an undertaking were to amount to an expropriation measure. However, the line between deprivation of the right to property and restriction on the use of property is not always easy to draw. While this allows for some latitude on the part of the Member States, it is at the same time likely to complicate the development of legally watertight compensation schemes. Moreover, de minimis thresholds in the fishery and aquaculture sector (EUR 30,000 in three fiscal years) and in the agriculture sector (EUR 15,000 in three fiscal years) are very low, meaning that EU State aid law is likely to apply as soon as a compensation measure is not compensation for expropriation or for damages resulting from unlawful action. Paying close attention to EU State aid rules is thus warranted by all parties involved in such a compensation scheme, including the beneficiaries.
Please contact Pierre de Bandt, Jeroen Dewispelaere or Raluca Gherghinaru for further information about this case and/or for general legal advice relating to State aid.