As of: July 2010

State support for non-governmental organisations in the field of environmental and nature protection and EU aid control policy

Background paper

In many EU member states, private engagement by citizens for environmental and nature protection is organised in associations, societies and foundations, so-called non-governmental organisations. These organisations are committed to protecting the environment and nature. Without the dedication of these associations, societies and foundations it would not be possible for state institutions to carry out many tasks in the field of environmental and nature protection to an adequate degree. This private commitment is therefore indispensable. These organisations are granted a special status with the option to institute proceedings [Article 10ff "Aarhus Regulation" (1367/2006) - non-governmental organisations that satisfy the relevant prerequisites can institute proceedings against EC administrative acts.] This is why, in addition to the European Commission, state institutions in the EU member states also support the work of these organisations with state funding in accordance with Article 3, para. 4 of the Aarhus Convention, which has also been ratified by the EC. Granting these funds is usually linked to the legally binding obligation to use the funds for the purpose declared and in accordance with the organisation's own statutes. In order to reach their goals the organisations often use additional funds of their own.

Granting state funding is by no means a mutual exchange of services, as with purchase or work contracts. This is why it is a case of targeted support with state funds. If the beneficiaries were to be considered "undertakings" within the meaning of Article 107 TFEU¹ (ex Article 87 TEC), this funding would be state aid, which would essentially be prohibited and would be subject to special state aid control by the European Commission.

This fundamental question has a major impact on state funding options for non-governmental organisations. Where NGOs are considered "undertakings", approval would be required in each case from the European Commission.

To date there have been contradictory decisions by the European Commission on this matter.

Against this background and in the framework of implementing the coalition agreement, the German government, as a precautionary action, notified the Commission of nature conservation measures (transfer of natural heritage areas to nature conservation associations and grants to associations to purchase land in order to secure nature conservation) on 7 March 2007 for a review under state aid law. The subject of the notification was to request a decision from the European Commission clarifying that these measures do not constitute state aid within the meaning of Article 87 of the EC Treaty. In the German government's opinion, nature conservation organisations cannot be considered undertakings as recipients of nature conservation areas, since the only small-scale economic activity (sale of wood, leasing land as part of nature conservation management), does not represent the purpose of an undertaking as defined by European legislation and is instead an inevitable side-effect of nature conservation management. All revenues from these small-scale activities go straight back into the project as the associations' own contribution. Furthermore, in its decision the Commission itself recognises that profitability can be ruled out and that as a result the nature conservation associations do not gain an economic advantage through the measure. Therefore, the measures cannot be seen as favouring the recipients of the areas, and the expenditures resulting from the long-term nature conservation obligation should rather be seen as an economic burden.

After the Commission received the notification, the case was passed on to the DG Agriculture, after first being passed to the DG Competition. After 5 requests for information from the DG Agriculture, which the German government answered in full, and two letters from Minister Gabriel to the Agriculture Commissioner, the case was passed back to the DG Competition at the beginning of 2009. A further request for information was then made to the German government in March 2009.

Thus, after a total of 6 requests for information and a procedure lasting almost 2½ years, on 3 July 2009 the European Commission finally decided, against the German government's application, that the transfer of nature conservation areas to associations constitutes state aid. In its decision it classes nature conservation associations that carry out activities such as the sale of wood, leasing land and tourism as undertakings and the measures as selective favouring. It states that ultimately, the fact that the associations carry out services of general interest does not alter the state aid character of the measures, but it does serve to justify the permissibility of this "state aid".

The German government has a negative view of this decision due its direct impacts, especially regarding support for associations. Legal certainty regarding support for environmental and nature conservation associations and foundations would be under threat if in future member states were no longer able to consider them institutions that are not subject to state aid control. If it were necessary to give notification of measures to support associations before implementation, the Commission could even classify the support for associations and their projects, which generally covers personnel costs, as impermissible "operating aid" and refuse approval. Ending the support for associations, which would be necessary as a result, would have far-reaching negative impacts for environmental policy. Due to the significance beyond the specific case of the classification as undertakings, the German government wishes to clarify the legal situation.

The German government has submitted proceedings for annulment of the Commission's decision to the European Court of First Instance. The case number is T 347/09.

¹ Treaty on the Functioning of the European Union, entered into force on 1 December 2009.