EUROPEAN COMMISSION. SA (2018/N) Aid for restoring forestry potential after storm damage

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1 EUROPEAN COMMISSION Brussels, C(2018) 4376 final Subject: State aid Denmark SA (2018/N) Aid for restoring forestry potential after storm damage Sir, The European Commission ("the Commission") wishes to inform Denmark that, having examined the information supplied by your authorities on the State aid scheme referred to above, it has decided not to raise any objections to the relevant scheme as it is compatible with the internal market pursuant to Article 107(3)(c) of the Treaty on the Functioning of the European Union ("TFEU"). The Commission has based its decision on the following considerations: 1. PROCEDURE (1) By letter of 14 February 2018, registered by the Commission on the same day, Denmark notified, according to Article 108(3) TFEU, the above mentioned aid scheme. The Commission sent a request for additional information to the Danish authorities on 9 April 2018 which the Danish authorities answered by letter of 26 April 2018, registered by the Commission on the same day. The Danish authorities submitted further information on 3 May 2018, registered by the Commission on the same day. 2. DESCRIPTION 2.1. Title (2) Aid for restoring forestry potential after storm damage. Mr Anders Samuelsen Minister for Foreign Affairs Ministry of Foreign Affairs Asiatisk Plads 2 DK Copenhagen Commission européenne/europese Commissie, 1049 Bruxelles/Brussel, BELGIQUE/BELGIË

2 2.2. Objective (3) With the present notification the authorities of Denmark wish to provide aid to encourage private forest holders, whose forests are classified or will be classified as forest reserves under national law, to replant the forest after storms with robust forests, comprising a significant proportion of native species. (4) The scheme is notified under Part II, Chapter 2, Section "Aid for the prevention and restoration of damage to forests from forest fire, natural disasters, adverse climatic events which can be assimilated to natural disaster, other adverse climatic events, plant pests and catastrophic events" of the European Union Guidelines for State aid in the agricultural and forestry sectors and in rural areas 2014 to (hereinafter "the Guidelines") Legal basis (5) The legal basis is: (a) (b) (c) Law on flooding and storm damage (Lov om stormflod og stormfald). National order on insurance of private forests against storm damage and aid for reforestation (Bekendtgørelse om forsikring af privat skov mod stormfald og tilskud til gentilplantning mv. efter stormfald BEK nr. 773 af 11/06/2018). Law on Forestry (Bekendtgørelse af lov om skove - LBK nr. 678 af 14/06/2013) Duration (6) From the date of the Commission s decision until 1 July (7) Given that the end date of the scheme is after the expiry of the Guidelines the Danish authorities have given an explicit commitment to adapt the scheme to State aid rules that may apply after Budget (8) The overall budget is DKK 100 million (~EUR 13.4 million) and is financed exclusively by national funds. (9) The funding is achieved through parafiscal levies. A levy is charged on all fire insurances on property taken out in Denmark and paid to a windthrow fund which finances aid for storm damage. If the windthrow fund does not have sufficient funds then it may be supplemented by additional funding guaranteed by the Danish State. (10) The method of financing does not form an integral part of the aid scheme and therefore is not part of the assessment. 1 OJ C 204 of , p. 1. Amended by the Notices published in OJ C 390, , p. 4 and OJ C 139, , p. 3. 2

3 (11) The granting authority is "The Danish Storm Council" (Stormrådet) Aid instrument (12) Direct grant Beneficiaries (13) Beneficiaries are private forest holders, whose forests are classified or will be classified as forest reserves after the regeneration has taken place under national law. The estimated number of beneficiaries is from 501 to (14) Beneficiaries must have basic insurance coverage against storm damage. (15) Undertakings in difficulty as referred to in point (35) number 15 of the Guidelines are excluded under the scheme. (16) The Danish authorities commit to suspend the grant and/or payment of any aid under the notified aid scheme to any undertaking that has benefitted from earlier unlawful aid declared incompatible by a Commission Decision, until that undertaking has reimbursed or paid into a blocked account the total amount of unlawful and incompatible aid and the corresponding recovery interest Description of the aid scheme (17) The adverse climatic events, which can be assimilated to a natural disaster included in the scope of the aid scheme are heavy storms, which destroy forest trees with a windthrow at a level of destruction of at least 20% of the forest potential. (18) The adverse climatic events, which can be assimilated to a natural disaster in the form of heavy storms are formally recognised by a declaration issued by the Danish Storm Council. (19) Denmark has set up an aid scheme with the objective of providing for granting of aid for restoration of forest potential damaged by storms, and more specifically for (a) (b) The costs for clearance of land after storms before reestablishment; The direct costs and certain special costs for the reestablishment of robust forests. (20) The scheme is expected to have a positive impact on the environment, in part since robust forests are established, which in general will contribute to reduced nitrate leaching following windthrows. Furthermore under the scheme it is required that reforestation must include different tree species and a significant share of domestic species, that will contribute to greater stability to withstand severe wind and enhance biodiversity. (21) The scheme concerns forestry and thus is not incompatible with the CAP, it is consistent with the rural development objectives referred to in point (10) of the Guidelines, and is not incompatible with the rules on the common organisation of the markets in agricultural products. 3

4 (22) A nearly identical scheme is part of the Danish RDP for 2018 to In the RDP that scheme is sleeping with no budget, as it cannot be predicted when a storm might occur. The Danish authorities wish to implement the scheme purely by means of national funds to be able to rapidly activate it should the situation so require. (23) Aid may be granted to private forest holders under the following conditions: (a) The forest is classified as a forest reserve (fredskov) in accordance with 4 of the forest law, or will be classified as forest reserve after the regeneration has taken place. Chapter 3 in the Law on forestry provides i.a. that a forest reserve must be kept afforested, and that trees may only be cut when fully grown and after harvest or in case of windthrows, the land must be covered by forest again within 10 years. (b) (c) (d) (e) The specific classified forest reserve areas must have been affected by widespread windthrow (where at least 2/3 of trees have fallen or broken or roots have loosened) to be eligible under the scheme. Minimum 50% of the trees planted shall be robust species, meaning conifers and deciduous trees that are stronger and therefore better at withstanding storms in the future. The forest area for which aid is granted must be covered by a basic insurance against windthrow damage, as stated in paragraph 11(1) of the law on flooding and storm damage. If the area for which aid is granted is more than 5 ha, minimum 10% of the area must be reforested with broadleaved species. (24) No aid will be granted for loss of income resulting from storms. (25) The Danish authorities have declared that the eligible operations are consistent with the national forest protection plan. (26) The Storm Council is the competent public body formally authorised to declare that windthrow has occurred, as provided for in 2 in the Law on flooding and storm damage. (27) Windthrow is defined ( 2 in the Law on flooding and storm damage) as the situation where due to strong winds the trees fall or break (a) (b) On regional level amount to more than the annual logging in the region concerned. On national level amount to more than one million cubic meters of wood. (28) The definition of windthrow given in recital (27) corresponds to a level of destruction of at least 20% of the forest potential at regional or national level respectively. (29) Aid may be granted where the total area of the forest affected by windthrow is minimum 0,5 ha. The individual areas must be minimum 0,2 ha. 4

5 (30) The maximum aid intensity is 100% of eligible costs. (31) The eligible costs do not include value added tax. (32) The aid granted under the scheme cannot be cumulated with other aid for the same eligible costs. (33) The basic insurance (legally required for forests classified as forest reserve) covers all or some of the costs for establishing non-robust forest after the windthrow. The aid under the notified scheme only covers the additional costs associated with establishing robust forest. Thus, there is no overcompensation for the same eligible costs. (34) The aid will be granted based on standard costs per hectare in accordance with established norms on additional costs for reestablishment of forests after storm damage. The aid amounts have been assessed by an independent expert 2. The expert statement concludes that aid amounts stay well within estimated likely costs, allowing for variation over soil and site qualities. (35) Further, all beneficiaries are subject to control by the Danish authorities. At the time of the control the beneficiary shall be able to provide proof that the information provided in the application and report was correct. If the Danish authorities become aware of individual cases of overcompensation, the aid granted in those individual cases will be appropriately reduced. (36) The supports consists of aid for clearing of land after windthrow and aid for reforestation. Both types of aid will be paid when reforestation is finalised. (37) The aid application must be submitted to the Environmental Protection Agency within a deadline set by the Storm Council. The aid application shall be accompanied by a reforestation plan. (38) The available support and applicable aid amounts are listed below. Table 1: Aid amounts A. Aid for clearing of land and reforestation plan I. Aid for clearing of land after widespread windthrow II. Aid for reforestation plan Maximum aid amount without VAT DKK /ha DKK per plan + DKK 50/ha Comments Aid to cover the additional cost in connection with clearing and preparing the land after windthrow. Reforestation plan is obligatory. 2 Expert statement on the 2018-revision of support grants for reforestation following major windthrows in Denmark and the relation to reforestation costs. Report of May 2018 by Bo Jellesmark Thorsen, professor of Applied Economics at University of Copenhagen, Department of Food and Resource Economics. 5

6 B. Aid for reforestation I. Basic support for replanting with 50% robust species. The basic support can be combined with supplements II., III. and IV., as well as the special aid in C. II. Supplement for using 80% robust species. III. Supplement for using 80% robust broadleaved species. IV. Supplement for forest edge. Maximum aid amount without VAT DKK 7.500/ha DKK 2.000/ha DKK 9.000/ha DKK 9.000/ha Comments Minimum plants/ha. Minimum plants/ha. Minimum plants/ha. Minimum plants/ha. C. Special aid Maximum aid amount without VAT I. Fencing. 15 DKK / metre II. Pesticide free planting and gentle soil treatment. III. Establishment with respect for cultural values. IV. Additional 500 trees/ ha (nursing trees). DKK 6.000/ha Up to DKK 7.000/ha DKK 1.000/ha Comments A concrete evaluation of the associated cost is carried out. The use of nursing/seed trees increases the number of required trees/ha with the number of nursing/seed trees. Support is not available for open areas or areas supported for natural regeneration or self-regeneration. (39) Aid instrument The aid is granted for reforestation with minimum 50% robust tree species. Under the scheme the aid covers only costs for planting that go beyond the requirements laid down in the Forest law for establishing forests on forest reserve areas. The direct grant is considered the most appropriate aid instrument because it is the easiest to manage. 6

7 (40) Transparency Denmark has informed the Commission that in order to comply with the transparency requirement the publication of the aid scheme and the individual aid awards above EUR will be done through the following web page: 3. ASSESSMENT 3.1. Existence of aid - Application of Article 107(1) TFEU (41) According to Article 107(1) TFEU, "[s]ave as otherwise provided in the Treaties, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market". (42) The qualification of a measure as aid within the meaning of this provision therefore requires the following cumulative conditions to be met: (i) the measure must be imputable to the State and financed through State resources; (ii) it must confer an advantage on its recipient; (iii) that advantage must be selective; and (iv) the measure must distort or threaten to distort competition and affect trade between Member States. (43) The scheme in question is imputable to the State and financed through State resources (recital (8)). The notified scheme is selective because other undertakings in a comparable legal and factual situation, in the light of the objective pursued by the scheme, within the forestry sector or other sectors, are not eligible for aid and thus will not receive the same advantage. The notified scheme therefore gives only certain undertakings (recital (13)) a selective economic advantage, by strengthening their competitive position on the market. According to the case law of the Court of Justice, the mere fact that the competitive position of an undertaking is strengthened compared to other competing undertakings, by giving it an economic benefit which it would not otherwise have received in the normal course of its business, points to a possible distortion of competition 3. (44) Pursuant to the case law of the Court of Justice, aid to an undertaking appears to affect trade between Member States where that undertaking operates in a market open to intra-eu trade 4. The beneficiaries of aid operate in the forestry sector, where intra-eu trade takes place. In 2016 the EU-28 produced at total of 371,5 million m 3 of roundwood. That same year Denmark exported m 3 of roundwood to other Member States and imported m 3 from other Member States 5. The sector concerned is open to competition at EU level and therefore sensitive to any measure in favour of the production in one or more Member Judgment of the Court of 17 September 1980 in Case 730/79 Philip Morris Holland BV v Commission of the European Communities, ECLI:EU:C:1980:209. See in particular the judgment of the Court of 13 July 1988 in Case 102/87 French Republic v Commission of the European Communities, ECLI:EU:C:1988:391. EUROSTAT: Forestry database - Roundwood, fuelwood and other basic products Production and trade. Data updated 14/3/

8 States. Therefore, the present scheme is liable to distort competition and to affect trade between Member States. (45) In light of the above, the conditions of Article 107(1) TFEU are fulfilled. It can therefore be concluded that the proposed scheme constitutes State aid within the meaning of that Article. The aid may only be considered compatible with the internal market if it can benefit from one of the derogations provided for in the TFEU Lawfulness of the aid Application of Article 108(3) TFEU (46) The aid scheme was notified to the Commission on 14 February It has not been implemented yet. Therefore, Denmark has complied with its obligation under Article 108(3) TFEU Compatibility of the aid Application of Article 107(3)(c) TFEU (47) Under Article 107(3)(c) TFEU, an aid may be considered compatible with the internal market, if it is found to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest. (48) For this derogation to be applicable, the aid must comply with the relevant Union State aid rules Application of the Guidelines (49) As regards the notified aid scheme, Part II, Chapter 2, Section Aid for the prevention and restoration of damage to forests from forest fire, natural disasters, adverse climatic events which can be assimilated to natural disaster, other adverse climatic events, plant pests and catastrophic events of the Guidelines is applicable Common Assessment Principles Contribution to a common objective (50) Pursuant to recitals (19), (20) and (21) the scheme contributes to a common objective, by restoring robust forest potential and enhancing biodiversity. The provisions of points (43) and (44) of the Guidelines are thus complied with. Rural development objectives (51) A scheme with identical objectives is included in the rural development programme (recital (22)) and is consistent with the principle of contributing to the objectives of rural development programmes. The provisions of point (48) of the Guidelines are thus complied with. Environmental objectives 8

9 (52) Pursuant to recital (20) and, given its objectives (recital (19), the scheme is expected to have a positive impact on the environment. The provisions of point (52) of the Guidelines are thus complied with. Need for State intervention (53) As provided for in point (55) of the Guidelines, the Commission considers that the market is not delivering the expected objectives without State intervention concerning the aid measures fulfilling the specific conditions laid down in Part II of the Guidelines. The scheme fulfils the specific conditions laid down in Part II, Section of the Guidelines (recital (72)). The provisions of point (55) are thus complied with. Appropriateness of aid (54) As provided for in point (57) of the Guidelines, the Commission considers that aid granted in the forestry sector which fulfils the specific conditions laid down in the relevant Section of Part II of the Guidelines is an appropriate policy instrument. The scheme fulfils the specific conditions laid down in Part II, Section of the Guidelines (recital (72)). The provisions of point (57) are thus complied with. (55) As provided for in point (58) of the Guidelines, where a Member Stated decides to put in place a rural development like aid measure financed exclusively from national funds, when at the same time the same measure is provided for in the relevant rural development programme, the Member State should demonstrate the advantages of such a national aid instrument compared to the rural development programme measure at stake. Pursuant to recital (22) the provisions of point (58) are complied with. Appropriateness among different aid instruments (56) As provided for in point (62) of the Guidelines, where the aid is granted as direct grant the Member State must demonstrate why other potentially less distortive forms of aid are less appropriate. Pursuant to recital (39) the provisions of point (62) are complied with. Incentive effect and need for aid (57) As provided for in point (75)(q) of the Guidelines, aid for the restoration of damage to forests from fires, natural disasters, adverse climatic events, plant pests, animal diseases, catastrophic events and climate change related events in accordance with Section of Part II of the Guidelines is not required to have an incentive effect. Proportionality of the aid (58) Points (82) and (84) of the Guidelines stipulate that if the aid amount does not exceed the eligible costs and if the aid intensity respects the ceilings set out in Part II of the Guidelines, the aid is deemed to be proportionate. The current scheme fulfils the specific conditions regarding the eligible costs and the aid intensity laid down in Part II, Section (recital (72)) and therefore the provisions of points (82) and (84) are complied with. 9

10 (59) Pursuant to recital (34) the maximum aid amounts are established by an independent expert, and pursuant to recital (35) the beneficiary shall provide proof to support the eligible costs. The provisions of point (85) of the Guidelines are thus complied with. (60) No aid is granted for value added tax (recital (31)). The provisions of point (86) of the Guidelines are thus complied with. (61) As provided for in point (94) of the Guidelines, when assessing the compatibility of aid, the Commission will consider any insurance taken out, or which could have been taken out by the aid beneficiary. Regarding aid to compensate for losses caused by adverse climatic events which can be assimilated to a natural disaster, in order to avoid the risk of distorting competition, aid at the maximum aid intensity should be granted only to an undertaking that cannot be covered for such losses by insurance. This is why, in order to further improve risk management, beneficiaries must be encouraged to take out insurance wherever possible. Pursuant to recitals (14) and (23)(d) the provisions of point (94) are complied with. Cumulation of aid (62) Aid granted under the scheme may not be cumulated with any other aid for the same eligible costs (recital (32)). The provisions of the Guidelines are thus complied with. Avoidance of undue negative effects on competition and trade (63) As provided for in point (113) of the Guidelines, the Commission considers that where an aid fulfils the conditions and does not exceed the relevant maximum intensities, laid down in the applicable Sections of Part II of these Guidelines, the negative effect on competition and trade is limited to the minimum. The current scheme fulfils the specific conditions laid down in Part II, Section (recital (72)) and therefore the provisions of point (113) are complied with. Transparency (64) The transparency requirement set out in Part I, Section 3.7 of the Guidelines is complied with as shown in recital (40) Specific assessment according to the category of aid: Aid for the prevention and restoration of damage to forests from forest fire, natural disasters, adverse climatic events which can be assimilated to natural disaster, other adverse climatic events, plant pests and catastrophic events. (65) According to point (520) of the Guidelines aid may be granted to private and public forest holders and other private and public bodies and their associations. Pursuant to recital (13), which states that the scheme concerns only private forest holders, the provisions of point (520) are complied with. (66) According to point (521)(d) of the Guidelines the eligible costs are those for restoring forest potential damaged by fires, natural disasters, adverse climatic events which can be assimilated to natural disaster, other adverse climatic events, 10

11 plant pests, catastrophic events and climate change related events. Pursuant to recital (19) the provisions of point (521)(d) are complied with. (67) According to point (522) of the Guidelines in the case of the restoration of forest potential, referred to in point (521)(d), the aid must be subject to the formal recognition by the competent public authorities of the Member State that the before mentioned event has occurred and that either that event, or measures adopted in accordance with Directive 2000/29/EC to combat, eradicate or contain harmful organisms, has caused the destruction of at least 20 % of the relevant forest potential. Pursuant to recitals (26), (27) and (28) the provisions of point (522) are complied with. (68) According to point (524) of the Guidelines eligible operations must be consistent with the forest protection plan established by the Member States. Pursuant to recital (25) the provisions of point (524) are complied with. (69) According to point (526) of the Guidelines no aid may be granted for loss of income resulting from fires, natural disasters, adverse climatic events which can be assimilated to natural disaster, other adverse climatic events, plant pests, catastrophic events and climate change related events. Pursuant to recital (24) the provisions of point (526) are complied with. (70) According to point (527) of the Guidelines aid may be granted up to 100% of the eligible costs. Pursuant to recital (30) the provisions of point (527) are complied with. (71) According to point (528) of the Guidelines aid granted for the eligible costs as referred to in (521)(d) and any other payments received by the beneficiary, including payments under other national or Union measures or insurance policies for the same eligible costs, are limited to 100 % of the eligible costs. Pursuant to recital (33) the provisions of point (528) are complied with. (72) The scheme therefore complies with the specific conditions of Section of Part II of the Guidelines. (73) Pursuant to recital (15) undertakings in difficulty (within the meaning of point (35) 15. of the Guidelines) are excluded under the scheme. The provisions of point (26) of the Guidelines are thus complied with. (74) Pursuant to recital (16) the Danish authorities commit to suspend the grant and/or payment of any aid under the notified aid scheme to any undertaking that has benefitted from earlier unlawful aid declared incompatible by a Commission Decision, until that undertaking has reimbursed or paid into a blocked account the total amount of unlawful and incompatible aid and the corresponding recovery interest. The provisions of point (27) of the Guidelines are thus complied with. (75) The notified aid scheme will apply until 1 July Pursuant to recital (7) the Danish authorities have given an explicit commitment to adapt the scheme to State aid rules that may apply after

12 4. CONCLUSION The Commission has accordingly decided not to raise objections to the notified aid scheme on the grounds that it is compatible with the internal market pursuant to Article 107(3)(c) TFEU. If any parts of this letter are covered by the obligation of professional secrecy according to the Commission communication on professional secrecy in State aid decisions 6 and should not be published, please inform the Commission within fifteen working days of notification of this letter. If the Commission does not receive a reasoned request by that deadline Denmark will be deemed to agree to the publication of the full text of this letter. If Denmark wishes certain information to be covered by the obligation of professional secrecy please indicate the parts and provide a justification in respect of each part for which non-disclosure is requested. Your request should be sent electronically via the secured system Public Key Infrastructure (PKI) in accordance with Article 3(3) of Commission Regulation (EC) No 794/2004 7, to the following address: agri-state-aids-notifications@ec.europa.eu. For the Commission Phil HOGAN Member of the Commission 6 7 Commission communication C(2003) 4582 of 1 December 2003 on professional secrecy in State aid decisions, OJ C 297, , p. 6. Commission Regulation (EC) No 794/2004 of 21 April 2004 implementing Council Regulation (EU) 2015/1589 laying down detailed rules for the application of Article 108 of the Treaty on the Functioning of the European Union (OJ L 140, , p. 1). 12