January 01, 2014

The “End of Waste” under EU Law

Vincent Brown

The European Union has one of the most tightly regulated and precautionary legal systems in the world, governing industrial, commercial, and domestic (household) waste. The perspective of industry is that it is overly and unnecessarily weighted in favour of the environmental lobby and against genuine attempts by industrial manufacturers and waste processors to recycle waste materials or divert industrial by-products for beneficial economic reuse. This is especially the case in the unforgivingly tight regulatory environment of the United Kingdom, where there is a history of almost pathological governmental and regulatory resistance to the idea that industry can produce environmentally acceptable products and raw materials from wastes or other industrial residues or by-products. Sadly, that approach has not yet been consigned to history.

There are, though, gradual signs of an incremental shift, which has coincided with the global economic downturn. The European Commission recognised in its 2007 “Interpretative Communication on Waste and By-Products,” that an excessively wide interpretation of the definition of waste imposes unnecessary costs on business and reduces the attractiveness of materials that would otherwise be returned to the economy with no greater environmental impacts than if they were not so used. The Commission also admitted that differing case by case interpretations by competent authorities in different Member States (and, in the UK for example, as between different devolved jurisdictions) leads to unacceptable inequalities in the treatment of economic operators and obstacles in the internal market. However, the legal position remains a minefield for economic operators who may be venturing into this area of transforming waste streams and production residues into commercially valuable and realisable products and raw materials. The overall message is—the law is moving in your direction, but watch out for the old bear traps.

The underlying legal reality is the peculiar nature of EU law and its relationship with the laws of the Member States, combined with the overriding jurisdiction of the Court of Justice of the European Union (CJEU). From very early in the development of the EU legal system (Case 6/64 Flaminio Costa v. ENEL (1964) ECR 585 and Case 11/70 Internationale Handelsgesellschaft (1970) ECR 1125), the CJEU established that no rule of national law, not even a constitutional measure, can prevail against a contrary article of EU law, whether contained in one of the Treaties or in subordinate EU legislation such as an EU Regulation or an EU Directive. This doctrine has been further developed exponentially by the CJEU over the decades, primarily through the development of the doctrine of conforming interpretation (Case 14/83, Von Colson & Kamann v. Land Nordrhein-Westfalen [1984] ECR 1891). This doctrine requires all national courts to apply and interpret national law, adopted for the implementation of a Directive, in conformity with the wording and purpose of the relevant Directive. In the EU legal system, the CJEU is the ultimate arbiter. If you have a CJEU ruling on your side, then you have a card to play.

The root of the problem in Europe has always been the so-called Waste Framework Directive, the most recent 2008 version of which became law in the Member States in December 2010. It is the cornerstone of all law throughout the twenty-seven EU Member States regulating most forms of industrial and commercial residues, wastes, and by-products. Reams of consultation papers and strategies were produced ahead of the Directive, proclaiming that it would provide much needed clarification of the practical definition of “waste.”

 

As it turned out, although the 2008 Directive did manage to some degree to clarify what might not be waste, the underlying basic definition of “waste” itself remained unchanged, and problematic. That definition is short, cryptic, and a legislative trap for those who like to read words according to their ordinary meaning. Article 3(1) of the 2008 Directive defines “waste” as it has since 1991—as being any substance or object which the holder discards or intends or is required to discard. The “holder” means the “waste producer” or the natural or legal person who is in possession of the waste for the time being. Therefore, everything turns on whether the producer or holder of the material actually discards, intends to discard, or is required (for example by legislative or contractual obligation) to discard, the relevant material. In itself, that seems fine and understandable. However, serious problems emerged following a series of judgments in which the CJEU accorded the term “discard” a “special meaning.”

The CJEU eschewed the ordinary, commonsense meaning of “discard” provided by the Oxford English Dictionary as being “to get rid of something as no longer useful or desirable” (and the noun as “a thing rejected as no longer useful or desirable”). The early judgments (Cases C-206/88 and C-207/88 Vessoso and Zanetti (1990) ECR I-1461 and C-359/88 Zanetti (1990) ECR I-1509 and Cases C-304/94, C-330/94, C-342/94 and C-224/95 Euro Tombesi (1997) ECR I-3561) ruled (to the general consternation of most commentators) that the concept of waste could include substances and objects that are capable of economic reutilization, and that Member State legislation that defines waste as excluding substances and objects that are capable of economic reutilization is incompatible with EU law. These judgments were reinforced in a subsequent 1997 case (Case C-129/96 Inter-Environnement Wallonie v Région Wallonne (1997) ECR I-7411) in which the CJEU ruled that a substance is not excluded from the definition of waste by the mere fact that it directly or indirectly forms an integral part of an industrial production process.

In what still remains one of the leading cases of the CJEU case law on this subject, the CJEU ruled in August 2000—in Joined Cases C-418/97 and C-419/97 ARCO Chemie Nederland Ltd (2000) ECR I-4475—that a substance might still be “discarded” as waste even if it may be recovered for beneficial use in an environmentally responsible manner. The Court reinforced in that case the “special” and expansive meaning of “discard,” which the CJEU ruled did not merely embrace the concept of disposal of the relevant material but also its recovery or recycling. In other words, the very intention to recycle something was in itself usually an indicator of “discarding.” Governments and regulators, especially in the Brussels-docile UK, reacted with glee. They could regulate and control, and this they did (and still do).

There were other cases that can be alluded to briefly. In Case C-1/03 Van de Walle (2004) ECR I-7613, the CJEU held that land could be “waste” where it had been contaminated by unintentionally spilled hydrocarbons. This judgment caused great concern because it logically raised the spectre of entire swathes of post-industrial Europe being in legal terms unlicensed landfill sites. Two months after the Van de Walle ruling, the CJEU ruled in Case C-457/02 Niselli (2004) ECR I-10853 that the meaning of “discarding” and therefore of “waste” can include production or consumption residues, which can be or are reused in a cycle of production or consumption (even if without prior treatment and without harm to the environment).

The Importance of This Wide Definition of Waste

The depressing effect upon European industry of this case law was to cast serious doubt on whether it was indeed possible to characterise a material that was in any way “left over” from an industrial manufacturing or extractive process, or from a waste processing operation, as anything other than a “waste” and certainly not as a commodity or raw material, far less a product, free from the stigma of waste status and regulation.

In the UK itself, the year after the ARCO Chemie ruling, the English High Court accepted the urging of the English regulator (the EA) to put down an attempt by a company to make a serviceable fuel from waste. Castle Cement v. Environment Agency (2001) EWHC Admin 224. Five years after that, in late 2006, the High Court responded in similar dismissive terms to an even more environmentally sustainable proposition from a company that sought by chemical treatment to transform very difficult waste lubricating oils into a fuel that bore “analogous characteristics” to a similar refinery fuel. Without even hearing the evidence, the High Court was persuaded by the Environment Agency’s argument, which was based more on ideology than law, that it was never legally possible to convert something that was a waste into a fuel prior to combustion. That was the case of OSS Group Ltd. v. Environment Agency (2006) EWHC 3023 (Admin). The UK Government also intervened in the case in support of its agency.

The most important implication of all this was that material which, even though useful and of commercial value and purpose, remained classified by regulatory authorities as “waste” and was subjected to very stringent permitting procedures and other related regulation. This may not sound burdensome, but such are the complexities, difficulties, and overwhelming expense brought to bear upon affected operators by the relevant EU industrial permitting regimes, that very often classification of a material as a waste can be enough to finish it as a commercial proposition.

This is no exaggeration. The plaintiff in the OSS case narrowly avoided going out of business, and only the successful appeal against the High Court ruling a year later saved what was the UK’s largest and most successful waste oil recovery and recycling company. The entire rationale of the industrial fuel recycling manufacturing process—as it is of most processes that manufacture secondary raw materials from waste or seek to commercialise industrial by-products—was that the fuels produced could be sold on the market as products. For any economic operator in this sort of field, the imposition of strict “waste permitting” regulation upon all aspects of the management of the product, and especially the marketing, supply, and use of the product by its prospective customers, negates the basic commercial proposition and removes the ability of the product to compete in the market.

This whole area is highly sector-specific, and there are, of course, different commercial and market implications and pressures affecting different material streams and sectors. For example, scrap metal, which often remains, technically, a “waste,” is still profitably traded. However, overall and generally speaking, there usually is little point in investing the significant sums that are required to meet the product quality standards demanded of secondary raw materials and products in order to compete with “virgin” equivalent raw materials and products, if the raw material or product cannot compete with the virgin equivalents on a level regulatory playing field.

Aside from the pricing and product quality issues that arise from the placing on the market of a raw material that must legally be consigned as “waste,” the application of waste regulation creates as uneven a playing field as one could find. While a material remains a waste, it is subjected to a vast array of EU and Member State legislative controls that flow primarily from the Waste Framework Directive (2008/98/EC) itself and the stringent industrial permitting “codes” imposed by successive EU-wide industrial emissions directives now consolidated in the Industrial Emissions Directive (2010/75/EU). There are also a range of specialist sectoral waste regimes such as the Packaging and Packaging Waste Directive (1994/62/EC), the Landfill Directive (1999/31/EC), the End-of-Life Vehicles Directive (2000/53/EC), the Mining Waste Directive (2006/21/EC), the Waste Shipments Regulation (EC No. 1013/2006), the Batteries Directive (2006/66/EC), and the Waste Electrical and Electronic Equipment Directive (2012/19/EU)—the complexities of each of which are beyond the remit of this article.

A Cross-Sector Problem

There are innumerable areas of the EU economy where materials formerly thought of (by innovative industrialists, if not by regulators) as waste or residues to be “discarded” (in the normal sense of that word) are now actively sought to be processed into some form of useful and commercially saleable commodities. Ironically, the commercial drive to do this has come from the EU lawmakers themselves. Among the several objectives and provisions of the Waste Framework Directive, there are essentially two fundamental and overriding aims. The first is that human health and the wider environment should be protected against the harmful effects of the generation and management of waste, through the prevention or reduction of those effects. The second overriding aim focuses on the reduction of waste, through prevention (where possible) and “recovery” of waste and the beneficial use of those recovered materials in order to conserve natural resources. Indeed, logically the second aim should serve the first. A form of “prevention” is surely to examine whether we are not prematurely classifying as waste materials that which are useful by-products from processes. For me, the optimum form of “recovery” is “complete recovery” into an “end of waste” raw material. The problem has arisen because, notwithstanding this legislative policy goal, there remain significant legal and regulatory challenges in actually achieving the legal and technical criteria that allow processed wastes or industrial residues to qualify as non-waste products and so compete on the market.

The industrial examples are legion. Waste lubricating and fuel oils from the automotive industries are a hazardous and difficult waste, but they can be transformed into serviceable fuel oils or into base oils that can be used to manufacture new lubricants. In the offshore oil industry, the hazardous waste drill cuttings that come up from the wells can be processed for similar purposes, both as fuel oils and as base oils that can go back into the manufacture of drilling muds. Solvent recycling is a mature industry in the EU, whereby distillation processes separate the contaminants in used solvents to regenerate the original solvent for reuse. In the cement sector, various kiln dusts are produced that often have to be sent to landfill for disposal—itself an inherently environmentally damaging activity—whereas with some care and a little regulatory cooperation they can in fact be used as a lime-based fertiliser sought after by farmers. The same is true of a range of composts and digestates that can be produced from a wide array of biodegradable wastes, including food wastes and even treated sewage. Used tires are a source of recycled rubber that can be applied in many uses, such as children’s playgrounds and sports arenas. There is also valuable hydrocarbon content in the tires that can be extracted for the purposes of fuel and carbon black.

There are many inorganic wastes—such as those from aluminium thermal metallurgy, the manufacture of glass and glass products, chemical surface treatment, the coating of metals and other materials, and spent catalysts—which possess high aluminium, iron, silicon, and calcium oxide content, and as such can be reused as raw materials in cement and brick manufacture, or as secondary aggregates. There are other wastes that can be processed into secondary aggregates, including used or waste gravels, sands, bricks, clays, glass, glass packaging, rail track ballast, and soils. The recycled soils industry also makes use of a range of waste materials, including the organic contents of highway sweeping and cleaning wastes and gully wastes.

Every one of these—numerous other examples of innovative resource efficiency and conservation—is potentially hamstrung by a regulatory approach in parts of the EU that battle against such innovation and prefer the “safety” of regulating materials as “waste.” In this, these regulators have historically been bolstered by “hard” law, but there are signs that the law (if not regulatory attitudes) may be changing.

Is the Tide Turning?

Recent legislation and case law at the EU and Member State level has responded to this challenge, but there remain legal and technical pitfalls for industrial operators. The seeds were sown in that 2000 judgment of the CJEU—Cases C-418/97 and C-419/97 ARCO Chemie Nederland Ltd. (2000) ECR I-4475. After reinforcing the wide concept of waste, the court did state that whether any given material was in fact waste within the meaning of the Directive must be determined in the light of all the circumstances, regard being had to the aims of the Directive and the need to ensure that its effectiveness is not undermined. This was a key point for the future development of the law, expressing a teleological or purposive approach to the judicial interpretation of the law in this area. Moreover, in that case the CJEU also provided a passage that an English judge later amusingly referred to as “Delphic” in its vagueness, but which seven years later would provide the OSS Group with the basis of what was a crowning victory in the English Court of Appeal. The relevant passage implied that if a waste process turned out a material that had “characteristics analogous to” a virgin or raw material, then it might no longer be a waste.

Two years later, there began a series of judgments in the CJEU that created even greater interest and decidedly turned the tide in favour of industrial by-products and secondary products. Essentially, in the following line of judgments—Case C-9/00 Palin Granit (2002) ECR I-3533, Case C-114/01 AvestaPolarit Chrome (2003) ECR I-8725, Case C-235/02 Saetti (2004) ECR I-1005, and the delightfully named Case C-416/02 The Spanish Pig Manure Case (2005) ECR I-7487—the CJEU ruled that there are two circumstances in which materials that are not the primary product of an industrial manufacturing or extractive process may nonetheless be non-wastes. These are, firstly, where the non-primary product is nonetheless a “secondary product” (rather than a “production residue”) deliberately produced by technical choice as part of the primary production process. The second instance is where the material is a “production residue” produced unintentionally or as an inevitable consequence of the main production process, but it has characteristics that render it a “by-product” and not a waste.

The Saetti case was an example of the first type. It concerned the status of petroleum coke, a carbon-based material produced in the refining of crude oil. The Italian authorities sought to have it classified as waste because it was something “left over”—a residue from the production of primary refined fuels. The CJEU disagreed, primarily because on the evidence the production of the coke was the result of a technical choice and that the entire petroleum coke production was certain to be used, mainly for the same purposes as the primary petroleum products made in the refinery.

The other cases—particularly AvestaPolarit Chrome and the Spanish Pig Manure Case—were successful examples of the second type of case—the “by-product case.” In AvestaPolarit, the CJEU ruled that leftover rocks and stone from an ore mining process could be classified as products on four cumulative grounds (each of which the material had to meet). They had been produced as an integral part of the production process. Their further use (for the necessary backfilling of the mine) was a certainty and not simply a mere possibility. They could be made ready for such use as part of the continuing process of production and without any further processing. Finally, their onward use was lawful. By contrast, the earlier case of Palin Granit had produced the opposite result from very similar circumstances, but where the CJEU ruled that the holder of the leftover stone in that case resulting from stone quarrying which is stored for an indefinite length of time to await possible use discards or intends to discard that leftover stone, which is accordingly to be classified as waste.

In the Spanish Pig Manure Case, the CJEU surprised many by ruling that manure is not waste when it is used as a soil fertiliser as part of a lawful practice of spreading on clearly identified parcels of land and if its storage is limited to the needs of those spreading operations. This followed by analogy the ruling in AvestaPolarit, but with a critical addition. The CJEU ruled also that the non-waste status of the manure could still apply even where it was used in an agricultural holding that was different from the one in which it was originally produced. This was a departure even from the AvestaPolarit case, which had emphasised the certainty of use of the rocks in the same mine in which they had originated.

These rulings formed the basis for what became Article 5 of the 2008 Waste Framework Directive, which more or less codified these CJEU judgments by setting out four conditions that a production residue must meet to be considered a by-product. These differed slightly from those in the case law. Those four conditions are that the further use of the substance or object is certain; that it can be used directly without any further processing other than normal industrial practice; that it is produced as an integral part of a production process; and that it fulfils all relevant product, environmental and health-protection requirements for the specific use and will not lead to overall adverse environmental or human health impacts.

Meanwhile, in June 2007, the contentious English High Court decisions in Castle Cement and OSS Group, cited above, had been overturned in a celebrated ruling of the Court of Appeal in London in OSS Group Ltd. v Environment Agency (2007) EWCA Civ 611, in which Lord Justice Carnwath amusingly observed that “a search for logical coherence in the Luxembourg [CJEU] case law is probably doomed to failure.” The Court of Appeal ruled that the High Court decisions had been wrong and that the approach of the UK Government and the English regulator was ill-conceived and in breach of EU law. The Court stated that for a substance no longer to be characterised as “waste” for the purposes of the Waste Framework Directive, it should be enough that the holder of the waste has converted the waste material into a distinct marketable product, which can be used in exactly the same way as an “ordinary” product (in that case it happened to be a fuel), with no worse environmental effects.

The “End of Waste” Concept

Incidentally, and critically, there is a significant legal difference between this English case and the CJEU cases just described. The latter were largely concerned with whether material had become waste at all, whereas the English Court of Appeal was concerned with whether something that was admittedly already waste had been processed to such a degree that it had ceased to be waste. This is what is sometimes referred to as “end of waste,” a phrase that now has EU legislative recognition in the English language version of Article 6 of the 2008 Waste Framework Directive. The legal rules governing the two types of case are materially different at the EU and UK level.

This concept of “end of waste” had received scant recognition from the CJEU. As mentioned already, the 2000 ruling in ARCO Chemie had arguably sown the seeds in its concept of “complete recovery” and “analogous characteristics.” A later case—Mayer Parry Recycling Ltd. v Environment Agency (2003) ECR I-6163—is sometimes cited as a CJEU “end of waste” case, but in truth it was more about the definition of “recycling” (which in strict legal terms is something different) than “end of waste” as such. On the whole, it was the UK courts that lead the way on “end of waste,” particularly through the Court of Appeal decision in OSS, as well as in a remarkably prescient judgment of the Scottish Court of Session in December 2004—Scottish Power v. Scottish Environment Protection Agency (2005) Env LR 38—where, although the end of waste case for fuel pellets made from sewage sludge was unsuccessful on the facts, Lord Reed provided an exhaustive analysis of the CJEU case law, and particularly the “delphic” passages at the end of the ARCO Chemie ruling, which was warmly endorsed by the English Court of Appeal.

Just over a year after the English appeal ruling, the revised version of the Waste Framework Directive incorporated the concept of “end of waste” by setting out conditions whereby substances or objects that meet the waste definition can achieve, after undergoing a recovery operation, a non-waste status and thus fall outside the scope of waste legislation. Article 6 of the Directive applied a “twin-track” approach. First, for certain specified waste streams (e.g., aggregates, paper, glass, metal, tyres, and textiles), end of waste criteria can be set at the EU level in accordance with conditions listed in Article 6(1). Such EU-wide criteria would be binding for Member States and, once set in an EU Regulation, also binding on companies and individuals as directly applicable law in the Member States. So far, there have been three EU Regulations covering scrap metal and aluminium, glass cullet, and copper scrap. Secondly, where no such EU-wide criteria have been set, Member States may decide whether certain waste has ceased to be waste, taking into account “applicable case law.”

The cumulative conditions under Article 6(1) for the EU-wide criteria are: that there has been a recovery operation applied to the waste; that the substance or object that results from that operation is commonly used for specific purposes; that a market or demand exists for such a substance or object; that the substance or object fulfils the technical requirements for the specific purpose and meets the existing legislation and standards applicable to products; and that the use of the substance or object will not lead to overall adverse environmental or human-health impacts. These criteria are materially different from those set down in “the case law.” In particular, the case law test tends to operate on the basis of a comparison between the “end of waste” material and the virgin product or raw material that it will tend to displace on the market. This was clearly what was being referred to by both the CJEU in its identification of “analogous characteristics” and the English Court of Appeal in its formula for end of waste cited above. There is no mention of any such comparison in Article 6(1).

This is strange, indeed. It is surely bizarre that a legal, political, and economic system that places such stock on harmonisation of laws and the single market should have devised a twin track system for waste to product definition that is so obviously conflicting. Perhaps this is unsurprising. EU law-making tends to be formed as much by political representatives in the European Parliament as it does by experts in the field. The drafting in the Directive is, to a lawyer, either incredibly sloppy or deliberately aimed at political compromise. Whatever the causes, we are left with a regime that was supposed to have been clarified but which seems now to raise as many questions as answers.

For example, when the Directive refers to applying “the case law,” does it mean only the EU case law of the CJEU, or do the UK court rulings have any merit or influence? It is likely to be the former, at least as far as the EU authorities like the Commission are concerned. Mercifully, the UK case law will likely continue to hold sway in the UK, on account of the doctrine of precedent, at least unless or until they are overruled by a CJEU decision. However, far from harmonising Europe on this critical economic industrial issue, the Directive threatens to result in potentially twenty-seven different sets of end of waste rules (save for those limited cases where there are EU-wide criteria set), and that is assuming relevant Member States have a jurisprudential grasp of the subject. Very recently, a company which had manufactured a UK-compliant end of waste fuel in the UK had enormous difficulties exporting that fuel a few short nautical miles across the Irish Sea to the Republic of Ireland. The Irish authorities refused to recognise the UK legal test in the OSS case, even though the judgment in the Court of Appeal was not merely an “English” decision but was an exhaustive analysis and application of the EU law on the subject. What made it worse was that the Irish authorities could present no corresponding criteria of their own, so the company was left in limbo.

There are similar cross-border issues awaiting companies in other parts of the EU. Sometimes it works in reverse. Last year, another company shipped a material from England that was unquestionably a hazardous waste for “processing” in the Netherlands. In fact, it was hardly “processed” at all, but was shipped from the Netherlands to Germany by another operator as a product. No chemical change had been made to the material. Under EU law it undoubtedly remained a hazardous waste, but the authorities in the Netherlands and Germany took a different view. Challenges are currently being brought before the European Commission against several Member State positions on end of waste on behalf of enterprises whose competitive position is being affected by inconsistent application of EU law in this field. As already observed, the European Commission admits that such differing case by case interpretations by competent authorities in different Member States leads to unacceptable inequalities in the treatment of economic operators and obstacles in the internal market.

Overall, though, there is little doubt that the industry is operating in a much improved legal framework, and there is at least a degree of legal basis for investment in the potentially lucrative markets of wastes recovery and recycling and the commercial diversion of industrial by-products for beneficial economic reuse. There is certainly more law. Much of that law represents a quantum improvement from a decade ago, but uncertainty and inconsistency still abound. It takes careful navigation of what remain complex legal rules, which are not easy to apply to practical industrial circumstances. Indeed, the question of “evidence” remains the biggest hurdle for operators, because demonstration of compliance with the legal criteria (once you have worked out what the precise legal criteria are in the Member State(s), or region within the Member State(s), in which your client is operating) requires highly technical scientific expertise, as well as a willingness to stand up to what are at times ill-informed and unhelpful authorities, but we are getting there.

Vincent Brown

Mr. Brown is a Principal at Vincent Brown Associates and Visiting Professor of Environment Law, University of Strathclyde, Glasgow, UK.