Waste-derived fuels are not waste, Court rules

The Court of Appeal recently wrestled with the question of whether waste-derived fuels can cease to be waste in law before being burnt. The court rejected the Environment Agency’s strict interpretation of the law with a decision likely to encourage greater use of fuels derived from waste or recycled products.

Some observers hoped that the decision in R ex parte OSS Group Ltd v Environment Agency and DEFRA (Court of Appeal (Civil Division) 28 June 2007) would provide legal certainty regarding when a waste product ceased to be waste. In the event, it overturned the Agency’s interpretation which the High Court had upheld last November (ENDS Report 383, pp 53-54 ).

The lead judgment was given by Lord Justice Carnwath, who is well-versed in environmental law and provided an extensive review of the European and national case law on the subject. But even he felt the European law as interpreted by the European Court of Justice made it impossible to provide a definitive ruling. He urged the Agency and the Environment Department (DEFRA) to cooperate to produce practical guidance on the issue.

The OSS Group was in the business of reprocessing waste oils into fuel products. Its most recent product was known as ‘clean fuel oil’ which the company argued was materially indistinguishable from a natural fuel - a point which remains in dispute between OSS and the Agency.

However, the key question was whether the product remained a waste in law. If it were waste, then any combustion processes would be treated as waste incineration and be subject to the waste incineration Directive’s strict requirements. This would be likely to jeopardise any economic advantages of the recycled fuel over non-recycled ‘natural’ alternatives.

Waste legislation both at national and European level has tended to focus on whether a material is waste in the first place, rather than on the issue - which is at the heart of this case - of when what is admittedly a waste can cease to be waste. The European Court of Justice has considered the issue on several occasions, but as Lord Justice Carnwath noted with a degree of frustration, its judgments often lacked clarity.

The starting point for any analysis is the definition of ‘waste’ in the waste framework Directive which applies to substances or materials "which the holder discards or intends to discard".

Annex IIA and IIB of the Directive list operations which amount to ‘disposal’ and ‘recovery of waste’ including as recovery its use principally as a fuel and solvent reclamation. But the European Court of Justice has consistently held that ‘discard’ has an extensive meaning and can encompass the operations listed in Annex IIA and IIB. But it does not follow that if a substance is subject to one of those operations it is automatically a waste - one has always to ask whether it was ‘discarded’.

Lord Justice Carnwath derived several core principles from the case law. The concept of waste should not be interpreted restrictively and ‘discard’ was to be considered in the context of the Directive’s overall aims to protect human health and the environment, and the general principles of European environmental policy, including the prevention and precautionary principle.

In deciding whether burning a substance amounts to discarding it, the European Court has held that it was not relevant that it could be recovered as fuel in an environmentally responsible manner and without substantial treatment.

The Agency, relying on its interpretation of the case law of the European Court of Justice, had adopted a tough but clear test: materials contained in lubricating oils that have been discarded and have become waste only cease to be waste when they are finally burnt. The standard of the prior processing was not relevant.

The only exception would be waste fuel oil that was recovered for use as fuel oil which was chemically and physically identical to the original product and required no further processing. But here one was dealing with waste lubricating oil turned to a different use, and the limited exception could not apply.

DEFRA had a more generous formulation. It accepted that material derived from waste lubricating oil to be used as fuel was not being discarded as waste provided it had "the same characteristics" as the virgin fuel which it replaced. It was not a question of ‘never’ but ‘if’, and this would be a question of fact.

OSS in the Court of Appeal reduced the test to two simple questions: was the material sufficiently analogous to the virgin product or material which it replaced; and was the material analogous in terms of environmental risks in use? In its view the product in question met these tests.

Much turned on the key 2002 decision of the European Court of Justice in ARCO which was concerned with waste materials transformed for use as fuel. A key question was whether a waste product which had already been subject to recycling operations listed in Annex II to turn it into a fuel remained a waste until burnt.

The Court did not consider the application of the specified operations definitive: "Whether it is waste must be determined in the light of all the circumstances, by comparison with the definition set out in Article 1(a) of the Directive, that is to say the discarding of the substance in question or the intention or requirement to discard it, regard being had to the aim of the directive and the need to ensure that its effectiveness is not undermined."

Lord Justice Carnwath found the passage unfathomable. The European Court has accepted that the fact that a waste substance had undergone a recovery operation was a factor in determining whether it was still waste. As such it had impliedly accepted that a substance which was waste could cease to be a waste even if it was destined for use as a fuel.

But then the European Court had simply said the decision must be taken in light of "all the circumstances" but without specifying the other factors to be considered, other than saying this must be done against the discarding definition in Article 1A.

Lord Justice Carnwath felt this was meaningless as a response. The product’s user wanted to reuse it not discard it and "no amount of reference to ‘all the circumstances’ would change that fact. No doubt the material was discarded by the original user; but the issue was not whether it was then waste, but whether it had since ceased to be waste."

The European Court in ARCO also noted that even where a waste had been completely recovered, resulting in the substance having the same properties as a raw material, it could still be regarded as waste if the holder discards it or intends to discard it.

Lord Justice Carnwath found the reasoning "extremely obscure". There were clearly objective factors relating to the product’s characteristics and environmental impacts, but he could not see why the subjective intentions of the holder should acquire such significance when dealing with the question of whether waste ceased to be waste.

Lord Justice Carnwath concluded that "a search for logical coherence in the Luxembourg case law is probably doomed to failure". A fundamental problem, he felt, was the European Court’s continued adherence to the discarding definition which had little relevance to the issue where the holder intends to use the material rather than discard it on any ordinary sense. What should be key was whether the material should continue to be treated as waste until acceptable recovery or disposal had taken place, because of the Directive’s environmental policy aims. But as he noted, the European Court had consistently declined invitations to provide workable criteria to decide that question.

It followed that it was up to national courts to apply value judgments in the light of the indicators derived from the Directive’s policy goals. Lord Justice Carnwath noted with approval a 2003 decision of the Dutch Council of State which held that waste-derived fuel pellets produced with the sole aim of being used as fuel, in the same way as regular fuel, and containing no contaminants should be considered equivalent to regular fuel and no longer a waste.

Lord Justice Carnwath felt that such a decision showed a common sense approach, consistent with the aims of the Directive and the case law, and with the aim of encouraging waste recovery and reuse.

"It should be enough that the holder has converted the waste material into a distinct, marketable product, which can be used in exactly the same way as an ordinary fuel, and with no worse environmental effects. It cannot be said that such a material is being ‘discarded’ in any ordinary sense of the term and there is nothing in the objectives of the Directive which requires any fictitious assumption of that effect."

Turning to the various tests proposed, the court concluded that the Agency’s test was too narrow and not consistent with the case law. Similarly, although DEFRA’s arguments were found generally more persuasive than the Agency’s, the court felt DEFRA’s ‘hardly distinguishable’ test was equally too narrow.

Equivalence in both environmental implications and usage appears to be the preferred approach, though the Court felt that given that the European Court had declined to provide a definitive test, it was not the domestic court’s function to fill the gap.

It may be that the European Commission’s current work on revising the waste framework Directive (see pp 47-48  ) will provide greater clarity. In the meantime, Lord Justice Carnwath urged the Agency and DEFRA to pool their expertise to give practical guidance to those concerned with waste treatment and handling.

In this context, he noted that the difficulties in interpreting the European Court of Justice case law were compounded by DEFRA and the Agency not being able to agree a common approach. He acknowledged the Agency’s concerns of applying a more generous test and finding suitable comparators, but felt that the difficulty was not as great as the Agency suggested.

It would be rash to assume that the OSS decision will be the last legal ruling on when a waste product ceases to be waste. Nevertheless, the Court of Appeal has indicated that the issue should be determined by the application of technical criteria and expertise rather than rigid application of legal principles. Lawyers may feel frustrated, but many will see this as a welcome signal.