Secondary liquid fuels remain waste until burnt

The High Court has held that fuel derived from waste solvents remains waste until burnt, even if it meets product standards equivalent to natural fuel. The decision has economic implications for solvent recovery businesses because it means the requirements of the EU waste incineration Directive will apply where such products are used as fuel.

Solvent Resource Management Ltd v Environment Agency and OSS Group v Environment Agency (Administrative Court, High Court [2006] EWHC 3023, 21 November 2006) were judicial review actions ordered to be heard together because they raised essentially the same legal issues.

The question underlying the dispute - and one that has been the subject of dispute in previous decisions at national and European level - is at what point does waste subjected to a recovery process cease to be waste in law.

Solvent Resource Management was engaged in recovering waste solvent materials. The distillation processes produced several solvents, known as product-grade distillates, which were sold on the open market. It was agreed that these were fully recovered products and no longer waste.

However, SRM also wished to use some of the distillates as fuel in its plants - it had been doing so for more than ten years without any compliance issues arising.

The distillates to be used met product and fuel specification standards designed to ensure their emissions were no different from those resulting from burning natural (primary) gasoil. But from the end of 2005, the waste incineration Directive’s requirements applied to existing waste incinerators.

The Environment Agency argued that the distillates remained waste until finally burnt and permits would have to meet the Directive’s stringent conditions. SRM estimated the extra costs for the five plants involved would be more than £1 million in capital expenditure and another £400,000 in annual operating costs.

The second judicial review involved OSS which collected waste lubricating oils from more than 15,000 garages, workshops and similar premises and remanufactured it for sale as a high-quality fuel oil known as Clean Fuel Oil.

The oil had a competitive advantage over natural fuels, but only as a ‘product’ rather than a waste. If it remained waste in law, customers burning the oil would also be subject to the waste incineration Directive’s requirements and the market would disappear.

OSS and the Agency disagreed over several issues about whether Clean Fuel Oil’s specifications rendered it environmentally indistinguishable from equivalent natural fuels. These issues could not be resolved before the case was heard in the High Court.

OSS believed the Agency’s position on when a waste-derived product ceased to be waste in law was unclear, and, according to Mr Justice Burton, "with some justification".

To be fair to the Agency, the European Court of Justice’s sometimes opaque decisions have made giving guidance a challenging task. Nevertheless, according to the judge during the case, the Agency’s view was capable of being spelt out clearly: a product which was waste or derived from waste which is to be burnt as fuel does not ordinarily cease to be waste until it is burnt and the energy recovered.

However, there was one exception to this rule: where a material was originally used as fuel and then recovered as a fuel, it ceases to be a waste if it is chemically and physically identical to the original material and requires no further processing.

This ‘original fuel’ exception could not apply in OSS’s case because its recycled waste products were not originally fuels. In SRM’s case, the judge accepted that some of the original solvent materials may have been used as fuel, or a fuel additive, and that SRM and the Agency might be able to agree conditions to ensure these products met the exception test.

As to the dispute’s main issue, the claimants’ core argument was that the processes applied meant the materials had been fully recovered and ceased to be waste before being used as fuel.

The issue required Mr Justice Burton to consider a range of European waste legislation together with core decisions of the European Court of Justice.

He noted that the issue here was when should a material that had been waste cease to be waste, which rendered of little relevance the case law that dealt with when a material becomes waste in the first place, including questions of by-products and secondary products.

He also noted that in general terms, there were special regimes that applied to waste but not to natural or virgin products. Waste material burnt as a fuel was subject to the waste incineration Directive’s requirements but natural or virgin products were not.

As a matter of logic, humans or the environment may not distinguish between the impact of emissions, whether they result from burning of waste or natural fuels, but Mr Justice Burton noted that the legislative regime did not intend waste and non-waste to be treated equally.

A more stringent regime applied to waste disposal and treatment, in part because waste products were likely to contain a diverse range of contaminants that cannot be readily identified or anticipated. And the European Court of Justice had noted that the environmental impact of the processing of substances had no effect on its classification as waste.

The definition of waste for the purposes of the waste incineration Directive is derived from the definition contained in the waste framework Directive, where the critical concept that determines that a material is waste is whether the holder discards it.

‘Discard’ is a legal term of art, and the European Court of Justice has accepted that it encompasses, though is not confined to, the disposal and recovery operations listed in Annex IIA and IIB of the Directive. Annex IIB lists 13 recovery operations including R1 (used principally as a fuel or other means to generate energy), R2 (solvent reclamation or regeneration), and R3 (recycling or reclamation of organic substances not used as solvents).

The claimants’ core policy argument was that one of the European waste regime’s objectives was to encourage recycling and reuse, and if waste can be recovered into a material that is environmentally indistinguishable from its equivalent natural product, its use should be not be inhibited. Once the materials had been through a recovery process such as R2, they were no longer waste but should be considered equivalent to a raw fuel.

In one of the leading European Court of Justice waste cases, ARCO (2002), Advocate General Alber suggested that once a waste material was recovered or reprocessed so that it no longer posed any more environmental danger than an equivalent primary raw material, it had probably ceased to be waste.

The Agency argued that while the waste regime did aim to encourage reuse and recycling, its main purpose was to ensure high environmental standards in respect to waste management. Although product standards could reduce or even eliminate the dangers of contaminants, the only safe course for a supposedly harmless fuel product derived from waste was to burn it in accordance with the waste incinerator Directive’s standards.

Mr Justice Burton agreed with the Agency’s analysis. The waste recovery operations listed in the waste framework Directive had to be contrasted with each other. SRM might be carrying out an R2 operation (solvent reclamation), but he was satisfied this applied only when the products were subsequently used as solvents.

Hence the Agency accepted that where these were sold as solvents to third parties, they were no longer waste. But if the product was to be then used as a fuel, it was subject to a further recovery process: "What has occurred is that after the first recovery operation which has, if it has, been sufficient to render the product suitable for one purpose, there is then a further recovery operation (R1) when the energy is recovered, and the material is discarded."

This analysis, he felt, was consistent with the European Court’s ARCO judgment, which had indicated that a waste subject to a complete recovery operation could still revert to being waste when it was discarded.

Mr Justice Burton cast doubt on the workability of the test proposed by Advocate General Alber in ARCO that used environmental equivalence as a method of deciding when a material had ceased to be waste. He agreed with the Agency that this posed too many uncertainties, not least in deciding what should be the true comparisons.

He acknowledged that in relation to natural gasoil, the fuel used by SRM, there were at least well-established national and international criteria, but even then this would focus too much on emissions, and the waste regime was intended to control wider risks than just emissions.

Much of the general thrust of European Court of Justice case law has been to acknowledge that decisions of whether a material is waste or not have to made at national level on a case-by-case basis, against the underlying legal principles. But as to the question of when a material ceases to be waste, it seems likely that the policy issues will in future gravitate to a European level.

The proposed new waste Directive, published by the European Commission last year, contains specific end-of-waste provisions, and would allow for the adoption of European-wide environmental and quality criteria to determine whether particular products could be reclassified as secondary products, materials or substances.

In the end, this may be a preferable solution to litigation before the national courts, but it is likely to be many years before specifications for waste-derived fuel could be agreed.

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