State aid: Commission approves Swedish €55 million aid for «Domsjö» R&D project

Brussels, BELGIUM, Jan 26 2011 - The European Commission has authorised under EU state aid rules a support of SEK 500 million (about €54.6 million) that Sweden intends to grant to the Domsjö research and development (R&D) project. Domsjö Fabriker AB, a Swedish pulp producer, will develop a demonstration plant for the production of bio-methanol and other biofuels from pulp mill residue material. If successful, these second-generation biofuels will replace traditional fuel in the transport sector, thereby limiting Europe's dependency on fossil fuel and reducing carbon dioxide emissions. The Commission concluded that the project is compatible with the EU Framework on State aid for research, development and innovation (R&D&I). In particular, the aid aims at tackling a market failure and generates positive effects for the EU, notably increased research activities and environmental protection.

Joaquín Almunia, Vice-President of the Commission in charge of competition policy, declared: "The project could help develop a bio-refinery for second-generation biofuels at an existing pulp mill without unduly distorting competition. It would replace fossil fuels and contribute to Europe's 2020 objectives concerning R&D, climate change and energy without undue distortions of competition."

In June 2010, Sweden notified aid for the Domsjö project, based on an existing support scheme approved by the Commission in 2008 (case N561/2007). The project concerns the development of an industrial-scale demonstration plant for the production of second generation biofuels (bio-methanol and bio-DME) from pulp mill residue material (thick liquor). The R&D project will be carried out during a period of ten years.

The Commission assessed the project under the EU framework for State aid for research and development and innovation (see IP/06/1600 and MEMO/06/441), which allows aid that is well designed, palliates a market failure and results in benefits that outweigh potential distortions of competition caused by the aid.

The Commission found that the R&D project could not attract sufficient financing from the market, because of the high technological, financial and commercial risk it entails. On the positive side, the project is expected to generate important external benefits, contributing in particular to knowledge spill-over, environmental protection and regional development. The deployment of the demonstration plant can, in particular, be instrumental in facilitating the subsequent industrial uptake of this new technology with a significantly lower level of risk. The aid is also proportional: it does not exceed the maximum aid intensity allowed under the R&D&I Framework and the estimated potential revenue to be generated if the project were to be successful has been deducted from the project costs to be taken into account for the calculation of the aid. As for the distortions of competition on the market, the impact of the aid will be very limited given the particular structure and expected growth of the relevant markets, and the very small potential market shares that the beneficiary could obtain as a result of the project.

The Commission therefore concluded that the benefits of the project clearly outweigh any potential distortions of competition brought about by the aid.

The non-confidential version of the decision will be made available under case number SA. 31083 (N 240/2010) in the State Aid Register on the DG Competition website once any confidentiality issues have been resolved. The electronic newsletter State Aid Weekly e-News lists the most recent decisions on state aid published in the Official Journal and on the website.