Economic Instruments for Biodiversity and Ecosystem Service Conservation & the EU State Aid Regulation

Many environmental services are not traded in markets but are rather public goods and their supply cannot easily be motivated by the market forces. This leads to underinvestment in the public goods relative to what would be socially desirable. Financial instruments are designed to modify behaviour by encouraging private individuals, organisations and businesses to participate actively in conservation. Nation states are ultimately responsible for providing public goods but the competition rules of the European Union restrict the use of economic instruments that constitute 'state aid' as defined in the Treaty on the Functioning of the European Union (TFEU). This article will analyse the regulatory frames under which economic incentives may constitute state aid in the meaning of 107 TFEU and the terms and conditions on which these aids may still be granted for land-owners.