[1] The facts of this case, and the relevant legal provisions, are relatively complex. The central issue can however be described briefly. The petitioner, Scottish Power Generation Ltd ("Scottish Power"), operates Longannet Power Station ("Longannet"). In order to produce electricity, Longannet burns primarily coal, but also what has been described in these proceedings as waste-derived fuel ("WDF"). The WDF burned at Longannet is produced from the sewage emanating from the public sewerage network of the Greater Glasgow area, which is operated by the second respondent, Scottish Water. Longannet is subject to the emission controls applicable to a combustion process, under domestic legislation designed to protect the environment. Different controls apply under that legislation to certain waste incineration plants. Recent European legislation, implemented in domestic law, establishes a more stringent regime for waste incineration plants and "co-incineration plants", the latter expression being defined as meaning:

The first respondent, the Scottish Environment Protection Agency (SEPA), considers that the more stringent regime is applicable to Longannet, on the basis that the power station is a co-incineration plant. The issue between Scottish Power and SEPA is therefore whether Longannet is a co-incineration plant. That issue turns on whether the WDF is "waste", within the meaning of the relevant legislation. Scottish Water has also taken part in these proceedings, and has supported the position of Scottish Power.

[2] The description of the material in question as "waste-derived fuel" might be considered to carry an implication that the material is not itself waste, but a product derived from waste. All parties to these proceedings were nevertheless content to use that description as a convenient expression, without its being intended to carry any such implication. I shall use the same description, without any such implication being intended.

[3] There is no material dispute as to the relevant facts. All parties were content to refer to the same documents as establishing the material facts and enabling any necessary inferences to be drawn. A few additional matters were clarified by counsel in submissions, and were not disputed. Some samples of the WDF were also produced. It was not suggested that there was any need for further evidence to be given by affidavit or orally.

[4] Scottish Water and its predecessors (hereafter referred to as Scottish Water) have for many years operated a waste water treatment works at Daldowie, in the south-east of Glasgow. Raw sewage is received there from the public sewerage network. It is treated by passing through a sequence of settlement tanks, designed to achieve the settling out from the raw sewage of solid material. Biological treatment is also involved. The purpose of the treatment is to render the treated water, from which the solids have been settled out, sufficiently pure to be discharged into natural watercourses. The remaining sewage sludge comprises approximately 97 per cent water and 3 per cent dry content.

[5] At one time, the sewage sludge produced within the Greater Glasgow area was disposed of at sea. In accordance with the requirements of Directive 91/271/EEC concerning urban waste water treatment, as implemented by the Urban Waste Water Treatment (Scotland) Regulations 1994 (SI 1994 No 2842), this practice had to cease by the end of 1998. Scottish Water sought to establish alternative means of disposal under the Government's Private Finance Initiative ("PFI"). Tenderers for a PFI contract were encouraged to find innovative solutions. To this end, SMW Ltd ("SMW"), a wholly-owned subsidiary of Scottish Power, undertook a study considering the options available for sludge utilisation and disposal. As a result of that study, SMW submitted a proposal to Scottish Water involving the re-use of dried sewage sludge pellets as a co-fuel with coal for combustion within a power station. The proposal involved the development of a sludge treatment centre at Daldowie, adjacent to (but separate from) the waste water treatment works there, which would accept sewage sludge from the waste water treatment works and dry it to form pellets which would then be transported and fed into the fuel system of a power station. It was further proposed that a pumping station and connecting pipeline would be constructed to link the sludge treatment centre with Scottish Water's waste water treatment centre at Shieldhall, on the west side of Glasgow. Sewage sludge would be pumped from Shieldhall via the pipeline to the sludge treatment centre at Daldowie. The entire sewage sludge produced by Greater Glasgow, which until then had been dumped at sea, would thus be dried and used as a fuel.

[6] This proposal combined the expertise available to the Scottish Power group of companies in the water industry with its expertise and facilities in the power generation industry, as was explained in a letter dated 18 May 2004 written by SMW to its solicitors in connection with the present proceedings:

[7] In August 1998 SMW applied to SEPA, under section 6 of the Environmental Protection Act 1990, for authorisation to operate "the process ... associated with the proposed sewage sludge dewatering, drying and pelletising plant at the Daldowie Sludge Treatment Centre". The application contained a detailed description of the proposal, and an explanation of the thinking underlying it. Under the heading "Sludge Disposal Options Considered", it explained that sewage sludge could be disposed of by a variety of routes and in a variety of forms, of differing levels of dryness. The options considered had included the disposal of raw sewage sludge by incineration (with or without energy recovery) and by a variety of other means; the disposal of sewage "cake" (i.e. sludge which has been partially dried, in centrifuges) by agricultural use, landfill or energy recovery (by co-firing sewage cake and coal in a power station); and the disposal of pellets (ie cake which had been further dried, by heating, and pelletised) by similar means. A key factor in the assessment was the final volume of material to be handled. Dried sewage sludge pellets offered the most attractive option for disposal, given the reduction in volume once water was removed, and the consequent reduction in transportation requirements. There was also a wider range of re-uses available for dried sewage sludge than for wetter products. This was important because of the need to ensure that there was a means of disposing of the sewage sludge throughout the duration of the PFI contract, which was anticipated to be 25 years. A variety of disposal routes had been considered. The three main options were regarded as agricultural use, landfill or energy recovery. A single route of disposal was not thought to form a secure strategy. The preferred option was to have a "core disposal pathway" which would leave other disposal options available. Complete disposal to agriculture was not regarded as feasible, given the limited land base in the region and the seasonal nature of demand. Landfill was not an adequate solution, as it was impossible to determine that there was sufficient landfill space available: it was preferred as a secondary or emergency option for disposal when all other beneficial uses had been exploited. Energy recovery was therefore considered the most appropriate route.

[8] Three systems for energy recovery were considered: direct drying of raw sewage sludge, followed by co-firing in a coal-fired power station; treatment of raw sewage sludge by anaerobic digestion, then drying of the treated sewage sludge, followed by co-firing in a coal-fired power station; and direct drying of raw sewage sludge, followed by gasification (ie the production of methane from the dried sludge), and on-site power generation. Direct drying of raw sludge was mechanically the simplest option for producing WDF. Little plant modification would be required at Longannet. Given the scale of Longannet, there would not be a significant alteration in existing emissions. The calorific value of the dried sewage sludge would be in the same region as some of the lower-grade coals used at Longannet. The increase in the amount of ash produced by Longannet would be minimal. The second option (digestion, drying and co-firing) had the advantage that the process of digestion produced gas which could then be burned to produce the heat required for the drying process (whereas direct drying required the use of natural gas). On the other hand, the calorific value of the digested pellets would fall below 12-14 MJ/kg, which was the threshold for viable use within the power station, "if the system is to be regarded as beneficial with regard to energy production, rather than just providing a disposal route". There was therefore an operating cost (when compared with the first option) associated with the disposal of digested dried sludge through the power station. The third option resulted in the production of a relatively large amount of ash, with a landfill cost. There was also an operational risk, as the technology was untried. The second and third options also involved higher capital costs than the first option. The first option was therefore preferred. The application stated:

The proposed process would involve the thickening of incoming sludges, dewatering of the sludge in centrifuges, further drying of the sludge by heat, and storage of the pellets in silos prior to loading into sealed tankers. The proposed plant was designed to treat up to 65,000 tonnes of sewage sludge per annum (the quantity then produced by Scottish Water at Daldowie and Shieldhall being 63,000 tonnes per annum). The WDF would be delivered to Longannet in the tankers, and discharged pneumatically into a storage tank. The WDF would never be open to the atmosphere, and there would be no danger of any moisture getting to it.

[9] SMW's application explained that, as a result of analysing samples of sewage sludge, Scottish Power had produced an indicative specification which the pellets must meet in order to be acceptable as a WDF for co-firing. The criteria included a minimum calorific value of 12 MJ/kg, a maximum moisture content of 12 per cent and a maximum ash content of 36 per cent. The application stated that the resulting product had a calorific value similar to that of a low-grade coal, "emphasising its role as a viable product to be re-used within the Power Station rather than as a waste requiring disposal". In addition to the rejection criteria listed above, Scottish Power had also proposed "trend parameters" relating to the chemical composition of the WDF. These included maximum concentrations of heavy metals. It was proposed that samples of WDF would be routinely analysed at the sludge treatment centre and certified as being within the specified rejection criteria, and would also be analysed there at intervals to indicate compliance with the trend parameters.

[10] The application acknowledged that the key potential contaminants in sewage sludge were heavy metals, deriving principally from manufacturing industry effluents. It was not practical to remove heavy metal contamination from sewage sludge. If an unauthorised discharge or pollution event was known to have led to the reception of contaminated material within an outlying works, then Scottish Water in consultation with SMW could determine whether the contaminated material would be brought into the sludge treatment centre. Known contaminated sludges brought there would be isolated, and could then be dealt with appropriately depending on the circumstances. The contaminated sludge might, for example, be processed as a single entity, then removed and disposed of; or it might be "drip fed" into the system, so as to dilute the levels of contamination.

[11] In its concluding section, the application stated:

[12] Scottish Power also applied to SEPA in August 1998, under section 11(4)(b) of the 1990 Act, for a variation of the existing authorisation of Longannet. That authorisation had originally been issued on 30 April 1993, and had been varied from time to time. It authorised what it described as "a combustion process" falling within Section 1.3 Part A of Schedule 1 to the Environmental Protection (Prescribed Processes and Substances) Regulations 1991 (SI 1991 No 472), as amended. The conditions attached to the authorisation specified emission limits. The application submitted in August 1998 explained that it related to a proposal to co-fire coal and WDF within boiler units 1 and 2 at Longannet. It was proposed that a new storage tank would accommodate the WDF. The WDF would be discharged from air-tight tankers into the storage tank by means of a blower unit. A relief unit would be attached to the storage tank for safe venting to the atmosphere in the event of a pressure build-up within the storage tank, to guard against the risk of explosion. The dust from the WDF could be described as exhibiting slightly explosive qualities which might result in a weak explosion. It was comparable in this respect with coal dust. Additional infrastructure, including a sealed system to transport the WDF to the existing coal mills, would also be developed. Coal and WDF would be ground together in the coal mills to produce a composite fuel. Each of the two boiler units in question (there being four boiler units altogether at Longannet) would be designed to utilise between 5 per cent and 15 per cent WDF by mass. The application stated that the system had been designed so as to be capable of operating at a maximum fuel input of 85 per cent coal and 15 per cent WDF in each of the two co-firing units "to provide the Station with the operational flexibility required to dispose of 100,000 [tonnes] of WDF per annum", thereby allowing "operational flexibility and security of outlet for the fuel". Under normal operating conditions, however, one boiler unit only would co-fire 90 per cent coal and 10 per cent WDF.

[13] The application explained that a specification had been developed for the WDF to ensure that the WDF did not compromise the station's emission limits or the efficiency of the combustion process. The procedures for checking compliance with the rejection criteria and "trend parameters" were explained. In relation to the trend parameters, the application stated:

The application explained that emissions to the atmosphere of oxides of nitrogen, sulphur dioxide, particulate matter and certain heavy metals were expected to increase as a result of co-firing, but would remain within the station's authorised emission limits. In particular, the predicted emissions of metals in the flue gases from a single co-firing boiler (calculated on the basis that the composite fuel would normally comprise 90 per cent coal and 10 per cent WDF, and at most would compose 85 per cent coal and 15 per cent WDF), compared with emissions from a boiler firing 100 per cent coal, were as follows (in mg/Nm³):

	Coal	Co-firing 10% WDF	Co-firing 15% WDF
Zinc	25	61	80
Copper	7	18	23
Nickel	3	4	5
Chromium	1	2	3
Cadmium	1	2	2
Lead	7	21	29
Arsenic	1	1	1
Selenium	9	11	13
Boron	558	543	535
Mercury	24	31	35

There were predicted to be similar changes in the concentrations of heavy metals in the ash produced by the co-firing boiler. It is to be noted that the effect of introducing 10 per cent WDF, in place of coal, was predicted to be an increase in the emissions of zinc, copper, chromium, cadmium and lead, from the co-firing boiler, of between 100 and 200 per cent. There were predicted to be smaller increases in the emissions of nickel, selenium and mercury, no material change in emissions of arsenic, and a slight decrease in emissions of boron. All of the predicted changes became proportionately smaller when the gases or ash produced by the station as a whole were considered, since it was envisaged that only one of the station's four boilers would be used for co-firing at any one time. The application noted that sewage sludge from the treatment of municipal waste waters had been excluded from the scope of Directive 94/67/EC on the incineration of hazardous waste, on the basis that it was not hazardous.

[14] On 11 December 1998 SEPA issued to Scottish Power a notice of variation of the authorisation relating to Longannet, under section 11(8)(b) of the 1990 Act. The notice varied the authorisation, with effect from 15 December 1998, by amending the description of the authorised process and the conditions of the authorisation. In particular, the description was amended so as to state:

The description of the authorised process also set out the arrangements for the delivery and storage of the WDF, as described in Scottish Power's application, and referred to that application as containing a more detailed description of the process. Ten new conditions were inserted in the authorisation, relating to the burning of WDF. They included conditions requiring the periodic analysis of samples of WDF for heavy metals, and the periodic measurement of concentrations of heavy metals in the flue gases and fly ash from the boilers into which WDF was fed, both with and without the feeding of WDF. There were also conditions limiting the amount of WDF burned annually to a maximum of 100,000 tonnes, and limiting the proportion of WDF in the fuel fed into any boiler at any time to a maximum of 15 per cent. The emission limits specified in the authorisation were not altered.

[15] On 21 January 1999 SEPA issued to SMW an authorisation in respect of the sludge treatment centre, under section 6 of the 1990 Act. The authorisation took effect on 31 January 1999. In describing the authorised process, it stated:

The description of the authorised process also set out the arrangements for the storage and export of the WDF, as described in SMW's application, and referred to that application as containing a more detailed description of the process.

[16] On 6 December 1999 SMW entered into a contract with Scottish Water to design, build, finance, operate and maintain a sludge treatment centre at Daldowie, to design and build a purifying station at Shieldhall and a sewer between Shieldhall and Dalmarnock, and to provide sludge treatment services to Scottish Water, over a term of 24 years. Extracts from the contract, and from related contracts (including that between SMW and Scottish Power, discussed below) were produced in the present proceedings. It appears that, under the contract, SMW is paid fees by Scottish Water for the receipt of the sewage sludge at the sludge treatment centre, and for the treatment processes provided there. The contract includes a provision (Schedule 4, Part D, paragraph 1.3) in terms of which SMW is required to:

A further provision (Schedule 4, Part D, paragraph 2) stipulates:

The contract also defines (in Schedule 1) the expression "Sludge Specification Limits" as meaning the limits specified in certain tables "as relaxed from time to time by Scottish Power UK plc under the Scottish Power Offtake Agreement". The tables referred to contain, amongst other matters, annual rolling limits in respect of the concentration of heavy metals.

[17] By a letter of offer dated 25 November 1999 and an acceptance dated 20 December 1999, Scottish Power entered into a contract with SMW to purchase all treated sewage sludge granules or pellets produced at the sludge treatment centre in accordance with SMW's contract with Scottish Water, up to a maximum of 70,000 tonnes per annum, for co-burning at Longannet. The contract includes a specification which the sludge granules have to meet, setting limits for the concentration of heavy metals (and other substances) identical to the sludge specification limits stated in SMW's contract with Scottish Water. Scottish Power purchases the WDF at a delivered price of £5.50 per tonne, subject to adjustment according to a number of factors, including the calorific value of the delivered fuel, and the current market value of coal.

[18] The sludge treatment centre was constructed, at a cost of around £65m, and began operation in 2002. Each year it converts around 2.3 million cubic metres of sewage sludge into 55,000 tonnes of WDF, which is then co-fired with coal at Longannet. At the start of the process, the sludge is a malodorous and biologically active liquid with only 3 per cent solid content. It does not undergo digestion processes, which are generally used where sludge is to be disposed of to agriculture or landfill, since digestion would reduce the calorific value. It is screened, to remove debris. A polyelectrolyte solution is added, to assist in the separation of solid and liquid in subsequent processes. The sludge is homogenised in buffer tanks, then pumped to centrifuges. The centrifuges extract much of the liquid, to produce a stream of waste water and a sludge cake of 30 per cent dry content. Most sludge treatment processes in the United Kingdom stop at this stage. At the next stage, the sludge cake is mixed with granules of recycled WDF and then dropped into a drying drum, where the mixture is dried by a hot air stream at a temperature of 450 degrees Celsius. The drum's moving surface prevents the substance from sticking, while a rolling action encourages the formation of granules. The material is retained at this temperature for up to 20 minutes in order to kill germs. As the temperature is above the flash point of the WDF, oxygen levels in the system are reduced to low levels (since the WDF requires oxygen to burn). The oxygen level is monitored. A temperature sensor monitors the temperature of the air and fuel mixture leaving the drum, and computers regulate the burners which heat the air in the drum, so as to maintain the heat input and the dryness of the product at the required level. The dried granules are carried on an airstream to a filter, where they are separated from the drying air and cooled. WDF samples from each of the six dryers are tested after each shift to check for dryness. Composite samples from the day's production are also tested for size and dust content. Each week, composite samples are also tested at off-site laboratories for compliance with the "trend parameters". At the end of the production cycle, the WDF is graded according to the size of the granules. Any material which has been treated inadequately or is the wrong size is returned to the system for reprocessing. Material which fails to meet Longannet's specification in terms of pathogen content, calorific value, granule size or dryness is discarded. WDF which is satisfactory is further cooled and passed via a stream of air to storage silos.

[19] Samples of WDF from the sludge treatment centre were produced in the present proceedings. Two samples were in accordance with Scottish Power's specification. The material consisted of small pellets, which were dark brown in colour, and had a slight but distinct odour. A third sample, which was not in accordance with the specification, consisted of much larger pieces, which were more obviously dried sewage, and had a stronger odour.

[20] The necessary plant and equipment were also installed at Longannet, at a cost of around £6m, and co-firing began. The WDF is transported to Longannet in road tankers suitable for the carriage of volatile products: like other fuels, the WDF requires particular handling and storage conditions to prevent explosion or spontaneous combustion. The WDF is unloaded by pneumatic conveying to storage silos. From the silos, the WDF is conveyed to feeding equipment which is dedicated to feeding Unit 1 or Unit 2 (the two boilers which have been converted to co-fire WDF). It is then mixed with coal. The mixture is then ground in mills to a fine powder, before the mixed fuel is blown into the boiler to generate electricity. The relative proportions of coal and WDF in the mixture are regulated so as to achieve the optimum mixture having regard to the requirements of the station and the output of electricity required from time to time. In practice, Scottish Power normally uses around 10 per cent by weight of WDF in the mixture. As already explained, it is limited to a maximum of 15 per cent by its authorisation. The WDF has an average gross calorific value of 16-17 MJ/kg. The ash produced by burning the mixture of WDF and coal is handled in the same way as ash produced from the combustion of coal alone. Scottish Power has installed odour masking equipment next to the area where the WDF and coal are milled.

[21] An example was produced by Scottish Power in the present proceedings of an analysis of a sample of WDF produced at the sludge treatment centre. The concentrations of certain metals, in parts per million, were as follows:

Zinc	284
Copper	91.4
Lead	84.4
Selenium	1.6
Mercury	0.65

In Scottish Power's application to SEPA the corresponding average figures, for coal fired at Longannet, were as follows:

Zinc	14
Copper	7
Lead	6
Selenium	less than 1
Mercury	less than 1

The typical range of concentrations of the first three of these metals within coals were said to be as follows:

Zinc	5-300
Copper	0.5-50
Lead	2-80

It appears from these figures that the concentrations of zinc, copper and lead found in the sample of WDF were far higher than the average levels found in coals previously fired at Longannet. The figure for zinc was close to the maximum concentration found in typical coals, and the figures for copper and lead were above the maximum concentrations. The corresponding figures for the composite fuel used at Longannet were nevertheless predicted to be below the maximum concentrations (although well above the average levels in coal used there), because the WDF would typically form only 10 per cent of the composite fuel.

[22] In 2000 SMW applied to SEPA for a permit in respect of the sludge treatment centre under the Pollution Prevention and Control Act 1999 and regulation 7 of the Pollution Prevention and Control (Scotland) Regulations 2000 (SSI 2000 No 323), as the 1999 Act and the 2000 Regulations were to become applicable to the sludge treatment centre in place of the 1990 Act and the 1991 Regulations. On 15 January 2003 SEPA issued such a permit to SMW. Paragraph 1.2 of the permit described the permitted activity carried out at the sludge treatment centre as:

The application and permit were, so far as material, in generally similar terms to the previous application and authorisation under the 1990 Act.

[23] Further notices of variation of the Longannet authorisation were issued by SEPA to Scottish Power from time to time. A variation notice dated 1 February 2001, issued under section 10(2) of the 1990 Act, amended schedule 1 (the description of the authorised process) and replaced all the conditions. In schedule 1, the amended paragraph 1.1 stated that the process was a prescribed process "as it fits the description in section 1.3, paragraph (a), of the 1991 Regulations" As before, the description of the authorised process included a description of the arrangements for delivery and storage of the WDF. The conditions included eleven conditions relating to the burning of WDF. As before, the conditions required the periodic analysis of the WDF for heavy metals, and the periodic measurement of heavy metals in the flue gases and fly ash from the boilers into which WDF was fed, both with and without the feeding of WDF. The conditions also limited, as before, the annual tonnage of WDF burned, and the proportion of WDF burned by any boiler at any time. A further variation notice, dated 9 April 2002, added further conditions relating to the burning of WDF, including a requirement that olfactory assessments be made around the boundary of the coal plant whenever there was WDF present on the bing.

[24] By letter dated 10 October 2002 SEPA wrote to Scottish Power to inform it of a decision which SEPA had taken regarding Directive 2000/76/EC on the incineration of waste and its application to Longannet. The letter stated that SEPA was of the opinion that the directive applied to the use of dried sewage sludge as a fuel at Longannet. The sewage sludge had been discarded by Scottish Water and was therefore waste, within the meaning of Directive 75/442/EEC on waste. The combustion of the dried sewage sludge at Longannet constituted the recovery operation R 1 ("use principally as a fuel or other means of generating energy"), as defined in Directive 75/442. The material was therefore waste up to the point when it was used as fuel. A complete recovery operation did not take place at the sludge treatment centre, and the sewage sludge therefore did not cease to be waste there. Since it did not cease to be waste until it was combusted, Directive 2000/76 applied. SEPA therefore intended to vary the Longannet authorisation so as to require Scottish Power to implement Directive 2000/76 with effect from 28 December 2005.

[25] This intention was reiterated by SEPA in a letter dated 30 July 2003. It stated that, since the incineration of dried sewage sludge at Longannet involved the incineration of waste at an existing waste incineration installation, the Waste Incineration (Scotland) Regulations 2003 (SSI 2003 No 170) and the Waste Incineration Directive (Scotland) Direction 2003 applied. SEPA was therefore bound to include a condition in the Longannet authorisation requiring Scottish Power to make an application for variation of the authorisation, under regulation 3 of the 2003 Regulations, by 31 March 2005.

[26] On 19 November 2003 SEPA issued to Scottish Power a notice of variation of the Longannet authorisation, under section 10(2) of the 1990 Act, with effect from 24 November 2003. SEPA's covering letter stated that the notice of variation had been issued in implementation of paragraph 3 of the 2003 Direction. The variation added the following new condition to the authorisation:

This variation notice is challenged in the present proceedings.

[27] I was informed, and it was not disputed, that Longannet is the only power station in the United Kingdom which burns sewage sludge in any form. Incineration, with energy recovery, is however a recognised method of disposing of sewage sludge. I was informed that there is a cement kiln in England which burns sewage sludge in a broadly similar form, and that there are a number of incinerators in England where sewage sludge, dried to a lesser degree, is burned, and where the energy released is used to generate electricity.

[28] The legislative framework under which the processes at the sludge treatment centre and Longannet are regulated derives partly from domestic legislation and partly from Community law, and is of some complexity.

[29] As explained above, Longannet is operated under an authorisation granted by SEPA under the 1990 Act and the 1991 Regulations made under that Act. Section 2(1) of the 1990 Act provides:

Section 6 provides:

Section 7 provides:

Section 10 provides:

Section 11(1) enables a person carrying on a prescribed process under an authorisation to notify the enforcing authority if he wishes to make a change in the process. Under section 11(2), the enforcing authority must then determine whether the change would involve a substantial change in the manner in which the process is being carried on, and whether it would be likely to vary the conditions of the authorisation as a result of the change, and notify the holder of the authorisation of its determination. Section 11 continues:

[30] As explained above, Scottish Power was granted an authorisation by SEPA, under section 6 of the 1990 Act, to carry on a combustion process at Longannet, prior to the introduction of co-firing of coal and WDF. In order for co-firing to be introduced, Scottish Power applied for a variation under section 11(4)(b). A variation notice was issued under section 11(8)(b) on 11 December 1998. The authorisation was subsequently further varied, in particular by a variation notice issued under section 10(2) on 1 February 2001. The present proceedings are concerned with the vires of a variation notice issued under section 10(2) on 19 November 2003, purportedly in compliance with a direction issued by the Scottish Ministers under section 10(6). As was also explained above, SMW was granted an authorisation by SEPA, under section 6 of the 1990 Act, to carry on the process of drying undigested sewage sludge for use as a solid fuel, at the sludge treatment centre. That authorisation was subsequently replaced by a permit under the 1999 Act, discussed below.

[31] The 1991 Regulations were made under section 2 of the 1990 Act. Regulation 3 provides:

[32] In Schedule 1, Chapter 1 is headed "Fuel Production Processes, Combustion Processes (Including Power Generation)". It includes the following:

Paragraph (c) of Section 1.3 Part A covers the burning in less powerful appliances of "any fuel manufactured from, or comprising, any ... waste", implying that a fuel may comprise waste (within the meaning of the Regulations). Chapter 5 is headed "Waste Disposal and Recycling". It includes the following:

[33] Schedule 2 to the 1991 Regulations provides rules for the interpretation of Schedule 1. In particular, rule 4 provides:

Rule 8 provides:

[34] As explained above, the authorisation in force in relation to Longannet describes the process there as fitting the description in paragraph (a) of Section 1.3. The authorisation originally granted in relation to the sludge treatment centre (and subsequently superseded by a permit under the 1999 Act) described the process as one described in Section 5.3.

(3) The Pollution Prevention and Control Act 1999
[35] Sections 1 and 2 of the 1999 Act enable the Secretary of State (or the Scottish Ministers) to make regulations for a variety of purposes connected with environmental pollution. These include, in terms of paragraph 4 of Schedule 1 to the Act:

[36] The 2000 Regulations were made by the Scottish Ministers under the 1999 Act. They apply to "installations" and mobile plant, the expression "installation" being defined by regulation 2 as including:

Regulation 6 provides:

[37] In Part 1 of Schedule 1 (as it stood prior to amendment by the Waste Incineration (Scotland) Regulations 2003), Chapter 1 is headed "Energy Industries". It includes the following:

Chapter 5 is headed "Waste Management". It includes the following:

[38] Schedule 3 sets out how the "prescribed date" is to be determined. In relation to existing Part A installations (such as Longannet and the sludge treatment centre), a "relevant period" is specified. Where an application for a permit is made before or during the relevant period, the prescribed date is the date when the application is determined. Where no such application is made, the prescribed date is the day after the date on which the relevant period expires. In relation to Section 1.1, Part A, the relevant period ends on 31 March 2006. In relation to Section 5.1, Part A, the relevant period ends on 31 August 2005. In relation to Section 5.5, Part A, the relevant period ended on 31 March 2004.

[39] Schedule 10 amends the 1991 Regulations so as to exclude from their scope a process which is covered by a permit issued under the 2000 Regulations, or which requires such a permit.

[40] As explained above, a permit was issued under the 2000 Regulations in January 2003 in respect of the sludge treatment centre, in which the activity carried on there was stated to be that described in Part A of Section 5.5. From that point, the sludge treatment centre therefore fell outwith the scope of the 1991 Regulations.

[41] Reference was made in parties' submissions to the Renewables Obligation (Scotland) Order 2002 (SSI 2002 No 163). This order, made under sections 32 to 32C of the Electricity Act 1989, imposes an obligation ("the renewables obligation") on all electricity suppliers supplying electricity in Scotland to produce certificates, at annual intervals, showing that specified amounts of electricity generated from renewable sources have been supplied to customers in Great Britain during an earlier twelve month period. Renewable sources include "biomass", which means fuel derived from plant or animal matter, including sewage. A proportion of the renewables obligation can be satisfied by the production of certificates issued in respect of generating stations which have been fuelled partly by fossil fuel (such as coal) and partly by biomass. A supplier can produce a certificate which was originally issued to another supplier in respect of electricity generated from renewable sources by that supplier. There can thus be a trade in certificates. A supplier which fails to produce the requisite certificates must make a payment in default. Such payments are aggregated and then divided amongst the suppliers which have produced certificates, in proportion to the amount of electricity covered by the certificates which each supplier has produced. The certificates thus have a value. The effect of the regime established by the order is accordingly that "biomass", such as WDF, has a value as a fuel used for generating electricity additional to its intrinsic value as a source of energy.

[42] The 2003 Regulations are intended to implement Directive 2000/76.

[43] Regulation 3, so far as material, provides:

[44] Regulation 2 defines a number of the expressions used in regulation 3. In particular, it provides:

"Relevant approval" is defined as meaning inter alia an authorisation granted under section 6 of the 1990 Act. Regulation 2 also provides that expressions defined in the 2000 Regulations are to be given the same meaning in the 2003 Regulations.

[45] Regulation 6 inserts into regulation 2 of the 2000 Regulations a definition of the expression "waste incineration installation":

[46] Regulation 9 inserts a new Section 5.1 into Part 1 of Schedule 1 to the 2000 Regulations, in substitution for the original Section 5.1:

[47] It is a matter of agreement in the present case that the WDF is non-hazardous waste. By virtue of regulation 2(3) of the 2000 Regulations, the reference in the new Section 5.1 to Directive 75/442 is to be interpreted as a reference to the directive as amended.

[48] As explained earlier, the variation notice dated 19 November 2003 requires Scottish Power to make an application under regulation 3(2) of the 2003 Regulations. It therefore proceeds on the basis that Longannet is an existing waste incineration installation (other than one mentioned in Section 5.1 of Part 1 of Schedule 1 to the 2000 Regulations), which is subject to an authorisation. As I understand SEPA's position, SEPA considers that Longannet is (in part, at least) an "existing waste incineration installation", as defined in regulation 2 of the 2003 Regulations, because it is a "waste incineration installation" which is a "co-incineration plant" which was in operation before 28 December 2002 following the grant of an authorisation under section 6 of the 1990 Act. Longannet is considered to be a "waste incineration installation", as defined in regulation 2 of the 2000 Regulations (as amended by regulation 6 of the 2003 Regulations), because it includes activities falling within Part 1 of Schedule 1 (in particular, paragraph (a) of Section 1.1) which are carried out in a "co-incineration plant" as defined in Section 5.1 of Part 1 of Schedule 1. Longannet is considered to be a "co-incineration plant", as defined in Section 5.1 of Part 1 of Schedule 1 to the 2000 Regulations (as substituted by regulation 9 of the 2003 Regulations), because it is a plant whose main purpose is the generation of energy and which uses "waste" as a regular or additional fuel. Longannet is considered to use "waste", as defined in Section 5.1 of Part 1 of Schedule 1 to the 2000 Regulations (as substituted by regulation 9 of the 2003 Regulations), on the basis that the WDF is "waste" as defined in Article 1(a) of Directive 75/442. Longannet is therefore considered to fall within the scope of regulation 3(2) of the 2003 Regulations, since:

The step in this reasoning which was challenged at the first hearing in the present proceedings was the proposition that the WDF is "waste", as defined in Article 1(a) of Directive 75/442.

[49] The Waste Incineration Directive (Scotland) Direction 2003 was issued by the Scottish Ministers to SEPA under, inter alia, section 7 of the 1990 Act. It provides:

As explained, earlier, SEPA issued the variation notice dated 19 November 2003 on the basis that it was required to do so by the Direction.

[50] It will be necessary at a later stage to consider the relevant Community legislation in considerable detail. At the present stage, it may be helpful merely to mention the provisions which are central to parties' submissions.

[51] The principal EC instrument is Directive 75/442 (as amended). Article 1 defines certain terms. In particular:

Annex I lists a variety of types of material, the final item in the list being:

Annex II B lists recovery operations, and includes:

[52] Directive 2000/76 contains provisions detailing emission limits for "waste incineration and co-incineration plants". For the purposes of the directive, "waste" has the same meaning as in Directive 75/442. Article 3(5) defines "co-incineration plant" as meaning:

The directive applies to existing plants as from 28 December 2005.

[53] On behalf of Scottish Power, it was submitted that the variation notice at issue, and the antecedent correspondence from SEPA, proceeded on the basis that Longannet fell within the ambit of regulation 3(2) of the 2003 Regulations. Longannet was not however a "waste incineration installation", since the activities carried on there did not include the co-incineration of waste. Since WDF was not "waste" as defined in Article 1(a) of Directive 75/442, it was not "waste" as defined in section 5.1 of Part 1 of Schedule 1 to the 2000 Regulations (as substituted by regulation 9 of the 2003 Regulations). The variation notice was therefore based on an error of law and was ultra vires and should be reduced.

[54] The central question was whether WDF was "waste" when it was used as a fuel in the boilers at Longannet. According to its ordinary meaning, waste was what fell away when one processed a material or an object, and was not the end product which the manufacturing process directly sought to produce: Case C-9/00 Palin Granit Oy and Vehmassalon kansanterveystyön kuntayhtymän hallitus [2002] ECR I -3533 at paragraph 32. The ordinary meaning of "discard" was to throw away as not needed. In the absence of specific Community provisions on proof of the existence of waste, it was for the national court to apply the provisions of its own legal system, while taking care that the objective and effectiveness of Directive 75/442 were not undermined: Joined Cases C-418/97 and C-419/97 ARCO Chemie Nederland Ltd v Minister van Volkhuisvesting, Ruimtelijke Ordening en Milieubeheer [2000] ECR I-4475. The classification of a substance as waste was primarily to be inferred from the actions of the holder of the substance. Did he intend, or was he required, to discard the substance in question? The inter-relationship between discarding, recovery and disposal was not straightforward. The concept of "discard" remained separate form, and primary to, the descriptions of operations of recovery and disposal contained in Annexes IIA and IIB to the directive. Since the decisions of the European Court of Justice in this area were very fact-sensitive, it was important to note the factual circumstances behind decisions, and the facts that were relevant to the present dispute. As observed by Advocate General Jacobs in Case C-129/96 Inter-Environnement Wallonnie ABSL v Région Wallonne [1997] ECR I-7411 at paragraph 80, it might also be useful to consider in this context the considerations set out by the Waste Management Policy Group of the OECD's Environment Directorate's Environment Policy Committee in the Final Guidance Document for Distinguishing Waste from Non-Waste (April 1998; ENV/EPOC/WMP(98)1/REV1).

[55] The relevant factual considerations in the present case were the following. WDF was produced intentionally, as the result of a complex industrial process, and was designed for a particular purpose. The decision by SMW to make WDF resulted from technical, scientific and commercial considerations, and followed trials and experiments into the best way of producing a commercially and environmentally useful product from sewage sludge. The absence of a digestion process at the sludge treatment centre indicated the intention to manufacture a fuel.

[56] WDF was produced in response to a demand in the electricity generating market. Scottish Water required to procure the recovery of as much of its waste water as possible, given the lack of disposal routes under recent legislation. Scottish Power required to find alternatives to coal, particularly as a result of the legislative changes introduced in recent years to encourage the use of non-fossil fuels. The market demand was increased by the fact that the electricity generated by co-burning WDF with coal qualified for renewable obligation certificates under the 2002 Order. Quite apart from the certificates, WDF had an economic value as a cheaper alternative to coal. Scottish Power paid SMW £5.50 per tonne, subject to upward adjustment for inter alia the moisture content and calorific value of the fuel. Thus, as holder of the WDF, SMW obtained an income from each tonne delivered. WDF had earned a place in the normal commercial cycle or chain of utility: see the guidance given as to the application of Directive 75/442 in Scottish Office Environment Department Circular 10/94 (also Department of the Environment Circular 11/94 and Welsh Office Circular 26/94), Annex 2.

[57] The production of WDF was subject to a specification and to quality control and rejection procedures. It also required to meet the standards set for other comparable fuels to be burned in generating stations, such as coal, as regards such matters as handling, calorific value and emissions. As a fuel to be co-burned at Longannet, WDF had been part of the authorisation procedure for the station under the 1990 Act. SEPA had authorised it to be burned, and had imposed the requisite conditions.

[58] The use of WDF had the advantage that it replaced fossil fuels which would otherwise be burnt. This was in line with the policy of EC environmental law, which was to encourage the re-use and recovery of waste as a source of energy. The production of WDF for use as a fuel was preferable, on environmental grounds, to traditional methods of disposal of sewage sludge. WDF could be used in the same way as natural raw materials.

[59] The WDF produced by SMW was certain to be used as a fuel at Longannet. The technical, contractual and economic backgrounds made it imperative that the WDF was burned. The sewage sludge, as received at the sludge treatment centre, was not capable of being burned as a fuel. At the sludge treatment centre, the material suitable for use as a fuel was extracted and processed, with additives added and materials screened out. Various wastes were discarded during the production process. WDF was therefore the product of a completed recovery operation, in terms of Article 3(1)(b)(i) of Directive 75/442 ("the recovery of waste by means of recycling, re-use or reclamation or any other process with a view to extracting secondary raw materials"). When selling WDF to Scottish Power, SMW was not "discarding" it, but was selling it for its certain use for a specific purpose. Scottish Power did not "discard" the fuel, but employed it in its business. For both parties, WDF played a commercial role in the running of their respective businesses. Against this background, WDF was not a waste.

[60] It was not as if the burning of WDF was unregulated. The petitioner was authorised by SEPA to burn WDF at Longannet and had to comply with strict requirements under its authorisation. There would be no regulatory lacuna if WDF were not categorised as waste. Instead, if the variation notice was not reduced, Longannet would be regulated as a waste incineration installation rather than as a power station. As the emission limits applicable to waste incineration were more stringent (due to a difference in the timing of the introduction of such limits in respect of waste incineration and in respect of power generation), Scottish Power would require as a matter of urgency either to incur additional expense, amounting to tens of millions of pounds, in order to instal the equipment necessary to enable Longannet to comply with the emission limits for waste incineration, or alternatively cease buying WDF and instead burn more coal. A cessation of burning WDF at Longannet would neutralise the capital investment made by Scottish Power, SMW and Scottish Water, and it would put an end to an environmentally advantageous end-use of urban waste water.

[61] Scottish Water adopted the arguments of Scottish Power, and added (in their note of argument) some further submissions. In terms of the definition in Directive 75/442, the mark of whether any material was "waste" was the action - actual, intended or required - of the "holder", which must be to "discard" it. The "holder" in respect of any material was defined as "the producer of the waste or the natural or legal person who is in possession of it". The "holder" in the present context was Scottish Power. The attitudes, actions, intentions or requirements of any other party, such as a person who might previously have been a holder of the material, were not directly relevant in assessing whether material was to be regarded as "waste" in the hands of Scottish Power. The concepts of recovery and disposal in Annexes IIA and IIB to the directive were of peripheral interest in deciding whether the material was "discarded" or was to be "discarded" by the "holder" in question.

[62] It would be ridiculous to suggest that Scottish Power "discarded" coal into its boilers. It wanted and needed the coal that it burned. It bought the coal at substantial cost and used it, earning money by selling the resulting electrical output. Its approach to WDF was essentially the same. It needed in particular to find "renewable" fuels as alternatives to coal, as a result of legislative changes introduced in order to encourage the substitution of non-fossil fuels for fossil fuels. Scottish Power was therefore keen that WDF should be manufactured and supplied.

[63] The attitude of Scottish Power as the holder of WDF was to be contrasted with that of others involved in the process whereby WDF came into existence. The individuals and businesses who used the sewerage system were undoubtedly discarding what they put down it. It left them as "waste". Scottish Water was then obliged to dispose of the material. It began to treat the material at its waste water treatment centres, but it required to pay SMW to take the resultant material from it in order that it might be rid of the material. Scottish Water therefore wished to "discard" the material that left its waste water treatment centres. The material in the form of sludge was then received by SMW. SMW had a different attitude to the material. It put the sludge through a series of industrial processes, with the intention of producing not "waste" but a saleable fuel product, which had value to it in a way that the sewage sludge did not. It was undertaking a "recovery procedure", producing a new product: a useful material which could be used to replace other materials. The result was that Scottish Power received delivery not of "waste" but of a completely recovered fuel product, which it treated in the same way as coal.

[64] On behalf of SEPA, it was submitted that WDF was waste and remained waste until it had been burned as fuel for the purpose of generating electricity.

[65] It was accepted that WDF was produced intentionally and, at least for the present, for a specific purpose. It was not disputed that WDF played a commercial role in the running of the respective businesses of Scottish Power and SMW. The WDF was however made to satisfy the requirements of Longannet for WDF, and not for the purpose of satisfying any broader demand; and the requirements of Longannet for WDF were in turn a function of the quantities of sewage sludge available from Scottish Water's treatment works at Daldowie and Shieldhall. The whole of the WDF produced at the sludge treatment centre was used at Longannet, and the whole of the WDF used at Longannet was produced at the sludge treatment centre. It was clear from the applications submitted to SEPA by SMW and Scottish Power that that had been the intention from the outset.

[66] The meaning of "waste" in Article 1 of Directive 75/442 turned on the meaning of the word "discard". That word bore a special meaning. The fact that a processor of a substance obtained an economic benefit from processing the substance did not prevent the substance from being waste. The existence of a market for a substance did not prevent the substance from being waste. Indicators of a substance being discarded, or of an intention to discard, included the following:

[67] In relation to (a), any operations to recover or dispose of waste could involve a number of stages which might involve subjecting the waste to different processes carried out by different operators. In the present case, the relevant recovery operation was listed in Annex IIB as R1: "Use principally as a fuel or other means to generate energy". Drying the sludge and making the pellets were only stages in a recovery operation which was completed once the pellets had been used as a fuel. In relation to (b), burning was a common method of disposing of sewage sludge and recovering energy from it. In relation to (c), sewage sludge (whether dried or not) was generally regarded as waste. It was also necessary, in order to fulfil the aims of the directive, to apply it in such a way as to protect the environment. There was a risk of unforeseen contaminants in urban sewage sludge, since the source of the sludge was aggregated sewage, which might contain all types of contaminants. The presence of such contaminants, and of heavy metals in particular, was unlikely to be detected until after the WDF had been burnt, by which time the pollutants would already have been released to the environment. The typical constituents of WDF in any event included significant concentrations of heavy metals, which were harmful to the environment. The WDF required to be stored in enclosed silos to minimise offensive odours, to prevent windblown dust and to keep the waste dry. If exposed to water, the WDF would absorb it and become re-constituted as sewage. The WDF required controlled disposal or recovery.

[68] It was not inconsistent with the Community's policy of encouraging the recovery of waste, as a source of energy, that the processing, transportation and burning of dried sewage sludge should be regulated in the interests of the protection of the environment. One of the policy aims of Directive 2000/76 was to impose on co-incineration plants the same emission controls as applied to dedicated waste incineration plants.

DISCUSSION
[69] The 2003 Regulations and the 2003 Direction were intended to implement Directive 2000/76, and are therefore to be interpreted, in the context of civil proceedings, so as to achieve that objective: see Case 14/83 Von Colson and Kamann v Land Nordrheim-Westfalen [1984] ECR 1891. They, and the Directive itself, expressly adopt the definition of the term "waste" laid down in Directive 75/442. The issue raised at the first hearing turns on the interpretation and application of that term. Directive 75/442 is therefore the appropriate starting point.

[70] Prior to the Single European Act, the EC Treaty did not make specific provision for a Community environmental policy. The Council nevertheless adopted a series of directives on waste on the basis of Articles 100 and 235 (as then numbered: the corresponding articles in the consolidated version of the Treaty, as amended by the Treaty of Nice, are Articles 94 and 308). The principal of these was Directive 75/442, which was adopted in 1975. It was followed by further directives concerned with toxic and dangerous waste, and with the supervision and control within the Community of the transfrontier shipment of hazardous waste. In 1986 the Single European Act revised the Treaty, introducing (by Article 130r, now Article 174) a specific legal basis for action relating to environmental protection. In 1991 the Council adopted Directive 91/156/EEC, substantially amending Directive 75/442 (which was subsequently further amended by Commission Decision 96/350/EC). It also adopted directives on hazardous waste and on the supervision and control of shipments of waste within, into and out of the Community, replacing the earlier directives on those subjects. Further directives addressing particular issues relating to waste have subsequently been adopted, including, in 1994, Directive 94/76 on the incineration of hazardous waste, and, in 2000, Directive 2000/76 on the incineration of waste. Considered as a whole, current Community legislation on waste can be divided into three main categories: legislation which establishes a general framework within which waste is controlled and managed, in particular Directive 75/442; legislation which concerns particular waste treatment operations, such as Directive 94/67 and Directive 2000/76; and legislation which concerns particular types of waste, such as Directive 94/62/EC on packaging and packaging waste. The definition of "waste" in Directive 75/442 is adopted in other Community legislation and forms the keystone of the Community's legislation on waste.

[71] The principal objectives of Directive 75/442 are indicated by the opening recitals in the preamble:

One objective, therefore, is harmonisation of national laws governing waste disposal, in order to prevent discrepancies between those laws from distorting competition and creating obstacles to trade between Member States. Another objective, described as the essential objective of all provisions relating to waste disposal, is the protection of human health and the environment against harmful effects caused by the collection, transport, treatment, storage and tipping of waste. A further objective is to encourage the recovery of waste, and the use of recovered materials, in order to conserve natural resources. These objectives are inter-related: legislation designed to protect the environment, and requiring the pre-treatment, recovery or recycling of wastes, stimulates trade in waste and waste-processing, and at the same time may distort competition between participants in that trade, and create barriers to that trade, insofar as the legislation is not uniform across the Community.

[72] The recitals in the preamble to Directive 91/156 are also germane, as indicating the objectives of the amendments to Directive 75/442 which were made by that directive. They state at the outset, in the first recital, that "the amendments take as a base a high level of environmental protection". Other recitals include the following:

It appears from the latter recitals, in particular, that one objective is to establish a comprehensive system enabling waste to be monitored from the moment when the substance or object in question becomes waste until the moment when it ceases to be waste.

[73] Article 1 of Directive 75/442 (as amended) defines the terms which are used in the subsequent provisions:

[74] Paragraph (a) of Article 1 thus defines "waste" by reference, first, to "the categories set out in Annex I". Annex I does not contain any specific reference to sewage, but it begins and ends with two general categories:

Any substance or object may therefore potentially constitute waste.

[75] The second sub-paragraph of paragraph (a) refers to a list of wastes to be drawn up by the Commission. Such a list was initially established by Commission Decision 94/3/EC, which was replaced by Commission Decision 2000/532/EC. It is non-exhaustive. The Annex to the decision, which contains the list, begins by stating (in paragraph 1):

The list includes, as item 19.08.05, "sludges from treatment of urban waste water".

[76] Since any substance or object may potentially constitute waste, and the list established by the Commission is non-exhaustive, the critical words in the definition provided by Article 1(a) are those defining "waste" as meaning any substance or object "which the holder desires or intends or is required to discard". A holder may be "required to discard" by contract as well as by legislation (ARCO Chemie Nederland, paragraph 86).

[77] The subject of the verb "to discard" is "the holder", defined by paragraph (c) of Article 1 as meaning the "producer" of the waste or the person who is in possession of it. The term "producer" is itself defined by paragraph (b) of Article 1 as meaning the original producer of the waste or anyone who carries out pre-processing, mixing or other operations resulting in a change in the nature or composition of the waste.

[78] The first obligations laid by the directive upon Member States arise from Article 3:

In summary, therefore, the first obligation is to encourage a reduction in the production of waste, and the second obligation is to encourage the recovery of such waste as is produced.

[79] The term "recovery" is defined by Article 1(f) as meaning any of the operations provided for in Annex IIB, which (as amended by Commission Decision 96/350) itself states:

[80] In relation to R 1, it is apparent that the word "recovery" is being used in a special sense: R 1 refers to an end use of waste, which involves its destruction. The other operations carried out on waste which are mentioned in Annex IIB and which involve subjecting the waste to some physical change (ie R 2 to R 9) are operations carried out on waste in order to derive from it a substance which can thereafter be used in some further process. That distinction between R 1 and recovery operations in a more usual sense reflects the distinction between Article 3(1)(b)(i) and Article 3(1)(b)(ii). The sense in which R 1, as well as R 2 to R 9, can be regarded as a "recovery" operation, was explained by the European Court of Justice in Case C-228/00 Commission v Germany [2003] ECR I -1439:

[81] It is apparent from Article 3(1)(b), and from the list of operations in Annex IIB, that "waste" is not necessarily without economic value. Indeed, since most if not all waste materials have some economic value somewhere in the world, to define "waste" as material which had no economic value would be destructive of the concept of waste. In addition, since waste which is the subject of recovery must be material which the holder "discards or intends or is required to discard" (otherwise it would not be waste), it appears that the term "discard" in Article 1(a) must be construed in a manner which encompasses such uses of waste as are mentioned in Article 3(1)(b) and in Annex IIB. In particular, since it is apparent from item R 1 in Annex IIB, and from Article 3(1)(b)(ii), that one method of recovery of waste is its use as a fuel to generate energy, it follows that a person who uses waste as a fuel to generate energy must be regarded as "discarding" the waste within the meaning of Article 1(a). It appears from item R 3 that the recycling or reclamation of organic substances is another form of recovery operation, and that the person who recycles waste or reclaims substances from it is also to be regarded as "discarding" the waste. In their submissions, Scottish Power argued that SMW carried out a recovery operation at the sludge treatment centre which was of the kind described in R 3 (or was at least analogous to an operation of the kind described in R 3), in producing WDF from sewage sludge. On that approach, SMW "discard" waste when they produce WDF from sewage sludge. SEPA, on the other hand, maintained that no recovery operation was completed until the WDF was burned at Longannet, that being an operation falling within R 1. On that approach, Scottish Power "discard" waste when they use WDF as a fuel to generate electricity.

[82] Further obligations are imposed on Member States by Article 4:

It appears from the first paragraph of Article 4, which may be regarded as the core provision of the directive (Case C-494/01, Commission v Ireland, Opinion of Advocate General Geelhoed delivered on 23 September 2004, paragraph 32) that waste must always be either recovered or disposed of. One implication of the second paragraph of Article 4 is that the meaning of the word "discard", as used in the definition of waste, is not confined (as it might be in its ordinary meaning) to "abandonment, dumping or uncontrolled disposal", but extends to recovery and disposal. The waste handling and processing industry, which exists to carry out disposal and recovery operations, is therefore to be regarded as having the intention to "discard" the waste (and is on that basis to be regulated in accordance with the directive), even though it has no intention of abandoning or dumping the waste which it handles or processes.

[83] The term "disposal" is defined by Article 1(e) as meaning any of the operations provided for in Annex IIA, which itself states:

It appears from items D 10 and D 11 that a distinction can be drawn for the purposes of the directive (as the Court explained in Case 228/00 Commission v Germany and in Case 458/00 Commission v Luxembourg [2003] ECR I-1553) between the incineration of waste, which is a disposal operation, and the use of waste principally as a fuel to generate energy, which is a recovery operation.

[84] Article 6 requires Member States to establish or designate the competent authority or authorities to be responsible for the implementation of the directive. Article 7 provides that the competent authorities are to be required to draw up waste management plans, which are to relate in particular to "the type, quantity and origin of waste to be recovered or disposed of". This is a further indication that all waste must be either recovered or disposed of.

[85] Subsequent articles of the Directive set out the key instruments for achieving the objectives set out in Article 4. Article 8 provides:

Articles 9 and 10 require that undertakings and establishments carrying out operations specified in Annex IIA or Annex IIB must obtain a permit from the authority established under Article 6. Under Article 12, professional waste collectors, transporters and brokers are to be registered. Articles 13 and 14 make provision for the inspection of operators within this system and for access to their records.

[86] The interpretation of Directive 75/442, and in particular of the meaning of "waste", has been considered on a number of occasions by the European Court of Justice. The earliest decision which requires to be noted is that in Cases C-206/88 and C-207/88, Vessoso and Zanetti [1990] ECR I -1461, which concerned the collection and storage of materials which had been disposed of but which were capable of economic reutilisation. The Court noted that the fourth recital in the preamble to the directive (then in its original version) stressed the importance of encouraging the recovery of waste and the use of recovered materials, and that these matters were dealt with in Articles 1 and 3. It was clear from those provisions that a substance of which its holder disposed might constitute waste within the meaning of the directive even when it was capable of economic reutilisation. The Court concluded (at paragraph 9):

The Court further concluded (at paragraph 13):

This decision was followed in a further case, Case C-359/88 Zanetti and Others [1990] ECR I-1509, which was heard along with the two other cases and arose out of similar circumstances.

[87] The same approach was followed by the Court in Case C-422/92, Commission v Germany [1995] ECR I -1097, where the issue was whether the Federal Republic had failed to implement the directive by excluding from the scope of its national law on waste material which was collected on a commercial basis for the purpose of re-cycling or re-use. In his Opinion, Advocate General Jacobs described the directive as establishing "a comprehensive system for waste management", under which Member States must ensure that any holder of waste either recovered or disposed of it himself, or had it handled by a waste collector or by an undertaking which carried out the operations listed in Annex IIA or Annex IIB. He noted that the Court's reasoning in Vessoso and Zanetti applied a fortiori to the amended directive. He concluded (at paragraph 33):

The Court repeated what it had said in Zanetti and Others.

[88] The definition of "waste" in the amended directive was considered in Joined Cases C-304/94, C-330/94, C-342/94 and C-224/95 Tombesi and Others [1997] ECR I -3561. Preliminary rulings were sought in a number of cases in which persons had been charged with offences under national laws relating to waste. In the first case, which can be taken as typical, the defendant had been charged with transporting waste without an authorisation, and had argued that the material in question - scrap metal - was not waste.

[89] The Court dealt with the issue briefly, referring to Articles 8, 10 and 12 to 13 of the amended directive, and to Annexes IIA and IIB, and concluding (at paragraph 52):

[90] Although the approach suggested in that case by Advocate General Jacobs to the definition of waste was not fully endorsed by the Court, there are nevertheless observations in his Opinion which are of assistance in understanding the issues. In particular, at paragraph 50 he said:

[91] The Advocate General inferred that the scope of the term "waste" therefore depended on what was meant by "disposal operation" and "recovery operation", and that the difficulty in defining "waste" could be overcome by focusing on the treatment operations. It was that inference which was implicitly rejected by the Court. As Advocate General Jacobs observed, the terms "disposal operation" and "recovery operation" were not exhaustively defined by Annexes IIA and IIB; and items might be subjected to an operation described in Annex IIA or Annex IIB without necessarily being waste (eg coal burnt as fuel to generate electricity is subjected to an operation of the kind described in R 1). To define "discarding" a substance solely by reference to whether the substance was subject to a disposal or recovery operation mentioned in Annex IIA or Annex IIB therefore involved an element of circularity, as Advocate General Jacobs recognised (at paragraph 55):

Consequently, that approach did not clarify the meaning of waste (as the Court has subsequently stated: Case C-457/02, Niselli, 11 November 2004, paragraph 36). Advocate General Jacobs also pointed out that there could be particular difficulty in distinguishing between a by-product of an industrial process which was then subjected to a further process, and a production residue (i.e. a product not in itself sought for a subsequent use) which was then subjected to a recovery operation: the latter, but not the former, being "waste" within the meaning of the directive. Several of the subsequent cases have concerned the drawing of that distinction.

[92] Advocate General Jacobs considered these matters further in Inter-Environnement Wallonie. His Opinion in this case, delivered before the Court had given judgment in Tombesi, followed the same approach as his earlier Opinion, seeking to define "waste" by determining whether the material was subjected to a disposal operation or a recovery operation; but, as has been mentioned, that approach was not endorsed by the Court. Another aspect of Advocate General Jacobs's Opinion was however founded on by counsel for Scottish Power. Reference had been made, in the submissions in Inter-Environnement Wallonie, to an OECD discussion document providing guidance on the criteria which might be relevant in distinguishing between waste and non-waste in the context of an OECD decision. The guidance was based on a comparative survey of the relevant law and practice of OECD countries. The criteria included the following:

In that regard, Advocate General Jacobs observed:

[93] In its judgment in Inter-Environnement Wallonie the Court went somewhat further than in earlier cases in offering guidance as to the distinction between the discarding of waste within the meaning of the directive and the processing of non-waste products:

[94] The Court's statement that the meaning of the term "waste" depends on the meaning of the term "discard" has been repeated in subsequent cases. Although Directive 75/442 does not provide any decisive criteria for determining whether the holder of a substance intends to "discard" it within the meaning of the directive, the Court has, in subsequent cases, provided a number of indicators from which it may be possible to infer the holder's intent. Some of these cases have concerned the distinction between the recovery of a production residue and the further processing of a by-product. Others, which are more directly relevant to the present case, concern the question whether a substance which was undoubtedly waste at one time has ceased to be waste.

[95] The first case in the latter category is ARCO Chemie Nederland Ltd. Dutch courts had sought preliminary rulings in two cases concerned with materials used as a fuel. One case concerned a by-product of a manufacturing process, known as LUWA-bottoms, which was used as a fuel in the cement industry. The second case concerned wood residues from the construction and demolition sectors delivered in the form of wood chips, which were powdered and then used as a fuel to generate electricity. An electricity company had been granted authorisation to change the operation of its power station so as to transform the wood chips into powder and use it as a fuel. The authorisation stipulated that certain quality specifications had to be agreed in respect of the wood chips, and in particular limits were fixed for the concentrations of certain substances. Reference was again made in the submissions to the OECD document.

[96] In its judgment, the Court began by re-stating, and expanding upon, the principles laid down in Vessoso and Zanetti and Inter-Environnement Wallonnie:

[97] The Court then considered the first question referred in both cases, namely whether it could be inferred from the mere fact that a substance such as LUWA-bottoms or wood chips underwent an operation referred to in Annex IIB that the substance had been discarded and was therefore to be regarded as waste for the purposes of the directive. The Court answered that question in the negative:

[98] The Court next considered whether it was necessary to take into consideration the fact that the substances in question were commonly regarded as waste or the fact that the substances could be recovered in an environmentally responsible manner for use as fuel without substantial treatment. In that regard, the electricity company argued that substances destined to be used in a production process which was the same as, or analogous to, that undergone by primary raw materials should not be regarded as waste, provided that the use of the substances concerned did not have a more adverse effect on human health and the environment than the use of primary raw materials. The Court responded:

As appears from this passage, the classification of material as waste is not dependent on its economic value, its fitness for re-use, its subjection to an operation mentioned in Annex IIA or Annex IIB to the directive, or the fact that it is capable of being used in an environmentally responsible manner. There are on the other hand a number of indicators, some of which were mentioned by the Court in paragraph 73, from which an intention to "discard" within the meaning of the directive can be inferred. It is however necessary to have regard to all the factual circumstances and to the aims of the directive, and to the overall policy (noted in paragraph 39) to aim at a high level of protection of the environment.

[99] The Court made further observations about relevant indicators of an intention to discard, in the context of distinguishing between the subjection of a production residue to a recovery operation, on the one hand, and the further processing of a by-product, on the other hand: