Coillte Teoranta, the State forestry company, will lose up to €39 million in EU grants as a result of a European Court judgment which found that only farmers were entitled to the payments.
The company will also have to pay back more than €8 million it has already drawn down under the scheme and, according to the Green MEP, Ms Patricia McKenna, taxpayers will have to foot this bill.
Friends of the Irish Environment (FIE), which took the case to Europe, described the court's judgment as a "relentless dismissal" of Ireland's claim that Coillte was entitled to avail of the grants scheme.
The scheme was intended to compensate farmers and other private individuals for loss of income during the non-productive period of afforested agricultural land until newly planted trees matured.
But FIE said Coillte had claimed grants for loss of income from land the company had only just bought from farmers, and had used the funding stream to borrow funds to purchase more land. "The total illegitimate funding involved should have continued up to 2013, by which time the planting up to 2000 alone would have paid Coillte Teoranta £37.3 million [€47.4 million\]," according to the group.
As the Government had participated in the negotiations on the funding package, the European Court said it "must have known" the grants were "not intended for public undertakings like Coillte".
The issue was first raised in 1997 by Mr Tony Lowes, director of FIE, but the payments were defended by the then minister for the Marine and Natural Resources, Mr Michael Woods, and by the EU Commission.
A year later, however, the Commission sought a clawback of the £6.5 million (€8.25 million) paid out under the scheme after concluding that the payments were "illegitimate", as FIE had claimed.
In the company's annual report for 2000, Coillte's chairman, Mr Ray McSharry, said the loss of this money "would be a very serious matter indeed" and would "put a strain on the company's borrowings".
The latest Forest Network Newsletter claims that as a result of the loss Coillte has entered a phase of "asset stripping" by prematurely felling valuable timber and amenity forests.
Coillte's spokesman, Mr Gerry Egan, described this claim as "simply untrue". He said the company was "obviously disappointed" by the judgment which, he stressed, was against Ireland rather than Coillte itself.
Ms McKenna, who raised the issue with the EU Commission in 1998, welcomed the judgment but said taxpayers "should not have to foot the bill for Coillte's actions" which, she said, were "irresponsible".
