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Can Courts Oblige States to Increase Greenhouse Gas Emission Cuts? Urgenda vs. Dutch State

Posted in Uncategorized

On September 23, the Dutch Government appealed a decision* of the District Court in The Hague that obliges the Dutch State to reduce its greenhouse gas (“GHG”) emissions by at least 25%, instead of the currently envisaged 17%, compared to 1990 levels.  The decision is unique in its kind in Europe: it forces a government to change its policies in pursuit of more ambitious climate change targets on the basis of the State’s “duty of care.”  The ruling comes at a time where NGOs in Europe are becoming increasingly active in pressuring governments to tighten environmental regulations.


The European Emissions Trading Scheme (“ETS”) establishes EU-wide GHG emission reduction targets for 2020.  All industrial sectors covered by the ETS Directive must reduce their emissions by 21% compared to 2005 levels.   Sectors not covered by the ETS, such as buildings, agriculture and transport, (i.e., sectors covered by the Effort Sharing Decision) must achieve a reduction of 16% compared to 2005 levels.

These EU targets translate – roughly speaking – into a 14-17% GHG emission reduction target for The Netherlands by 2020 compared to 1990 levels.  In line with this target, the current Dutch climate policies are expected to achieve a 17% GHG emission reduction by 2020.  This is considered a fact in the District Court ruling, and is not disputed by either party.

Urgenda vs. Dutch State: the Decision

The Urgenda Foundation, a Dutch citizens platform promoting sustainability, asked the District Court to declare that the Dutch State is acting unlawfully because its policies will not achieve a reduction of GHG emissions of “40%, or in any case at least 25%” by 2020 compared to 1990, and to order the government to achieve such a reduction.  These numbers are based on reports of the Intergovernmental Panel on Climate Change (“IPCC”) that advise on the need to reduce emissions by at least 25% and preferably up to 40% by 2020 to limit the increase of global temperature to no more than two degrees.

Duty of Care

 The central concept in the Court’s legal reasoning is the Dutch State’s “duty of care.”  The Court held that the State has such obligation, based on the Dutch Constitution and an analogous application of the doctrine of “hazardous negligence” (in Dutch “gevaarzetting”).  This legal doctrine originates in a Dutch court decision that held that employers have a responsibility to take the necessary measures to prevent danger.

International Law: No Direct Effect but Interpretation Tool

The Court extensively refers to international and European environmental rules and standards, including IPCC reports, the UN Framework Convention on Climate Change, the no harm principle (which is the second principle under the Rio Declaration on Environment and Development), the precautionary principle, and article 191 of the Treaty on the Functioning of the European Union (TFEU).  While the Court acknowledges that Urgenda cannot directly rely on these principles and rules, it holds that they serve as a tool to interpret the “duty of care” obligation of the Dutch State.  In other words, according to the Court, these principles serve as a frame of reference to establish whether the Dutch State has a “duty of care” in the context of climate change policies.

After a lengthy analysis of these international norms and “current climate science,” including IPCC reports, the Court holds that mitigation is necessary, and that, from a cost-effectiveness perspective it is “better to act adequately now than to postpone actions.”  On that basis, the Court concludes that the State has a duty of care “to mitigate as quickly and as much as possible.”

Government Discretion?  

 The Court acknowledges that, within its duty of care, the Dutch government has discretion as to how it wants to achieve its policy objectives.  However, it considers that this discretion is limited in view of the “particular danger of climate change.”

Two points are particularly interesting:

First, the Court dismisses the State’s argument that increased Dutch efforts make little difference on a global scale as Dutch emissions only account for 0.5% of emissions worldwide.  Inspired by the international environmental law principle of “ common but differentiated responsibilities”, the Court holds that the Netherlands have a duty to take significant measures to mitigate climate change.

Second, the Court also dismisses the State’s argument that the Netherlands cannot go beyond the EU ETS reduction target of 21% compared to 2005 levels.  According to the Court, the ETS does not prevent EU Member States from pursuing higher GHG emission cuts, and reminds the Dutch State that these cuts can also be achieved through measures outside the ETS scheme.  By way of example, the Court refers to renewable energy measures in Denmark and the “carbon price floor tax” in the United Kingdom.   In view of the government’s existing yet limited discretion, the Court decides to impose an obligation to “only” achieve a 25% emission reduction by 2020.  It does so based on the “scientifically accepted norm” of a necessary reduction of at least 25%.

Separation vs. Balance of Powers

 The Dutch State (and several commentators) have argued that the Court is violating the separation of powers between the executive, the judiciary and the legislative branch of government by imposing policy objectives on the executive.  The Court dismisses this in no more than a few paragraphs.  It holds that in the Netherlands, there is a “balance” rather than a “separation” of powers, and therefore, courts have a duty to keep the executive in check, while respecting its discretionary powers.  According to the Court, its ruling does just that, because it “only” imposes a reduction target of 25% and allows the State to choose the measures for reaching that target.

Trend in Europe?

 The Urgenda ruling embodies a trend in Europe whereby NGOs are becoming more knowledgeable and active when it comes to using litigation in order to influence climate change and environmental policies.  For example, recently, the UK Supreme Court (see press summary here) obliged the UK government to adopt air quality plans based on a decision of the Court of Justice in the EU (“CJEU”) following a reference for a preliminary ruling in a case initiated by the NGO ClientEarth (See also our earlier blog post on the CJEU’s decision).

In April 2015, the NGO ‘Klimaatzaak’ brought a case against the Belgian government, claiming higher GHG emission cuts in Belgium (Klimaatzaak’s website about the case, which also contains the full summons,  is accessible here (in Dutch)).  The claimant’s arguments are similar to those of Urgenda, and it will be interesting to see if and on what basis the court will force the Belgian government to amend its climate change policies.

Next Steps

 On 23 September 2015, the Dutch government appealed the decision.  However, it has also announced that it will start executing the Court’s ruling as the appeal has no suspensory effect.


*An English translation of the judgment is available here.

Greater Sage-Grouse Numbers Rise as FWS Poises to Announce the Bird’s ESA Listing Status

Posted in Uncategorized

Since the United States Fish and Wildlife Service (FWS) designated the Greater Sage-Grouse as a candidate for listing under the Endangered Species Act (ESA) in 2010, environmentalists and industry stakeholders have vehemently disagreed about the species’ need for federal protection. While FWS is expected to announce its decision later this month, new data suggests that local efforts to protect the sage grouse may be succeeding. Continue Reading

EU Court of Justice Decides on Complex Articles Under REACH

Posted in Europe

Yesterday, the Court of Justice of the European Union (“CJEU”) held that the obligations on importers to notify the European Chemicals Agency (“ECHA”) and on suppliers to inform customers under the REACH Regulation apply to each of the articles contained in a complex article and not only to the complex article as a whole. The CJEU’s decision sides with the “once an article, always an article” approach already followed by several Member States, and will require foreign manufacturers and EU/EEA importers and suppliers of articles to quickly adjust their REACH compliance programs. The decision will have most impact outside the EU/EEA, where it will increase the pressure on foreign supply chains to disclose, and keep track of, the presence of substances listed in the Candidate List of Substances of Very High Concern for Authorization (“Candidate List”) in all types of articles and their components (e.g., electronic equipment, paper and board products, textiles) that may be shipped to the EU/EEA.


Article 7(2) of the REACH Regulation requires producers and importers of articles to notify the ECHA of the presence of Candidate List substances in their articles if: (i) the use of the Candidate List substances has not been previously registered; (ii) the concentration of that substance exceeds the threshold of 0.1% in the article; (iii) the quantity of the substance exceeds one ton per year per producer or importer; and (iv) it cannot be excluded that humans and the environment may be exposed to the substance during the article’s normal or reasonably foreseeable conditions of use, including disposal. Article 33 of the Regulation requires suppliers of articles that contain Candidate List substances in concentrations above 0.1% to provide their customers with sufficient information, including the name of the substance, to allow the safe use of the article.

Article 3(3) of the REACH Regulation defines an article as “an object which during production is given a special shape, surface or design which determines its function to a greater degree that does its chemical composition.” The Regulation, however, does not specifically address the situation of complex articles (articles produced by assembling other articles), i.e., most products marketed in the EU/EEA. The Commission, ECHA and a majority of Member States took the position that the 0.1% concentration threshold should be measured on the basis of the whole article (e.g., a computer). In contrast, France, Belgium, Germany and other Member States took the view that the concentration threshold should be measured on the basis of each of the articles (e.g., components of a computer) composing the complex article.

The Decision

The CJEU’s decision was in response to a reference for a preliminary ruling from the French Conseil d’État in the context of proceedings brought by French Federation of Businesses in the Trade and Distribution Sector and the Federation of DIY and Home Improvement Shops. The proceedings concerned the validity of a Notice of the French Ministry of Environment on the duty to communicate information on substances contained in articles in accordance with Articles 7(2) and 33 of the REACH Regulation. That Notice expressed the French view that the concentration limits should be measured on the basis of each of the articles composing a complex article.

Clearly influenced by the REACH Regulation’s objective to achieve a high level of protection of human health and the environment, the CJEU’s decision sides with the most restrictive interpretation and does not give much weight to proportionality and international trade concerns. The Court takes the view that under REACH an article “does not cease to be an article when it is assembled or joined with other objects in order to form with them a complex product.” According to the CJEU, an article remains an article “so as long as it retains its shape, surface or design which is more decisive for its function than its chemical composition or as long as it does not become waste.”

However, the CJEU distinguishes between the Article 7(2) notification obligations that apply to producers and importers of articles and the Article 33 information obligations that apply to suppliers of articles. On that basis, the Court allocates different obligations to the different operators taking into account the REACH Regulation’s objective of a high level of human health and environment protection, and its principles of industry (producer) responsibility and substitution:

Article 7(2) of the REACH Regulation

  • EU/EEA producers must notify ECHA only of the presence of Candidate List substances in “their” articles. According to the Court, this means that producers are not required to notify ECHA of the presence of Candidate List substances in the articles that they use to assemble or produce their complex articles.
  •  In contrast, importers of complex articles must notify ECHA of the presence of Candidate List substances in concentrations above 0.1% in any of the articles that compose the imported complex articles. The Court bases this interpretation on the REACH Regulation’s definition of importer, as “any natural or legal person established within the Community who is responsible for import” (emphasis added).

Importantly, the CJEU argues that any difficulties for importers to obtain the required information from non EU/EEA supply chains do not affect the interpretation of Article 7(2).

Article 33 of the REACH Regulation

  • Suppliers of complex articles must provide their customers with information on the safe use of their products, including at least the name of the Candidate List substance, if any of the articles composing the complex article contain a Candidate List substance in concentrations above 0,1%. The CJEU’s decision argues that this interpretation is necessary to ensure the effectiveness of the duty to provide information all along the supply chain through to the final consumer.

The CJEU’s emphasis on the protection of human health and the environment and the principle of industry responsibility and its little concern for the possible impact of its decision on international trade is in line with the its prior ruling in C-558/07 S.P.C.M and Others on the concept of monomer substances under the REACH Regulation. In that case, the Court held that “in order to ensure genuine competition within the Community, importers of monomer substances must be subject to the same obligations as those to which manufacturers are subject or to similar obligations which lead to an adjustment of costs.” In fact, as the Advocate General stated in its Opinion, the Court’s decision will “disseminate the standards established by the REACH Regulation outside the European Union.”

While the decision is not likely to trigger immediate enforcement actions, it will require importers and suppliers to reconsider how they assess the presence of Candidate List substances in their articles. In effect, this increases the pressure on foreign suppliers, and the administrative costs of supplying information to professional users and responding to requests from consumers in the EU/EEA.

*David Haughan is a Stagiaire with Covington & Burling LLP and attends King’s College, London.

Risk and Reward in the UKCS: Recent Positive Development

Posted in Uncategorized


Our Risk and Reward in the United Kingdom Continental Shelf (“UKCS”) series has reported on the challenging times recently faced by the UKCS oil and gas industry.  The past week has seen positive developments in the form of newly awarded exploration licences and the first modest improvement in the industry’s quarterly outlook since 2013.  In this post, we outline these developments and their potential impact.

41 New Licences Awarded in the 28th Offshore Licensing Round

On 27 July 2015, the Oil and Gas Authority (the “OGA”) (the newly created UK oil and gas regulator) announced the award of a further 41 new licences in the 28th Offshore Licensing Round, in addition to the 134 licences confirmed by the Secretary of State for Energy and Climate Change on 6 November 2014.

This award makes the 28th Offshore Licensing Round one of the largest rounds in the five decades since the first licensing round took place in 1964, with a total of 175 licences covering 353 blocks.

The UK Government described the award as “a welcome boost” to oil and gas exploration in the UKCS. Andy Samuel, Chief Executive of the OGA, added that “licences are however just a start and industry, government and the OGA now need to work together to revitalise exploration activity across the basin and convert licences into successful exploration wells.”

Mr Samuel’s comments appear to broadly reflect the current mood of companies active in the UKCS, according to Oil & Gas UK’s Business Sentiment Index, which was published on 29 July 2015.

Business Sentiment Index for Q2 2015 Shows Modest Improvement in Outlook for First Time Since 2013

Oil & Gas UK’s Business Sentiment Index measures a number of economic indicators to capture the outlook of the industry for each quarter.  As the graph below shows, in the second quarter of 2015 (Q2 2015), optimism in the UK oil and gas industry increased from minus 31 points to minus 27 points (on a -50/+50 scale):

Chart - Catherine Karia

Business Sentiment Trend, Oil & Gas UK Sentiment Index, Q2 2015


Oonagh Werngren, Oil & Gas UK’s operations director, said: “While the overall index remains in negative territory for the fourth quarter in a row, this slight improvement in mood is the first upward movement we have seen since Q1 2013.”

The Office for National Statistics (the “ONS”) estimated that the UK’s economy grew by 0.7% in Q2 2015, with a “surge” in North Sea oil and gas production lifting overall industrial output by 1%.  The ONS reported that this increase was driven by the package of support for the UKCS oil and gas industry announced by the UK Government in March 2015 (see our blog post on UKCS developments in Q1 2015).

However, Oil & Gas UK’s Business Sentiment Index reported that higher activity levels in Q2 2015 may be due to preparations for the annual summer maintenance programmes, when levels traditionally increase on the UKCS.

While the above developments hint at a moderate improvement in the outlook for the UKCS oil and gas industry, it may not signal the start of a upward trajectory in the long-term.  Oil & Gas UK emphasises that the business environment remains tough and the industry fragile, with respondents to the Business Sentiment Index expressing concerns over significant issues in the future if the oil price does not recover.

UK Energy Minister Andrea Leadsom confirmed on 27 July 2015 that the UK Government is “determined to make the most of our North Sea resources” and was “backing our oil and gas industry.”  To that end, the Energy Bill 2015-16 was introduced into the House of Lords on 9 July 2015, with an emphasis upon continuing to “support the development of North Sea oil and gas.”  We will continue to monitor UKCS developments, including the progress of the Energy Bill 2015-16 through the UK Parliament.


A Watch List of Possible Changes in EPA’s Final Clean Power Plan

Posted in EPA, Renewables

In August, EPA is expected to finalize and to modify its ambitious Clean Power Plan to reduce greenhouse gas emissions from existing power plants.  Here is a Watch List of key areas for possible changes and clarification that EPA might make, after considering voluminous public comments on the Proposed Regulations, which were issued in June 2014:

  • Timelines for State Implementation. Will EPA relax the level of interim requirements for emission reductions by 2020 (or 2022, as suggested in recent press reports) and allow each state a more gradual or back-loaded schedule to meet final targets by 2030?
  • Timelines for Filing State Implementation Plans. Will EPA delay or ease the threshold for granting waivers of the one-year requirement for filing single-state implementation plans or two-years for multi-state implementation plans?
  • Credits for Early Action. Will EPA enable states to obtain credits or adjustments in baseline periods for early emission reduction actions that have already occurred or for acceleration of emission reductions achieved prior to 2020?
  • Adjustments to the Four Building Blocks. Will EPA modify the four building blocks used to calculate each state’s achievable emission reductions, including changes in assumptions regarding achievable emission reductions under each building block? Continue Reading

Supreme Court Decisions Raise Questions about Future Judicial Scrutiny of EPA’s Clean Power Plan

Posted in EPA

Two of the Supreme Court’s major, end-of-term decisions turn on the deference the Court gives to agency determinations of the meaning of ambiguous clauses in complex regulatory statutes, applying the familiar Chevron framework.  The Court’s less deferential applications of Chevron raise important questions about the deference courts might be expected to give to the scope of EPA’s exercise, in its Clean Power Plan, of its statutory authority to establish carbon dioxide emission reduction standards for existing fossil-fuel power plants under Section 111(d) of the Clean Air Act.

In King v. Burwell, the Court reviewed an Internal Revenue Service regulation that allowed tax subsidies under the Affordable Care Act for insurance plans purchased on either a federal or state-created “Exchange.”  In Michigan v. EPA, the Court reviewed EPA’s threshold determination under Section 112 of the Clean Air Act that it was “appropriate and necessary” to initiate regulation of hazardous air pollutants emitted by power plants, without consideration of costs at that initial stage of the regulatory process.

The outcome in each case depended upon the Court’s review of the regulatory context of the applicable ambiguous statutory clause.  Since the context of Section 111(d) of the Clean Air Act differs markedly from the contexts of the Affordable Care Act and Section 112 of the Clean Air Act, the outcomes in King v. Burwell and in Michigan v. EPA do not likely portend the outcome of future court challenges of the Clean Power Plan.  However, the Court’s application of Chevron deference in these two cases may portend a strikingly less deferential judicial review of EPA’s Clean Power Plan than might have been expected under the traditional two-part test of Chevron.

Under Chevron, courts examine first whether a regulatory statute leaves ambiguity and, if so, courts are directed to defer to a federal agency’s reasonable resolution of the ambiguity in a statute entrusted to administration by that agency.  All of the Court’s majority and dissenting opinions in King v. Burwell and in Michigan v. EPA (except for Justice Thomas’s lone dissenting opinion questioning the constitutionality of Chevron deference) confirm the applicability of the traditional Chevron framework.  What stands out in these cases is that the Court’s majority opinions do not defer to the agency’s resolution of ambiguity.

Chief Justice Robert’s opinion for a 6-3 majority in King v. Burwell grounds Chevron in “the theory that a statute’s ambiguity constitutes an implicit delegation from Congress to the agency to fill in the statutory gaps.”  But, “in extraordinary cases,” the Court states that Congress may not have intended such an “implicit delegation.”  The Court holds the statutory ambiguity before it to be one of those extraordinary cases in which Congress has not expressly delegated to the respective federal agency the authority to resolve the ambiguity and, therefore, seemingly, zero deference is given by the Court to the applicable IRS regulation.  The Court explains that whether billions of dollars in tax subsidies are to be available to insurance purchased on “Federal Exchanges” is a question of “deep economic and political significance,” central to the scheme of the Affordable Care Act, such that had Congress intended to assign resolution of that question to the IRS “it surely would have done so expressly,” especially since the IRS “has no expertise in crafting health insurance policy of this sort.”  Eschewing any deference to the IRS interpretation, the Court assumed for itself “the task to determine the correct reading of” the statutory ambiguity.

King v. Burwell is the rare case in which the Court accords a federal agency zero deference in resolving statutory ambiguity under Chevron.  Notably, the Court left open how appellate courts should determine whether other statutory ambiguities similarly deserve less or no deference to agency interpretations.  The Court, perhaps, offered a hint by citing to its much quoted dicta in its 2014 decision in Utility Air Regulatory Group v. EPA that the Court “typically greet[s] … with a measure of skepticism, … agency claims to discover in a long-extant statute an unheralded power to regulate a significant portion of the American economy.”  Many commenters have opined, even before King v. Burwell, as to whether this dicta has implications for judicial review of the Clean Power Plan, which, it may be argued, has “deep economic and political significance” comparable to the Affordable Care Act.  However, EPA surely has longer experience, greater expertise and wider latitude in crafting policy under the Clean Air Act than the IRS has in crafting health insurance policy.  Given the Court’s strong precedent establishing that greenhouse gases are expressly within the scope of the Clean Air Act, appellate courts might distinguish King v. Burwell and apply traditional Chevron deference to the final Clean Power Plan.

Michigan v. EPA applies Chevron to EPA regulations under a different part of the Clean Air Act.  In this case, the Court reviewed EPA’s threshold determination, under Section 112 of the Clean Air Act, that it was “appropriate and necessary,” without regard to costs, to regulate hazardous air pollutants, such as mercury, from power plants.  The specific mercury emission limits imposed on categories of power plants were established during subsequent phases of EPA’s rulemaking under Section 112 based on EPA’s explicit consideration of costs.  Justice Scalia’s opinion for a 5-4 majority strikes down EPA’s determination that it could find regulation of hazardous air pollutants from power plants to be “appropriate and necessary” without consideration of costs.  The Court states it was applying the traditional Chevron framework, under which it would normally defer to EPA’s choice among reasonable interpretations of the  ambiguous and “capacious” statutory test requiring an EPA finding that regulation be “appropriate and necessary.”  But, the Court finds EPA’s interpretation of this test, as not requiring any consideration of costs, to “have strayed far beyond … the bounds of reasonable [statutory] interpretation.”  Michigan v. EPA may be the first case in which the Court has applied Chevron to find that EPA adopted an entirely unreasonable resolution of statutory ambiguity in its Clean Air Act regulations.

Justice Kagan’s dissent in Michigan v. EPA faults the Court for failing to give due deference under Chevron to EPA’s decision as to when in its regulatory process it gives consideration to the costs involved in regulating hazardous air pollutants from power plants.  While all nine Justices seem to agree that EPA must consider costs in its Section 112 rulemakings, and seem also to agree that EPA gave consideration to costs in later stages of its rulemaking, the dissent criticized the majority’s “micromanagement of EPA’s rulemaking,” emphasizing that EPA reasonably determined “that it was ‘appropriate’ to decline to analyze costs at a single stage of a regulatory proceeding otherwise imbued with cost concerns.”

It is difficult to predict whether, based upon King v. Burwell and Michigan v. EPA, appellate courts might narrow the deference accorded to EPA’s resolution of statutory ambiguities under Section 111(d).  Those ambiguities arise in a quite different context than those considered by the Court.  As one example, critics of the Clean Power Plan have argued that two different versions of Section 111(d) appear to have been signed into law, one of which critics claim should prohibit EPA from issuing regulations under Section 111(d) for sources of pollution already covered by other EPA regulations, such as hazardous pollutant regulation under Section 112.  EPA sharply disagrees with its critics and defends its interpretation of which statutory version applies and the scope of permissible regulation under either statutory text.  A related issue under the statutory version pressed by critics concerns whether the status of the hazardous air regulations under Section 112, during remand after Michigan v. EPA, should alter EPA’s analysis the potentially competing statutory provisions.  It remains to be seen what kind of Chevron deference courts will give to EPA’s reasoned interpretations of the different versions of Section 111(d).

Critics also point to purported ambiguity in Section 111(d) as to whether EPA may prescribe carbon dioxide performance standards based on so-called “outside the fence” measures, and whether those standards may be determined on an average state-wide basis, rather than for individual sources.  EPA’s resolutions of these and related programmatic issues have occasioned widespread commentary and may feature prominently in future court challenges to the Clean Power Plan.  Again, it remains to be seen whether the Court’s recent cases will influence the extent of Chevron deference given by appellate courts to EPA’s well-considered interpretation of its authority to craft the details of the Clean Power Plan under Section 111(d).

On one point, there should be little doubt.  Section 111(d) expressly directs EPA to consider costs in establishing performance standards reflecting “the best system of emission reduction.”  Unlike in Michigan v. EPA, EPA expressly addressed “costs” as a factor considered in its proposed rules.  EPA is expected to elaborate upon the costs (and benefits) of regulation in its final Clean Power Plan.  Michigan v. EPA should, therefore, be inapposite with respect to any possible challenges of the manner in which the Clean Power Plan addresses costs.

The applicability of Chevron deference is, of course, only one among many legal issues that could face the U.S. Courts of Appeals and, ultimately, the Supreme Court, if and when they review the Clean Power Plan.  The precise legal issues to be framed for the courts and the timing of litigation will not begin to come into focus until after the Obama Administration issues the final Clean Power Plan later this summer.  And, Congress could step in and alter the course of judicial review.  Stay tuned.

The Road to Paris 2015: EU Emissions Trading Scheme and its Application to Non-EEA Airlines – Enforcement on the Rise?

Posted in COP21 - The Road to Paris 2015

Europe is stepping up enforcement of its climate change rules against foreign airlines.  Recently, a Belgian authority competent for the enforcement of the EU Emissions Trading System (“ETS”) on airlines flying to and from Brussels, collected a fine of €1.4 million.  The fine was imposed on Saudi Arabian Airlines for failing to surrender emission allowances.  This follows a UK judgment upholding the UK Environment Agency’s fine against the Indian carrier Jet Airways for failing to report emissions from its intra-European flights in 2012.  These are only two out of many examples of fines for non-compliance with the emissions trading rules.

This increased enforcement comes at the time when the International Civil Aviation Organization (“ICAO”) is supposed to reach an agreement on international aviation emission reductions.

The Cap and Trade System

The ETS is a “cap and trade” system, established by Directive 2003/87/EC (“ETS Directive”).  In short, under the ETS Directive, European authorities issue a limited number of emission allowances on a yearly basis.  This cap represents the total amount of greenhouse gas emissions that operators, including airlines, may emit.  The number of allowances drops over time, encouraging operators to lower their emissions.  Operators are allocated a limited number of allowances per year, and every April 30, operators must surrender a number of allowances equal to their prior year’s emissions.  If an operator expects to exceed its annual number of allowances, it must purchase additional allowances from other operators.

Under the ETS Directive, airline companies must:

  • Register with the ETS Union Registry.  The Union Registry is an online database that keeps track of all the emission allowances in the EU, including all transactions that take place using those allowances.
  • Surrender, by April 30th of each year, a number of allowances equal to the total emissions from their aircrafts during the preceding calendar year.  Upon surrender, the competent Member State authorities must cancel the allowances.
  • Monitor and report emissions from each aircraft that they operate, per calendar year.

The ETS applies to Economic European Area (“EEA”) and non-EEA airlines.  However, until December 2016 the rules will only be enforced for intra-EEA flights, i.e., flights that take place between European airports.  After 2016, the cap and trade rules will also effectively apply to flights to or from airports in the EEA unless the EU is satisfied with the ICAO’s progress on an international agreement to reduce emissions.

Enforcement on the Rise?

The ETS Directive provides for two types of penalties:

First, aircraft operators must pay a fine of €100 per ton of CO2 (or CO2 equivalent) that they emit in excess to the number of allowances they surrender.  In addition, aircraft operators will be required to obtain and surrender sufficient allowances to cover the excess emissions.  These fines are the same throughout the EEA.

Second, Member States must impose “effective, proportionate and dissuasive” penalties on  airlines that fail to comply with their other obligations under the ETS Directive.  These fines may vary significantly from one Member State to another.  For example, the maximum fine in Spain for failure to comply with monitoring and reporting obligations could be as high as €2.000.000, whereas in the United Kingdom it is only €50.000.

The recent enforcement actions on Jet Airways and Saudi Arabian Airlines are the latest of a series of enforcement actions against non-EEA airlines that failed to comply with the EU’s cap and trade rules.  The UK Environment Agency recently published a list of the fines it imposed on Air India, Loid Global Ltd, Oranto Petroleum, Media Consulting Services LLC, and Primevalue Trading Ltd for failure to surrender allowances by April 30th, 2013.  Similarly, in 2013 German authorities published a list of airlines and aircraft operators that did not comply with the ETS in 2012, including non-EEA companies such as Air Arabia Egypt, and Tathra International.  In addition, the French authorities also fined non-compliant airlines, such as the Swiss airline Legend Air.  The €112.500 fine was imposed for failing to surrender 1.125 allowances for the year 2012.

It will be interesting to see whether these enforcement practices will influence the negotiations within the ICAO regarding an agreement to reduce emissions from aviation by 2016.

Pedro Mendez de Vigo is a Covington summer legal trainee from the Universidad Autónoma de Madrid.

DECC Announces Early Closure of UK Renewables Obligation

Posted in Renewables

In our three-part series published last week, we outlined the possibility of the UK Government closing the Renewables Obligation (“RO”) scheme to new onshore wind generating stations in 2016, a year earlier than expected.

On 18 June 2015, the UK Department for Energy & Climate Change (“DECC”) formally announced the UK Government’s intention to close the RO across Great Britain to new onshore wind generating stations from April 2016.  Energy and Climate Change Secretary Amber Rudd stated: “[…] Onshore wind is an important part of our energy mix and we now have enough subsidised projects in the pipeline to meet our renewable energy commitments”.

Details of the legislation bringing the UK Government’s intended changes have not yet been provided, but the impact on the future growth of onshore wind in the UK is potentially significant.  Last year, onshore wind generated 5% of the UK’s total electricity, with the help of “over £800m of Government subsidies”, according to DECC.  Currently, 5,500 onshore wind turbines have been installed or are under construction in the UK, and another 3,000 have planning permission.  It is not yet known how many projects will be affected by the early closure of the RO.

While DECC has indicated that up to 5.2 GW of onshore wind capacity could be eligible for grace periods, it has yet not confirmed that this will be the case.  Its current position is that the UK Government is  “minded to offer” grace periods “to projects that already have planning consent, a grid connection and acceptance, as well as evidence of land rights”.

Prior to the announcement, there was uncertainty over whether the changes would extend to Scotland.  It now appears that the UK Government intends for the changes to affect the whole of Great Britain, which has reportedly been “met with outcry” by the Scottish Government.  Scottish Energy Minister Fergus Ewing described the decision as “deeply regrettable”, adding that it “will have a disproportionate impact on Scotland”.

The Scottish Government is but one of many critics of the decision, along with industry representatives, UK media outlets and business commentators.  Michael Pollitt, professor of business economics at Cambridge Judge Business School, has described the proposed changes as “a bad mistake”, coming at a time where the costs of onshore wind technology “are coming towards grid parity”.  Katja Hall, deputy director-general of the Confederation of British Industry expressed broader concerns: “Cutting the Renewables Obligation scheme early sends a worrying signal about the stability of the UK’s energy policy framework.  This is a blow, not just to the industry, and could damage our reputation as a good place to invest in energy infrastructure.

As outlined in our earlier series, there are possible legal avenues available for challenge and redress for those affected.  According to Mr Ewing, the Scottish Government has “warned the UK Government that the decision, which appears irrational, may well be the subject of a Judicial Review”.

The Uncertain Future of the UK Renewables Obligation: A Three-Part Series

Posted in Renewables

In early June 2015, the UK Department for Energy & Climate Change (“DECC”) was expected to announce plans to close the existing subsidy scheme for onshore wind, the Renewables Obligation (“RO”), to new generating capacity a year earlier than expected. This announcement has been delayed amid concerns that it could spark potential legal challenges from the industry and lead to a dispute with the Scottish Government over the future of onshore wind.

In this three-part series, we outline how the RO operates, the potential impact of the early closure of the RO upon the onshore wind industry, and the possible routes for challenge and redress for industry participants who may be affected.

Part Three: An Overview of the Legal Mechanisms for Challenge and Redress by
Those Potentially Affected by the Early Closure of the Renewables Obligation

In the first two parts of this series, we considered how the RO operates, possible plans to close the RO in 2016, and the potential impact of those plans upon the onshore wind industry. In this final post, we outline two possible legal avenues for challenge and redress by those who may be affected by the early closure of the RO: through the national courts and under international investment treaties.

The first possibility is to challenge the Government’s actions through the national courts. This route recently has been used by the solar industry, with mixed results. In 2012, the Supreme Court refused the Government’s appeal to cut solar feed-in-tariffs before the completion of a consultation on the matter. However, in November 2014, the High Court refused an application for judicial review against the Government’s decision to close the RO to ground and building mounted solar photovoltaic capacity above 5 megawatts in 2015 rather than 2017.

Affected investors could also consider commencing international arbitration proceedings under an investment treaty. If successful, an investor could obtain compensation for the loss of their investment as a result of measures introduced by the Government. However, this option would only be available to foreign investors from member States that have an investment treaty in place with the UK, and who have made a qualifying investment in the UK, as defined by the applicable treaty.

A number of European states, including Spain, are currently being sued by foreign investors under the Energy Charter Treaty as a result of changes to national solar subsidies. Marcus Trinick QC, representing Renewables UK, has warned Energy Minister Amber Rudd to “be aware of the dangers of state aid discrimination and look at what is happening in international energy arbitration across Europe. In such a position we could not afford not to fight, especially if action is taken to interfere retrospectively.

Media reports suggest that, given the extent of industry opposition, DECC is delaying an announcement to allow for further refinement of the proposed measures and their impact, in order to reduce the scope for legal challenges. Marcus Trinick QC has emphasised the need for dialogue between the industry and the Government before action is taken, which could reduce the risk of legal challenges arising.

The message from industry representatives is clear: the early closure of the RO would be a major blow to the future of onshore wind in the UK, which could spark a legal battle with the UK Government. As Maf Smith, deputy chief executive of RenewableUK, has stated, “[t]he industry will fight against any attempts to bring in drastic and unfair changes utilising the full range of options open, including legal means if appropriate.

The Uncertain Future of the UK Renewables Obligation: A Three-Part Series

Posted in Renewables

In early June 2015, the UK Department for Energy & Climate Change (“DECC”) was expected to announce plans to close the existing subsidy scheme for onshore wind, the Renewables Obligation (“RO”), to new generating capacity a year earlier than expected. This announcement has been delayed amid concerns that it could spark potential legal challenges from the industry and lead to a dispute with the Scottish Government over the future of onshore wind.

In this three-part series, we outline how the RO operates, the potential impact of the early closure of the RO upon the onshore wind industry, and the possible routes for challenge and redress for industry participants who may be affected.

Part Two: How Would the Renewables Obligation’s
Early Closure Affect the UK Onshore Wind Industry?

Part One of this series outlined the RO scheme and the expected announcement to close the RO earlier than anticipated. In this second post, we consider the potential impact of such measures upon the onshore wind industry.

Until the consultation with devolved authorities (Scotland and Northern Ireland) is completed, and detailed proposals are published, the timing and nature of the impact on the industry will be uncertain.

There are currently around 3,000 new turbines with a combined capacity of more than 7 gigawatts seeking planning permission, many of which would have been expecting to secure accreditation under the RO. Bloomberg Energy Finance has estimated that, if the RO closes to new generating capacity in 2016 and onshore wind was not eligible for public subsidy under the Contracts for Difference scheme, less than half the capacity of projects in advanced stages of planning would benefit from subsidies.

The majority of the planned projects are due to be located in Scotland. Given the apparent tension between the Scottish First Minister and Prime Minister over the future of onshore wind (referred to in our first post in this series), there is currently uncertainty as to whether or not the applicable RO in Scotland would close in 2016. This is an important consideration regarding the possible impact of any proposed measures.

It is unclear whether there would be a ‘grace period’ in relation to the changes, which could enable projects that already have planning permission to be included under the RO scheme, and closing the RO for those that do not. Ian Marchant, chairman of wind developer Infinis Energy, said: “The Government’s alleged plans to close down the Renewable Obligation-regime early for onshore wind beggar belief. . . . If the RO is terminated early without reasonable grace periods in place, not a single energy or large scale infrastructure project in the UK will be safe going forward.

The potential impact of such measures is giving rise to considerable uncertainty and concern over the future of the onshore wind industry. In our final post in this series, we will consider what action could be taken by industry participants who may be affected by the early closure of the RO.