EU Member State green energy schemes that only support locally produced renewable energy are compatible with EU law.  This is the main conclusion of the Court of Justice of the European Union in its judgment of 11 September 2014 (CJEU, Joined Cases C-204/12 to C-208/12, Essent Belgium NV v. Vlaamse Reguleringsinstantie voor de Electriciteits- en Gasmarkt).  The Court’s decision essentially confirms the Court’s earlier landmark judgment in the Ålands Vindkraft case.

Background

Directive 2001/77 on the promotion of electricity produced from renewable energy sources (“Directive”)1/ required Member States to set national indicative targets on the consumption of electricity produced from renewable sources.  In order to facilitate trade and consumer transparency in renewable electricity, the Directive also required Member States to guarantee the origin of renewable electricity by means of “guarantees of origin” that should be mutually recognized.  The Directive also encouraged Member States to establish support schemes for renewable electricity, but made clear that guarantees of origin do not themselves entail a right to benefit from such national support mechanisms.

The Belgian Region of Flanders implemented the Directive by adopting a scheme that among other things requires electricity suppliers to surrender a certain number of “green certificates” to the Flemish Regulatory Authority for the Electricity and Gas Market (VREG).  For that purpose, the VREG  accepts only green certificates issued to producers that have produced the renewable energy in Flanders . 

In order to meet its green certificates obligation under the Flemish scheme, electricity supplier Essent NV surrendered to the VREG guarantees of origin from producers established outside Flanders.  The VREG refused these guarantees of origin and imposed several administrative fines on Essent.  Essent challenged the VREG ‘s decision before a Belgian court claiming that it violated the EU principles of free movement of goods and non-discrimination.  The EU Court’s decision is in response to a reference for a preliminary ruling from the Belgian court.

Analysis

  • Certificates or Origin vs. Green Certificates: Essent argued that the VREG should accept its guarantees of origin from non Flemish producers  as a means to comply with its green certificates obligations because the Directive required the mutual recognition of guarantees of origin.  However, the Court dismissed this argument, stressing the difference between guarantees of origin and green certificates and their different purposes.
  • Restriction of Free Movement of Goods?:  Essent also claimed that the VREG’s rejection of its guarantees of origin constituted an unjustifiable restriction of trade in goods.  Following a reasoning very similar to that of the Ålands Vindkraft case, the Court rejected Essent’s claim and argued that even if the VREG’s rejection could constitute a restriction of trade, it was justified under Article 30 of the EC Treaty (now Article 36 TFEU).

Article 30 of the EC Treaty provides public interest grounds that can justify restrictions on the free movement of goods.  The article does not explicitly list protection of the environment among these grounds, but does include “the protection of health and life of humans, animals or plants.”  According to the Court’s case-law, this also extends to the protection of the environment, including the promotion of renewable energy sources.

Article 30 of the EC Treaty also provides that in any event, and despite the existence of justification grounds, restrictions should not “constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States.”  In Essent, however, the Court did not address this element, but instead focused only on whether the Flemish mechanism was proportionate, i.e. whether it was suitable to attain the objective of promoting renewable energy and whether it was necessary for achieving that purpose.The Court concluded that the territorial limitations of the mechanism were indeed necessary for promoting the increased use of renewable energy sources.

The Court emphasized that the EU legislature allows national green energy targets, and that the renewable energy potential and energy mix may vary between Member States.  According to the Court, it is essential that Member States be able to control the effect and cost of their national support schemes according to their potential, whilst maintaining investor confidence.

However, the Court also made clear that in order to be proportionate and justified the Flemish scheme should: (i) provide for a genuine market of green certificates in which supply can match demand so that it is actually possible for all suppliers to obtain certificates under fair terms; and (ii) ensure that the fines imposed on suppliers that do not obtain the required green certificates are not excessive.

  • Discrimination?: As mentioned earlier, the Court did not address the issue of whether the Flemish scheme was discriminatory when it assessed whether it could be a justified restriction of trade under Article 30 of the EC Treaty.  Instead, it seemed that the Court considered that under Article 30 it was sufficient to assess whether the measure was proportionate.  Nevertheless, at the request of the national court, the EU Court assessed whether the Flemish scheme violated the EU principle of non-discrimination.

With brief arguments, the Court took the view that there was no violation of the principle of non-discrimination.  The Court addressed the alleged discrimination towards electricity suppliers (who must render green certificates issued to producers of green energy produced in Flanders), and towards producers (to whom certificates are only issued when they demonstrate that the green energy was produced in Flanders).  Regarding suppliers, the Court concluded that the scheme was not discriminatory, because it applied “to all electricity suppliers operating in the Flemish Region, irrespective of their nationality.”  Regarding producers, the Court ruled that the assessment of the scheme comes within the scope of restrictions on free movement of goods, and therefore, did not address its alleged discriminatory nature.

Impact 

  • Investor Confidence:  As with the Ålands Vindkraft case, the Court’s decision has been widely welcomed by the renewable energy industry across Europe.  Had the Court found that the Flemish scheme violated EU law, this would have required Member States to dismantle many green energy support schemes across Europe, which tend to promote local production.  Instead, by upholding the Flemish system, the Court allows national governments to maintain the “status quo” and remain ‘in charge’ of their support schemes.
  • What About the Future?:  This apparent stability will only be temporary, however.  Indeed, the Court’s decision shows that it will be difficult to have a single EU renewable energy target and an EU wide approach to renewable energy as advocated by the European Commission.

In fact, it seems difficult to understand why Europe’s support for renewable energies essentially depends on patch of national schemes, rather than a coherent EU scheme, if, as the Court states, “the use of renewable energy sources […] is useful for the protection of the environment inasmuch as it contributes to the reduction in greenhouse gas emissions, which are amongst the main causes of climate change that the European Union and its Member States have pledged to combat.”  On the other hand, the Court’s decision may become irrelevant if Europe’s renewable energy industry moves from a support based system to one based on equal opportunities and interconnection.

  • What About Other National Environmental Measures?:  Yet, perhaps the biggest impact of and Ålands Vindkraft and Essentwill be on national environmental measures beyond renewable energy/climate change schemes.  Both decisions leave the reader wondering whether from now on national environmental measures no longer need to pass the standard of non-discrimination in order to be justified restrictions of trade.

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[1]Later replaced by Directive 2009/28/EC on the promotion of the use of renewable energy.