European Union: ECJ Confirms That Purely National Promotion Of Green Electricity Does Not Necessarily Violate EU Law

The ECJ ruled at the start of July 2014 that individual EU Member States are allowed to establish renewable energy support schemes that provide for the awarding of tradable green certificates to producers of green electricity solely with respect to the green electricity produced on the territory of that State. The fact that the national promotion scheme could possibly impede electricity imports from other Member States is justifiable on account of climate change prevention and environmental protection. Thus, no violation of Article 34 TFEU. The ECJ ruling might present a setback for the supporters of a harmonized, EU-wide (common) system of renewables support schemes.

The ECJ ruling of 1 July 2014 may have major impact on the ongoing political discussions about the meaningfulness of national green electricity promotion schemes. In the case at hand, the ECJ had to decide on the Swedish green electricity certificate scheme ("GECS"), which provided for the awarding of green certificates to approved producers for each MWh of green electricity generated. According to the Swedish GECS, the awarding of green certificates ("GC") is limited to green electricity production installations in Sweden. This stipulation was why a Finnish company operating a wind farm in Finnish waters but connected to the Swedish power grid was not able to benefit from the Swedish GECS. The competent national authority in Sweden rejected the wind farm operator's application to be considered an approved producer of renewable energy in accordance with the GECS This national decision was appealed by the Finnish wind park operator on the grounds that Sweden's support scheme violated core "free movement of goods" principles and, specifically, the provisions of Article 34 TFEU to the extent that only producers of renewable energy located in Sweden could benefit and imported renewables were excluded or discriminated against. The matter was referred to the ECJ in December 2012.

In the ECJ proceedings, the Advocate–Generale (AG) stated that although Sweden's GECS complies with the Renewable Energy Directive (RED), it violates the sanctity of the principle of free movement of goods by permitting Member States to deny or restrict access to their national support regimes to producers whose plants are situated in other Member States. In its ruling, the ECJ confirmed that Sweden's GECS is capable of impeding imports of electricity, especially green electricity, from other Member States and that, as a consequence, the Swedish support scheme constitutes a measure having equivalent effect to quantitative restrictions on imports and is therefore not compatible with the obligations under EU law resulting from Article 34 TFEU. However, in referring to previous rulings, the ECJ held that national legislation that constitutes a measure having equivalent effect to quantitative restrictions may be justified on public interest grounds or by overriding requirements, provided that the respective national provision is appropriate for ensuring the attainment of the objective pursued. In this context, the ECJ concluded that the use of renewable energy sources to generate electricity is useful for protecting the environment and preventing climate change. The ECJ evidently disagrees with opinions claiming that the generation and promotion of renewable energy is not directly linked to the objectives of environmental protection and climate change prevention (such opinions argue that these objectives are better attained by the EU emission trading scheme). The ECJ further acknowledged that, as EU law currently stands, a territorial limitation in terms of awarding GC solely to domestic green electricity producers may be considered necessary and, therefore, appropriate in order to attain the legitimate objective of environmental protection. With this ruling, the ECJ expressed its view that as long as the national support schemes for green electricity have not been harmonized by EU law, it is possible for Member States to limit access to such schemes to production units located on their territory. This also applies when the respective Member State has already reached its renewable energy target under the RED.

Finally, the ECJ addressed the GECS mechanism by which the suppliers and certain other users of electricity are obliged to hold and surrender to the competent authority a certain number of GC, whereas failing to abide by this obligation is subject to specific fee payments (with fining character). The ECJ expressed no concerns also with regard to this system by which importers of electricity are required to purchase GC in proportion to the volume of electricity imported. However, the ECJ explicitly stated that in order for it to function properly, such a system requires market mechanisms that are capable of enabling traders to obtain GC effectively and under fair terms. This means, vice versa, that in case of markets that are not open to competition and where, for instance, the price of GC is not determined by the interplay of supply and demand, such a type of promotion scheme might be considered incompatible with EU law.

In a nutshell, the ECJ ruling of 1 July 2014 confirms the EU law compatibility of renewable energy promotion schemes that are purely national. However, in assessing such schemes' compliance with EU law, the principle of proportionality and the concrete market situation must continue to be duly considered.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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