The future judgement in Joined Cases C-204-208/12 Essent Belgium N.V. v. Vlaamse Reguleringsinstantie voor de Elektriciteits- en Gasmarkt could very well be one of those landmark cases in which the CJEU clarifies one of the fundamental doctrinal issues in internal market law: can Member States rely upon the rule of reason to justify distinctly applicable measures? In his Opinion, Advocate General Bot makes a convincing case that this should (under strict conditions) indeed be the case.
In this case, the Belgian government fined Essent Belgium for failure to comply with Belgian legislation requiring electricity suppliers to purchase a certain amount of green energy from Belgian suppliers. As many readers will no doubt notice, this case is very similar to PreussenElektra, however, the legislative context and European electricity market have undergone substantial changes since that judgment was handed down. Today, EU legislation enables Member States to verify whether electricity produced in other Member States is green. Also, EU legislation now requires Member States to reach certain national targets for contribution to green electricity production.
These two factors have considerable implications for the case at hand. Obviously, the possibility of verifying that electricity produced in other Member States is green significantly reduces Belgium’s options for a credible defence of the measure. On the other hand, Belgium is required to produce a certain percentage of its electricity from renewable energy sources. This goal is undermined if electricity suppliers can use green electricity from other Member States. Obviously, from the perspective of the environment it is immaterial in which country electricity is produced, as long as it is green and transport does not entail too much energy loss.
In this post I will discuss the two important questions of this case:
- The doctrinal question: does the rule of reason imply that Member States can justify distinctly applicable measures?
- The policy question: how do Member States achieve their national targets under the Renewables Directive if they must allow undertakings to use imports of green electricity as part of their local obligations?
The Rule of reason: open to distinctly applicable measures?
The Belgian requirement that electricity suppliers must buy green electricity from Belgian producers is blatantly discriminatory and obviously an impediment to the free movement of goods (electricity). Belgian law required electricity suppliers in Belgium to surrender a certain quota of green certificates, which were only granted to Belgian producers of green electricity. Certificates of origin, which indicate the source of electricity production, could not be used to comply with the quota.
It is well-established case law that Member States can only justify distinctly applicable measures by relying on the express derogations contained in the Treaty which in turn are interpreted narrowly. In the case of a breach of articles 34 and 35 (goods), this means only the derogations contained in article 36 TFEU. There is a more than plausible case to make that this distinction between the case law based justifications and Treaty derogations is artificial and out of line with the importance the Treaties attach to other public policy goals, notably environmental protection, protection of fundamental rights and consumer protection (although the Member States have never amended 36 TFEU in subsequent Treaty amendments).
The orthodoxy of the CJEU in this matter has put it in an uncomfortable position in a couple of environmental cases. When Member States have taken reasonable distinctly applicable measures on grounds other than the express derogations contained in article 36 TFEU, the CJEU has either sidestepped the issue or resorted to twisted reasoning. AG Bot in this case invites the CJEU to revisit its case law and let go of its orthodoxy with respect to the protection of the environment.
92. Si nous ne pouvons que nous réjouir de cette évolution qui consacre l’intégration des préoccupations environnementales dans le cadre du marché intérieur, il reste que nous regrettons que l’exception à la règle selon laquelle seules des dispositions dérogatoires expresses peuvent justifier une mesure discriminatoire n’apparaisse pas, explicitement, dans la jurisprudence de la Cour, mais découle plutôt, subrepticement, de raisonnements au cas par cas obéissant à des logiques différentes. Il est nécessaire, selon nous, de clarifier la situation en reconnaissant formellement la possibilité d’invoquer la protection de l’environnement comme justification des mesures qui entravent la libre circulation des marchandises, quand bien même elles seraient discriminatoires. Nous voyons à cette consécration explicite trois séries d’avantages.
The Advocate General makes three arguments for this change in approach. First of all, he notes that clarification and elaboration of under which conditions distinctly applicable environmental measures can be justified will contribute to legal certainty (para. 93). Secondly, and more importantly, the Advocate General argues that not taking into account the discriminatory nature of measures in cases like PreussenElektra and Walloon Waste has the disadvantage that there is no room for an appropriate proportionality test. In that respect, the Advocate General argues that in relation to the protection of the environment, distinctly applicable measures should be able to be justified, albeit with a reinforced proportionality test:
Or, nous pensons que les mesures discriminatoires, particulièrement celles qui contreviennent à un principe aussi fondamental que celui de l’interdiction des discriminations directes en fonction de la nationalité, doivent être soumises à une exigence de proportionnalité renforcée. (para 94)
Lastly, the Advocate General argues that explicitly acknowledging that distinctly applicable measures can be justified on grounds of environmental protection would confirm the ‘special’ place environmental protection has within the EU legal system (para. 95).
National targets and green electricity imports
In the case at hand, however, the Advocate General argues that the Belgian measures cannot be justified on grounds of environmental protection. The Advocate General notes that reliance on PreussenElektra (Germany was not in a position to assess the green origin of foreign electricity) is no longer possible since Directive 2001/77/EC (replaced by 2009/28/EC) requires Member States to guarantee the origin of electricity and recognize these guarantees by other Member States (paras. 102-103). In addition, the reduction of greenhouse gas emissions is just as effectively achieved through the use of foreign green electricity as domestic green electricity (para. 104). The Advocate General also dismisses the relevance of the proximity principle (rather lightly in my opinion, although in this case he is right) and the security of supply arguments put forward by the Commission (!) (paras. 105-106).
The most remarkable part of the Opinion is that the Advocate General dismisses the relevance of the national indicative targets for renewable electricity production. Directive 2001/77/EC requires that a certain percentage of electricity production must stem from renewable energy sources. The percentage is indicative only, although in the new Directive (2009/28/EC) the percentage is compulsory. The way in which this percentage is achieved varies in every Member State. Belgium tries to meet its obligations by requiring a part of the supply of electricity to stem from renewable sources within Belgium. Electricity suppliers are required to surrender a number of green certificates to meet their quota. Obviously, if electricity suppliers can use foreign green electricity the whole system is undermined, because green electricity produced in Belgium is no longer guaranteed access to the Belgian grid. The only way to solve this problem is to allow the use of green electricity imports for the fulfilment of national targets. To avoid double counting, this should then be deducted from the target amount of green electricity production in the country of export (the Netherlands, for example).
Unfortunately, the rules regarding transfers have not been harmonized (the new Directive only allows for statistical transfers upon mutual agreement between Member States). Nevertheless, the Advocate General proceeds to argue that Belgium’s need to achieve its targets cannot serve as a ground for justification:
Si nous sommes sensible à la préoccupation d’éviter une répartition inégale entre les États des installations de production d’électricité à partir de sources d’énergie renouvelables, nous estimons toutefois que la protection de l’environnement relève d’une politique commune de l’Union. La protection de l’environnement ne fait d’ailleurs pas l’objet d’une appréhension purement nationale, mais elle bénéficie d’une dynamique européenne, notamment en matière de lutte contre le changement climatique (44). Il convient, dès lors, de tenir également compte des avantages susceptibles de résulter des échanges d’électricité verte au sein de l’Union. Si l’impact réel de tels échanges est difficilement mesurable, il est permis de penser qu’ils pourraient contribuer à faire baisser le coût des énergies renouvelables en permettant une localisation plus rationnelle de la production. (para 110)
The Advocate General uses a teleological approach here. What matters is the protection of the environment, which is served just as much by importing green electricity from other Member States as using domestic sources. The fact that the Belgium’s choice of system makes it difficult to meet its targets cannot justify violations of Belgium’s obligation to facilitate the trade in green electricity on its market, especially considering the efficiency benefits a functioning internal market for green electricity can bring.
This might sound a bit harsh for Belgium, as all Belgium is trying to do is to achieve the quota set by the Directive. Belgium is put in a bit of a catch 22 situation here: either facilitate the free movement of goods and potentially fail to meet the targets set by the directive, or reach the targets set by the directive and obstruct the free movement of goods. But it is not as bad as it seems. First of all, Belgium can choose other ways to achieve its targets (for example, though subsidies). And secondly, it can change its laws to permit imported green electricity to be used for its national targets (the Advocate General barely touches upon this issue in paras 108-109). The real problem here is the lack of harmonization in this matter and the excessively Member State-centric approach of Directive 2001/77/EC (the new Directive perpetuates the problem). A real EU-wide policy on sustainable energy production would arguably achieve two goals in one: facilitating free movement (leading to more competition and higher levels of efficiency) and ensuring a high level of protection of the environment.