Hinkley Point C – Is semi-permeable membrane protecting the internal market’s nucleus?
Who would have thought that a case from the UK would potentially shape the EU State aid policy for years to come, being decided just around the time of the UK’s exit from the EU? This situation is made all the more particular as many state aids lawyers have suggested that the applicant, Austria, is rather unlikely to succeed in the case of Hinkley Point C.
The Commission Decision 2015/658 of 2015 and the lengthy GC judgment in this case have been summarised and annotated elsewhere. The case concerns the approval of the UK’s scheme for the building of a new nuclear reactor, which involved a guaranteed price for the electricity produced for a number of years.
Recently, AG Hogan’s Opinion was released. The Opinion raises a number of issues and shows the importance of the case. One central question that should be answered is whether the promotion of nuclear energy as a core objective of the Euratom Treaty (Euratom) is an objective that might justify State aid. However, the Opinion raises other questions. As brilliantly explained by Fernando Pastor-Merchante, the Opinion proposition has some rather fundamental implications. It could remove Article 107(3)(c) TFEU from the Commission’s toolbox for shaping State aid in the EU. It would reduce the Commission’s competence by allowing the Member States free reign in handing out State aid under Article 107(3)(c) TFEU. The Commission’s discretion would be dramatically reduced, examining only possible effects on competition and trade within the internal market.
This brief note focuses, however, on another element of the Opinion. One with equally broad application. The question of whether and which other objective and provisions contained in Treaty provisions are of relevance in the context of the interpretation of EU State aid law, and in particular Article 107(3) TFEU.
The Opinion paints a rather fascinating picture of the Article 107 (3) TFEU and the competition provisions protecting the internal market. The Opinion suggests the existence of something akin to an invisible, semi-permeable membrane or wall surrounding and enclosing the competition provisions, and in this case Article 107(3) TFEU.
Semi-permeable membranes are rather curious inventions of nature. Those membranes keep the majority of elements out and let through only some selected ones. The semi-permeable membrane developed in the Opinion portrays the competition provisions protecting the internal market and Article 107(3) TFEU as removed and protected from other objectives and provisions of the Treaty. But at the same time it lets through the objective of promoting nuclear energy and e.g. Article 194(2) TFEU which relates to the Member States’ freedom to choose their energy source, which as a consequence directly influences the application of Article 107(3) TFEU in this case.
The following takes a closer look at the semi-permeability suggested by the Opinion, exploring what is kept outside and what is let through and the reasons provided for it. Finally, it focuses on the area where the Opinion lacks explanatory value by putting the suggestion into a broader context and asking whether the different treatment between ‘let through’ elements and elements ‘kept out’ can be justified.
The semi-permeable membrane as per the Opinion
The Opinion needs to be understood against the backdrop of Austria’s argument that it would be legally wrong only to apply Article 107(3)(c) TFEU and not to take account of other provisions when determining the legality of the aid. Austria advances Article 11 TFEU, Article 37 of the EU Charter of Fundamental Rights (Charter), and Article 194(1)(c) TFEU. Article 11 TFEU and 37 of the Charter in essence impose an obligation that requires that ‘environmental protection […] must be integrated into the polices of the Union’ and Article 194(1)(c) TFEU explains that the EU’s aim in energy policy includes the ‘need to preserve and improve the environment … [ and the promotion] of energy efficiency and energy saving and the development of new and renewable forms of energy.’ (And obviously Austria suggested that this would change the outcome of the case).
The Opinion proposes that those provisions should not be able to influence Article 107(3) TFEU. It argues that EURATOM would be a lex specialis to the TEU and the TFEU, so that the rules of the TEU and TFEU would only apply where the EURATOM does not contain specific rules (para 37-38). The Opinion rejects Austria’s argument
‘that other Treaty objectives, like environmental protection, the ‘polluter pays’ principle and Article 37 of the Charter (relating to environmental protection) must also be taken into account [because this would] essentially [amount] to saying that nuclear power is per se inconsistent with the environmental objectives of the TFEU and that, accordingly, State aid of any form to assist the construction or operation of such plants should not be countenanced’ (para 39-40).
The Opinion, then, continues by identifying atomic energy as a hotly debated (political) issue in terms its environmental implications and suggests that ‘this Court has quite obviously neither the competence nor, just as importantly, the democratic legitimacy to rule on such issues […and any different conclusion would hollow out] the effet utile of Article 106a(3) of the Euratom Treaty and the second subparagraph of Article 194(2) TFEU’ (para 41-43). Article 106a EURATOM contains ‘Institutional and Financial Provisions’ and its para 3 states that the EU Treaties ‘shall not derogate from the provisions of [the EURATOM]’.
The Opinion rejects Austria’s argument that where Article 107 TFEU applies ‘other principles of EU law’ would also need to apply (para 83). for three reasons:
- Because the EURATOM as lex specialis contains provisions on ‘Health and Safety’ and no room ‘for the application of [any] other principles of EU law in that area’ (para 84)
- Under the lex specialis view, Article 106a(3) EURATOM blocks other provisions of the EU Treaties. Article 106a(3) applies even though it relates to the legal basis (aiming to ensure that the legal bases of the TEU and TFEU are not be used to derogate from EURATOM) as this focus does not prevent its application to other areas (para 85).
- Because energy policy is a shared competence and Member States must be given ‘room for manoeuvre when it comes to their energy supply’ due Article 194(2) TFEU. This Article provides that EU action (under the energy provisions) shall not prejudice the ‘Member State’s right to determine the conditions for exploiting its energy resources, its choice between different energy sources’ (para 86-87).
Thus, the Opinion presents something that can be described as a version of ‘semi-permeability’: Some provisions are able to influence the interpretation of Article 107(3) TFEU while others are not allowed to permeate and interact with Article 107(3) TFEU.
On the one hand, the Opinion suggests that in the application of Article 107(3) TFEU and in particular regarding the question whether the measure promotes an objective of common interest, one has ‘not only [to take into account] Article 106a(3) of the Euratom Treaty [but equally it has to be ensured that the Commission is not given too broad a] competence […as] that would clearly limit the Member States’ autonomy in [the] area [of energy]’ (para 86).
On the other hand, it suggests that the ‘protection of the environment, the precautionary principle, the ‘polluter pays’ principle and the principle of sustainability’ would only have to be taken into account where they are pursued by the measure in question or where the object of the aid measure is ‘inextricably linked’ to other EU law provisions (para 89-90). And that overall, the Commission’s task is ‘simply to assess whether the State measure in question “may be considered to be compatible with the internal market” [defined as an area “without internal frontiers in which the free movement of goods, person, services and capital is ensured in accordance with the provision of the Treaties” in as Article 26(2) TFEU]’ (para 115-117 and 10).
Overall the Opinion therefore concludes that the development of nuclear power is ‘a clearly defined objective of EU law [that] cannot be subordinated to other (and, on one view, possibly conflicting) objectives of EU law, such as the protection of the environment contained in Chapter XX of the TFEU.’ Moreover, one would have to protect the Member States’ ‘right to choose’ their energy source, as per Article 194(3) TFEU (para 105, point 5).
A rather surprising membrane
The argument of the Opinion seems to suggest something akin to a semi-permeable membrane around Article 107 TFEU. This may seem rather perplexing. This is so for three reasons. 1) It seems to contradict the expressed wishes of the drafters of the Treaties. 2) It seems to contradict the case law. 3) It seems not explained why the membrane surrounding the competition provisions is semi-permeable and thus only lets selected objectives and legal provisions pass through in order to influence Article 107(3) TFEU.
It would seem rather strange that other objectives of the EU would be completely irrelevant in the context of Article 107(3) TFEU (the exception to the rule) just because the State aid provisions are intended to protect competition. While this is a very purist view, the Opinion goes further. It applies an ‘interpretative stretch’ to declare that the competition provisions are aimed at protecting the internal market.
But the internal market itself is a rather abstract concept which does not exist for its own sake but is at the service of the EU’s overall aims. Even the definition of internal market in Article 26 TFEU to which the Opinion refers, is further qualified ‘in accordance with the provisions of the Treaties.’ One of these provisions is Article 11 TFEU which requires that environmental protection requirements ‘must be integrated into the definition and implementation of the Union’s policies and activities.’ This wording is rather broad. But it was intended to be broad to make this obligation applicable to ‘all areas’ of EU policies, including the internal market. Hence, completely ignoring this relevant obligation and other objectives of the EU seems to go rather against the intentions expressed by the drafters.
2. Case law
The suggestion that Article 11 TFEU and Article 37 Charter are completely irrelevant also seems difficult to square with the general case law.
On the one hand, the European Court of Justice (ECJ) had in British Aggregates ruled that an obligation to take account of environmental protection requirements exists, but that this requirement would not be relevant in Article 107(1) TFEU ‘as account may in any event usefully be taken of the environmental objectives when the compatibility of the State aid measure with the common market is being assessed pursuant to Article (3)’ (para 90-92). If this suggestion on the relevance of Articles 11 TFEU and 37 Charter for Article 107(3) is, on the other hand, ignored, the obligation of those two provisions seems in its entirety abolished. They would be neither relevant in the definition of aid under Article 107(1) TFEU nor in its exemption pursuant 107(3) TFEU.
Moreover, the Opinion’s suggested lex specialis relationship between Article 106a(3) EURATOM and the environmental clauses seems also not to help. Article 106a(3) EURATOM is related to ‘Health and Safety’ which is not the same as environmental protection. It would seem rather odd to suggest that the health and safety rules are leges speciales to the EU environmental rules. The building of a nuclear power plant compliant with all of the EURATOM’s ‘Health and Safety’ rules does not seem to imply that such a power plant can be built wherever one desires and that the protected status of an area under EU (environmental) law is not relevant (anymore).
At the same time, and possibly more importantly, even in the area of ‘health and safety’, the lex specialis argument would lead to rather odd outcomes. It is hard to imagine that Charter provisions relating to the right to life and health (Articles 2 and 3) would not be applicable just because Article 106a(3) EURATOM is a lex specialis and all health and safety requirements under EURATOM have been complied with.
It is exactly this scope of the Charter that seems to be ignored if legal obligations are declared irrelevant in the context of State aid just because the measure pursued other objectives (in this case the promotion of nuclear energy). The EU institutions cannot simply ignore legal obligations imposed upon them by eg the Charter. The ECJ in Steinhoff (for a comment see here) clarified that the European Central Bank (ECB) had to comply with the Charter, even where it only provides advice to a government which in turn decides on how to deal with its sovereign debt. Similarly, the Commission always has to ensure Charter compliance even with regard to the actions ‘outside’ of EU law, ie within the framework of the European Stability Mechanism programme (Ledra Advertising, for a comment see here).
Steinhoff and Ledra Advertising have two further important implications for the relationship between requirements imposed upon the EU institutions and their decisions.
First, the obligation of respecting the requirements of the Charter as demanded by these judgments does not mean that the ECB or the Commission’s actions are pre se illegal. In the same way – and contrary to what the Opinion seems to suggests – taking Article 11 TFEU or Article 37 Charter into account would not ‘essentially [amount] to saying that nuclear power is per se inconsistent with the environmental objectives of the TFEU and that, accordingly, State aid of any form to assist the construction or operation of such plants should not be countenanced’ (para 39-40). Instead, as made clear in Steinhoff and Ledra Advertising, a sufficiently serious violation, for example in form of a manifest violation, needs to be established to invalidate such a decision. In fact, it is not clear whether taking account of Article 11 TFEU or Article 37 Charter would change the outcome of Hinkley Point C.
Second, Steinhoff and Ledra Advertising also make clear that the legal obligation imposed eg by means of the Charter apply even where the measure pursues other objectives. It is for example not necessary to pursue a health policy objective for right to health to be engaged. The same should apply in the context of State aid. It does not need to pursue a health policy objective for this right to be engaged. Thus, it would seem odd to apply the environmental integration obligation contained in Article 37 Charter and Article 11 TFEU only where an aid measure pursues and environmental objective (para 89 of the Opinion). The same conclusion of applying Article 37 Charter and Article 11 TFEU could also be reached under the Opinion’s suggested ‘intrinsic link to the object of the aid’ test (para 90). Article 194(1) TFEU explicitly links energy to ‘the need to preserve and improve the environment.’ This link provided by the TFEU is even a far more direct link than that required by Steinhoff and Ledra Advertising. These cases, indeed, seem to suggest something much looser: maybe a ‘predictable effect’ test or a ‘manifest disregard of the consequences for the Charter obligations’ test.
Generally, one might well argue that there is a substantive difference between individual rights and other provisions of the Charter such as Article 37 or the obligation of Article 11 TFEU. Yet, such an argument would need to be made and would need to be explained. Moreover, it would still leave open the questions of what distinguishes these environmental clauses from such clauses such as Article 194(2) TFEU establishing the Member States’ freedom to choose the energy source, which according to the Opinion are apparently are relevant in the context of Article 107(3) TFEU.
3. Justifying the semi-permeability
This different treatment of the norms relating to the environment (in particular Article 11 TFEU and Article 37 of the Charter), on the one hand, and nuclear energy as an objective and the Member States’ freedom to choose their energy, on the other, would need to be justified. Why do the latter have to be taken into account in Article 107(3) TFEU while the former should not? What justifies this different treatment?
It is difficult to find an answer to this question in the Opinion. Exploring the Opinion’s arguments in search for an answer might in fact make the whole matter even more confusing. It is argued that the Member States have ‘a right to choose’ (para 3) their energy source based on Article 194(2) TFEU and that ‘[promotion of nuclear energy] objective cannot be subordinated to other (and, on one view, possibly conflicting) objectives of EU law’ (para 42). One might be tempted to add further nuance to these statements: the ‘right to choose’ does not seem to be an absolute right and might well be restricted eg in the name of State aid. Similarly, one might argue that the objective of promoting nuclear energy is subjugated to competition as protected by the State aid rules. Moreover, it seems that the Opinion does not suggest that this application of the State aid rules would hollow out the ‘effet utile’ of Article 106a(3) EURATOM and Article 194(2) TFEU’ (para 41-43). Unfortunately, it remains unexplained why the application of Article 37 Charter of Article 11 TFEU would, in contrast, undermine the effet utile of these provisions.
Finally, while it seems undisputed that the promotion of nuclear energy and the right to choose are limited by internal market provisions, the internal market itself does not take full, absolute, or unconditional precedence over other objectives of the EU whether this is the Member States’ freedom to choose, the promotion of nuclear energy, or the environment (see eg the 1986 Danish Bottles case where environmental protection was first recognised as a mandatory requirement justifying a deviation from the internal market rules).
Overall, it might well be that it does not make a difference for the outcome of this individual case whether or not clauses like Article 11 TFEU and Article 37 Charter need to be taken into account in Article 107(3) TFEU, in particular as no manifest errors in this regard have been established or pleaded.
Yet, it would be important that the ECJ provides guidance on whether a semi-permeable membrane or wall exists around the State aid rules, or maybe even the competition provisions in general. After the Opinion, it remains unclear why certain provisions (Article 106a(3) EURATOM and the right to choose contained in Article 194(3) TFEU) need to be taken into account, while others (integration obligation of Article 11 TFEU and Article 37 Charter) would not. Should such a semi-permeable membrane exist, it needs to be founded on solid ground justifying why some matters are relevant while others are not. Hopefully, the ECJ will provide some clarity on these matters or on whether ‘competition [is or isn’t] special’ as Suzanne Kingston once put it.
 I would like to thank Dimitrios Kyriazis and the editors of the European law blog for comments on an earlier version, errors remain mine.