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Ålands Vindkraft: Swedish Green Electricity Certificate System Complies With European Free Movement of Goods Rules

In a landmark case, the Court of Justice of the European Union (CJEU) today ruled against Ålands Vindkraft and decided that the Swedish certificate system to promote renewables is in line with the European free movement of goods rules. CJEU deviated from an opinion given by the Court’s Advocate General Yves Bot on 28 January 2014. The decision means that the European Renewables Directive does not have to be revised because of non-compliance with the free movement of goods principle from the Treaty on the Functioning of the European Union (TFEU). If the Court had decided otherwise, this would also have called the EU law compliance of the current German EEG 2.0 revision into question. 

In a preliminary ruling under Article 267 TFEU, the CJEU considered Swedish legislation providing for the award of tradable certificates to green electricity producers solely in respect of green electricity produced on Swedish territory not to be in breach of EU law.

Mr Bot had expressed the view that the Swedish national renewable energy support scheme complied with the Renewables Directive 2009/28/EC, but that Article 3(3) of the Directive was invalid because it was in breach of the Treaty principle of the free movement of goods to the extent that it permitted a Member State to deny or restrict access to its national support regime to producers whose plants were situated in other Member States. As the German EEG also relies on restricting support to renewable energy generated in Germany, a decision of the ECJ siding with Mr Bot’s argument would have meant that the German EEG would also have violated the Treaty principle of the free movement of goods. This part of the EEG 2.0 revision discussion has now been resolved.

1. Background of the Case

The case was referred to CJEU by the Swedish Court förvaltningsrätten i Linköping. It concerns the denial to award green electricity certificates to Finish Ålands Vindkraft AB, which operates the Oskar wind farm, located in the Åland archipelago in Finland. The Finish wind farm feeds into the Swedish grid. The Swedish Energy Agency Energimyndigheten had justified its refusal on the grounds that only green electricity production installations located in Sweden may be approved for the award of electricity certificates.

The Swedish court referred the matter asking for guidance regarding  the interpretation of point (k) of the second paragraph of Article 2 and Article 3(3) of Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of the use of energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC (OJ 2009 L 140, p. 16), and of Article 34 TFEU.

Below we will highlight key aspects of the judgement, indicating where CJEU deviated from Advocate General Bot.

2. Swedish Support Scheme in Compliance with Article 2 and Article 3(3) of Directive 2009/28/EC

In line with Advocate General Bot CJEU answered the first question raised by the Swedish Court as follows:

“Point (k) of the second paragraph of Article 2 and Article 3(3) of Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of the use of energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC must be interpreted as allowing a Member State to establish a support scheme, such as that at issue in the main proceedings, which provides for the award of tradable certificates to producers of green electricity solely in respect of green electricity produced in the territory of that State and which places suppliers and certain electricity users under an obligation to deliver annually to the competent authority a certain number of those certificates, corresponding to a proportion of the total volume of electricity that they have supplied or consumed.”

2. No Breach of Article 34 TFEU

Unlike Advocate General Bot, however, CJEU held that:

“Article 34 TFEU must be interpreted as not precluding national legislation, such as that at issue in the main proceedings, which provides for the award of tradable certificates to green electricity producers solely in respect of green electricity produced in the territory of the Member State concerned and which places suppliers and certain electricity users under an obligation to surrender annually to the competent authority a certain number of those certificates, corresponding to a proportion of the total volume of electricity that they have supplied or used, failing which they must pay a specific fee.”

CJEU still agrees with Mr Bot in saying:

“Against that background, it cannot be considered that, in covering that aspect of the territorial scope of national support schemes, the harmonisation brought about by Directive 2009/28 in the field of support schemes was of such a kind as to preclude an examination of their compatibility with Article 34 TFEU (see, by analogy, Radlberger Getränkegesellschaft and S. Spitz, EU:C:2004:799, paragraphs 54 to 57).”

“In the light of all the foregoing, it must be held that legislation such as that at issue in the main proceedings is capable of impeding imports of electricity, especially green electricity, from other Member States and that, in consequence, it constitutes a measure having equivalent effect to quantitative restrictions on imports, in principle incompatible with the obligations under EU law resulting from Article 34 TFEU, unless that legislation can be objectively justified (see, to that effect, inter alia, Commission v Austria, C‑320/03, EU:C:2005:684, paragraph 69).”

Unlike Mr Bot, CJEU considers the Swedish national legislation justified

A main point in assessing the proportionality for CJEU is again the lack of harmonisation of the national support schemes for green electricity in the EU Member States. CJEU points out:

“However, since, in particular, EU law has not harmonised the national support schemes for green electricity, it is possible in principle for Member States to limit access to such schemes to green electricity production located in their territory.”

The court goes on the say:

“First, the fact that a national support scheme is designed to favour directly the production of green electricity, rather than solely its consumption, can be explained, in particular, by the fact that the green nature of the electricity relates only to its method of production and that, accordingly, it is primarily at the production stage that the environmental objectives in terms of the reduction of greenhouse gases can actually be pursued.

By contrast, and as was pointed out in paragraphs 87 and 90 above, once the green electricity has been allowed into the transmission or distribution system, it is difficult to determine its specific origin and, accordingly, its systematic identification at the consumption stage as green electricity is difficult to put into practice.”

CJEU then argues against a breach of Article 34 TFEU, relying on various arguments derived from Directive 2009/28 (see no. 97 to 102) and legitimate expectations of (Swedish) investors in renewable sources (see no. 103).

The court also examines

“whether, considered together with that territorial limitation, the other features of the legislation at issue in the main proceedings to which the referring court refers support the conclusion that, viewed as a whole, that legislation meets the requirements entailed by the principle of proportionality.”

but does not find fault (see no. 105 to 118).

3. Fourth Question – Principle of Legal Certainty

By its fourth question the referring court had asked,

“in essence, whether, on the assumption that Article 34 TFEU must be interpreted as not precluding legislation such as that at issue in the main proceedings, in so far as that legislation reserves the support measures introduced to green electricity production in the territory of the Member State concerned, EU law — including, in particular, the principle of legal certainty enshrined therein — does, on the other hand, preclude a situation in which the restriction of the territorial scope is not expressly laid down in that legislation.

CJEU pointed out that

“As regards the question raised by the referring court, it should be noted first of all that, in keeping with the answer given by the Court to Question 1, the support scheme at issue in the main proceedings constitutes a support scheme within the meaning of point (k) of the second paragraph of Article 2 and Article 3(3) of Directive 2009/28, the purpose of which — as is apparent from the latter provision — is accordingly to help the Kingdom of Sweden meet its mandatory targets under the directive in relation to the production of green electricity in its territory.”

It concluded that

“It is for the national court to determine, taking into account all relevant factors — which may include the EU legislative context in which the legislation at issue in the main proceedings arises — whether, in terms of its territorial scope, that legislation meets the requirements of the principle of legal certainty.”

4. Relevance for German EEG 2.0 Revision

The German EEG 2.0 revision is subject to close European law compliance review. In addition to European state aid law challenges, its compliance with the free movement of goods principle had been called into question. Had the ECJ decided otherwise, it would have meant non-compliance of the upcoming German EEG 2014 with European primary law. An important political question would then have been whether Member States would be prepared to support the generation of renewable energy in other Member States. This question no longer arises, and Germany can proceed with the legislative process. In particular, this issues does not need to be discussed in the upcoming session of the Federal Coucil, expected for 11 July 2014.

However, it remains to be seen whether or to what extent we will now have renewed interest in cooperation between Member States through joint projects relating to the production of renewable electricity in Europe, as provided for in Article 7 of the Renewable Energy Directive, or voluntary coordination of national support schemes pursuant to Article 11 of the Renewable Energy Directive.  Presently, such cooperative measures only exist between Sweden and Norway. But after the latest last minute changes, the new German EEG 2.0 also contains a specific opening clause to tender at least 5% new renewables projects Europe-wide, starting 2017 at the latest and provided the necessary agreements are concluded with other Member States, including reciprocity provisions.

Today’s decision of the ECJ does not cover state aid law, and therefore does not provide further clarification on the pending state aid law discussions [1]surrounding the EEG 2.0 revision.

Source: CJEU [2]

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