Posts Tagged State aid

Fremoluc: CJEU adopts a lenient (from MS standpoint) view on ‘purely internal’ measures. (External element easy to engineer, though).

In C-343/17 Fremoluc the CJEU held last week. It features as counsel no less than 4 fellow faculty at Leuven Law: 5 if one counts prof Elke Cloots whom we foolishly let escape to elsewhere – and who was the most vociferous (and, it would seem, persuasive) at the hearing, I understand. Had we had either one of my two collegae proximi who serve as judges on the CJEU assigned to the case, there would have been more residents of Collegium Falconis at Kircherg on the day of the hearing then there have recently been at Faculty meetings. But I digress.

The case essentially concerns services of general economic interests (SGEIs), as applied to the social housing sector: what kind of measures may a Member State roll-out to support the provision of such housing, in light of the free movement of not just persons but also services and capital. By extension, the case-law is also relevant to property rights restrictions across the EU.

In the case at issue applicant had seen a purchase of land torpedoed by the right of pre-emption of a relevant agency, relating to building land situated in areas earmarked for house renovation and house-building in 26 municipalities in its operating area. Fremoluc suggested the condition in the underlying decree that ‘as regards the provision of homes or land in a social housing project…, absolute priority must be given, at any stage of the project, to prospective tenants, leaseholders or buyers who have strong social, economic or socio-cultural ties with the operating area in question’, constitute an illegal condition under EU law. Consequently, it argued, the right of pre-emptive purchase itself was illegal.

The CJEU however, with reference to relevant case-law (please refer to the text of the judgment for same), held that the case was inadmissible, for it is purely internal: at 28-29: ‘it is not sufficient for the referring court to state that it is not inconceivable that nationals established in other Member States were or are interested in making use of Union provisions on fundamental freedoms to carry out activities in the territory of the Member State which enacted the national legislation in question and, consequently, that that legislation, applicable without distinction to nationals and to nationals of other Member States, is capable of producing effects which are not confined to that Member State.’ ‘The request for a preliminary ruling must clearly set out specific factors, that is, not hypothetical considerations but specific evidence, such as complaints or applications brought by operators situated in other Member States or involving nationals of those Member States, on the basis of which the required connecting link may be positively established. More particularly, the referring court may not merely submit to the Court evidence suggesting that such a link cannot be ruled out or which, considered in the abstract, could constitute evidence to that effect, and must, on the contrary, provide objective and consistent evidence enabling the Court to ascertain whether such a link exists.’

Such evidence of course in practice is easily engineered. A similar case therefore is bound to return to Luxembourg at some point soon.

Geert.

 

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Ach no! CJEU distinguishes rather than extinguishes its Preussen Elektra case-law in Germany v EC. State aid for renewable energy.

Update May 2019. The General Court’s judgment upon appeal was annulled by the CJEU in Case C-405/16 P at the end of March. In essence, as TaylorWessing point out, although the German State controlled the implementation of the EEG surcharge, it did not control the sums generated, so that the existence of State aid is ruled out.

 

The rather long judgment in T-47/15 Germany v Commission is neatly summarised by the CJEU here. I have reported before on both the State Aid and the free movement implications of the Court’s seminal findings in Preussen Elektra. In current case, the Court essentially upholds the EC’s finding of the more recent German regime amounting to illegal State aid and incompatibility with the Internal Market – in contrast with its earlier findings in Preussen Elektra.

Disappointingly, Preussen Elektra was distinguished rather than its merits called into question. Rather like Advocate-General Bot I stubbornly insist that Preussen Elektra is bad case-law and I continue to call upon the Court to scrap its findings in same.

Geert.

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‘We did not like it. Not one little bit!’ Bot AG reads Dr Seuss in Essent 2.0.

Perhaps because it so reflected our children’s character [all ‘Duracell‘ kids] there is one part of Dr Seuss’ Cat in the Hat which has always stuck with me:

so all we could do was to

sit!

   sit!

      sit!

         sit!

and we did not like it.

not one little bit.

I was reminded of the line, reading Bot AG’s Opinion in Case C-492/14, ‘Essent 2.0’ (not yet available in English at the time of writing). In order to promote the generation of renewable energy, Flanders law makes transmission of electricity generated from renewable sources, free of charge. However this courtesy is limited to electricity generated in installations directly connected to the grid. Essent imports (a considerable part of) its green electricity from The Netherlands. It does not therefore enjoy free transmission.

Bot’s disapproval of trade restrictions like these is well established and has often been reported on this blog. The CJEU disagrees with its AG on many of the issues. I am in general of the same view as the AG. Mr Bot continues to find the Court’s case-law unconvincing and makes no attempt to hide it. He repeatedly mentions that he is duty-bound to apply Essent /Vindkraft without believing they are good law. It is with obvious regret that he Opines that given the Court’s stand in Essent /Vindkraft, he has no option but to propose that the Court find the Flemish regime acceptable.

The AG does however leave open a future window for change: in particular, if and when the secondary law regime on renewable energy specifically, and energy as a whole, is amended, one may be able to distinguish Essent /Vindkraft.

Bot also reminds us of the unclear position of environmental exceptions under Article 36 TFEU and the Rule of Reason. He calls upon the Court formally to acknowledge that the Cassis de Dijon distinction between the Rule of Reason and Article 36 (the former does not allow ‘distinctly applicable’ national measures (read’ discrimination) while the latter does) no longer exists.

I do not like judgment in Preussen Elektra. Or in Essent. Not one little bit. It discourages the creation of a true European energy market. Perhaps the Court will surprise us all in Essent 2.0 and will correct some of the damage it has done with its standing case-law on the matter.

Geert.

 

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Your call, sir: The ECJ leaves it to the national court in Essent to deliver ultimate sentence on support scheme for renewables.

Current post is best read in conjunction with my post on Vindkraft . The essence of the questions put to the Court was whether the Treaty’s rules on the free movement of goods, preclude a national support scheme, such as that at issue in the main proceedings, which provides for the issuance, by the competent regional regulatory authority, of tradable certificates in respect of green electricity produced on the territory of the region concerned and which places electricity suppliers under an obligation, subject to an administrative fine, to surrender annually to that authority a certain number of those certificates corresponding to a proportion of the total volume of the electricity that they have supplied in that region, without those suppliers being allowed to fulfil that obligation by using guarantees of origin originating from other Member States of the European Union or non-member States which are parties to the EEA Agreement.

The ECJ, like in Vindkraft, first of all does not rule on the qualification of certificates of origin as being ‘goods’ or not: the legislation at any rate hinders the free movement of the electricity underlying the certificates.

It subsequently basically confirms the main findings of Vindkraft, including the absence of express reversal of the non-applicability of the Rule of Reason  to discriminatory measures (please refer again to my Vindkraft posting should the previous sentence make you scratch your heads). Yes, the Flemish regime restricts trade. Yes, this can be justified for environmental reasons. However, the Court does emphasise the proportionality test. In Vindkraft, the ECJ itself held the scheme to be compatible with the Treaty by virtue essentially of its highly transparent and market-driven character. In Essent, however, this final call is left to the national judge. For the Flemish scheme to meet the proportionality test, it is important that mechanisms be established which ensure the creation of a genuine market for certificates in which supply can match demand, reaching some kind of balance, so that it is actually possible for the relevant suppliers to obtain certificates under fair terms (at 112).

Furthermore, the fine in the absence of quota fulfilment must not impose excessive penalties imposed on the traders concerned (at 114). It is for the national court to verify this.

I had flagged the much less market-oriented character of the Flemish scheme as a distinguishing factor viz Vindkraft. It is now up to the Brussels court of first instance (and others beyond it, one imagines) to deliver the ultimate verdict.

Geert.

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Renewable energy and trade: Now it’s all clear, Essent it? The ECJ in Vindkraft.

Post-script 28 August 2014: The ECJ will hold in Essent C-204/12 on 11 September

Updated 11 September: see here for review of judgment in Essent.

As reported, the ECJ last week held in Vindkraft. It did not follow the lead of Bot AG who had suggested inter alia that Directive 2009/28 itself  (which the ECJ has now found is not exhaustive on the issue of territorial restrictions of support schemes, hence requiring assessment under primary EU law) is contrary to EU primary law in allowing Member States to discriminate against foreign produced renewable electricity by limiting access to their national support scheme to electricity generated on their territory; and that such illegality is not backed by the environmental exceptions to the Treaty. I had suggested at the time of the AG issuing his Opinion in the related case of Essent, that there is in my view merit in the argument that the relevant Union laws require Member States to roll-out their own, national renewable energy capabilities, and that systems such as the Flemish one (in Essent) or Swedish one (Vindkraft) may be required to support industry to work towards that goal.

The ECJ agrees. Member States can continue to restrict access to their support schemes (in the strict sense of not rolling out financing to renewable energy of foreign origin): this constitutes an infringement to the free movement of goods but one which can be justified. In Preussen Elektra the ECJ had allowed the German scheme despite it being discriminatory. This might have been an implicit reversal of the case-law that infringements of the free movement of goods may only be based on the court-invented ‘mandatory requirements’ (of which environmental protection is one; as opposed to those societal interests which are included in the explicit list of exceptions of Article 36 TFEU) where they do not discriminate. (Not, such as is the case here, where they undoubtedly discriminate). That it might have been such reversal  had led the AG to suggest, finding support in the integration principle, that the Court in Essent should make that reversal explicit. In the end the Court decided Vindkraft before Essent (which is still pending) and simply refers (at 80) to its Preussen Elektra case law: no explicit reversal.

That is unfortunate for we are now left to ponder whether Preussen Elektra /Vindkraft (probably also Essent?) needs distinguishing (making reneable energy /Kyoto /UNFCCC commitments stand out from other environmental requirements)?

The Court instead focusses on proportionality. In that assessment, as pointed out by Catherine Banet, the ECJ emphasises the market-based elements of the Swedish scheme (the certificates can be sold separately from the underlying electricity and the market is operated in a transparent and liquid fashion): a less market-oriented approach may not have survived ECJ scrutiny.

Deciding Vindkraft together with Essent would have been helpful. Instead, Essent still contains another angle: namely certificates of origin (as opposed to only green certificates. Green certificates are used by a Member State to show its meeting its obligations to produce a minimum amount of electricity from renewable sources. Certificates of origin allow an electricity distributor to prove that x amount of its electricity distributed, originates from renewable energy). The Flemish support scheme for renewable energy at issue in Essent, grants renewable energy certificates to producers of such energy only if they are located in the Flemish Region, and obliges electricity distributors to surrender a minimum amount of such certificates without being able to offer such certificates obtained in other EU Member States. Taking the lead of the Court in Vindkraft, the Flemish scheme looks more vulnerable to me.

In conclusion: no, it Essent yet clear.

Geert.

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Essent, Vindkraft: Bot AG turns on the heat in suggesting secondary EU law infringes primary law

After his Opinion in Essent, Bot AG has turned on the heat on the ECJ in a case with many similarities, Case C-573/12 Vindkraft. Catherine Banet, a former student of mine, has excellent analysis linking the two cases here. Vindkraft concerns the successor to Directive 2001/77 (at stake in Essent), i.e. Directive 2009/28. The Advocate General essentially argues that the new Directive itself is contrary to EU primary law in allowing Member States to discriminate against foreign produced renewable electricity by limiting access to their national support scheme to electricity generated on their territory; and that such illegality is not backed by the environmental exceptions to the Treaty.

The ECJ has not yet held in Essent. As I have noted, it is far from guaranteed that it will follow all of the AG’s lead. (The Opinion at the time of posting was not yet available in English).

Geert.

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Know your biomass from your biomass! The ECJ allows less favourable treatment of wood and wood waste in Industrie du bois de Vielsalm

In Industrie du bois de Vielsalm, Case C-195/12, the ECJ yesterday held in favour of the Walloon Region of Belgium, finding that a regional support scheme providing for the grant of ‘green certificates’ to cogeneration plants, which grants a larger number of green certificates to cogeneration plants processing principally forms of biomass other than wood or wood waste, does not infringe the principle of equality and non-discrimination.

The Court found first of all that Directive 2004/8 on the promotion of co-generation does not exhaustively regulate national support schemes for cogeneration and electricity production from renewable energy sources: Member States are given wide discretion.

It then argued that there are sound environmental reasons for discriminating against wood and wood waste in co-generation support schemes:

‘ (…) even at the level of the renewable nature of the resource, and hence from the point of view of its availability, as also from the point of view of sustainable development, prudent and rational utilisation of natural resources, and security of supply, wood, which is a resource whose renewal requires a long period, may be distinguished from agricultural products or household and industrial waste, whose production takes place in a much shorter space of time. (at 74)

‘Furthermore, it is common ground that the overall environmental impact produced by the increased use of biomass for energy production likely to follow from support measures differs according to the particular characteristics of the type of biomass used. As regards the environmental impact that could follow from enhanced support measures for the use of wood and/or wood waste for energy production, it may thus prove necessary to take into account that any excessive or premature deforestation which may be encouraged by such support measures is liable to contribute to an increased presence of carbon dioxide in the atmosphere and adverse effects on biodiversity or water quality.

Increased development of agricultural products intended for energy production is liable for its part to increase various forms of pollution specifically linked with agricultural activities, in particular with the use of fertilisers and pesticides, such as adverse effects on the water supply. (at 75 ff)

Finally, factors such as the quantities in which the various renewable energy sources are present in the territory of the Member State concerned, or the level of development that may already have been achieved there as regards recourse to one or other renewable energy source for cogeneration or electricity production, are also capable of influencing the choices to be made with respect to the renewable energy sources to be promoted in that Member State for the purposes of environmental protection and security and diversification of the energy supply. (at 79)

 

It concluded

‘Having regard to all the foregoing, it must be considered that, in the light in particular of the objectives pursued by Directives 2001/77 and 2004/8 and the aims of the European Union in the field of the environment, and of the broad margin of discretion allowed to the Member States by those directives for the adoption and implementation of support schemes intended to promote cogeneration and electricity production from renewable energy sources, and having regard to the individual characteristics of the various categories of biomass capable of use in a cogeneration process, those categories must not be regarded in the context of such support schemes as being in a comparable situation for the purposes of the possible application of the principle of equal treatment, observance of which is ensured by European Union law.

The need to be able to treat those various categories of biomass differently and, in particular, in the light of various environmental considerations, to make choices as to the types of substances to benefit from support and to draw distinctions as regards the specific details of that support, including the amount of the support, must on the contrary be regarded as inherent in that context, without it being possible to consider, in the present state of European Union law, that by taking the view that those various categories of biomass are not in the same situation the Member States manifestly exceeded the limits of their broad discretion in the matter (see, by analogy, Luxembourg v Parliament and Council, paragraphs 50 and 51). ‘(at 80-81)

 

This last para is a textbook application of the principle of non-discrimination: treating different situations like, may also constitute a violation of the principle of equal treatment. Here, the difference in circumstance is entirely explained by the ECJ by recourse to the environmental qualities of different types of fuel.

Geert.

 

 

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