Flemish support for domestic renewable projects only did not breach EU law, says CJEU

Out-Law News | 15 Sep 2014 | 12:05 pm | 3 min. read

A scheme run in Belgium's Flemish region that offered incentives to domestic renewable energy generators at the expense of imported power did not necessarily breach EU rules on the free movement of goods, the EU's highest court has ruled.

The Court of Justice of the European Union (CJEU) said that the green certificate scheme was capable of hindering imports of green electricity, as it limited suppliers to electricity generated domestically without purchasing certificates or having to pay a fine. However, this restriction could be justified on the grounds of encouraging domestic production of green energy, provided that the scheme allowed importers to obtain green certificates under fair terms in a genuine market and did not penalise them excessively for not producing the certificates.

"National support mechanisms for producers of electricity … must in principle lead to an increase in national production of green electricity," the court said in its judgment. "Member states are not required to recognise the purchase of a guarantee of origin from other member states or the corresponding purchase of electricity as a contribution to the fulfilment of a national quota obligation."

"While the imposition of … a fine may admittedly be considered necessary as an incentive, on the one hand, to producers to increase their production of green electricity, and on the other, to traders subject to a quota obligation to take steps to acquire the requisite certificates, it is none the less necessary that neither the method for determining that fine nor the amount of that fine go beyond what is necessary for the purposes of providing such an incentive ... It will be for the national court to verify, if necessary, whether that is the case as regards the administrative fines at issue in the cases in the main proceedings," it said.

Flemish law requires electricity suppliers to source a certain amount of renewable electricity each year and to submit a number of green electricity certificates to the regulator, the Vlaamse Reguleringsinstantie voor de Elektriciteits en Gasmarkt (VREG), to prove this. The required certificates are only granted in respect of renewable electricity generated in the Flemish region.

Between 2005 and 2009 Essent Belgium, a Flemish electricity provider, submitted 'guarantees of origin' covering renewable energy generated in the Netherlands, Denmark and Norway as part of its quota requirements. VREG did not accept these guarantees and fined the energy company for failing to comply with its quota obligations. Essent challenged this fine in the European courts on the grounds that it

The CJEU took as its starting point the fact that the Renewable Energy Directive required member states to take appropriate steps to encourage the consumption of electricity produced from renewable sources, and to create a system of mutually recognised guarantees of origin to prove the green source of that electricity. However, there was nothing in the legislation to suggest that the EU had intended to establish a link between these two provisions.

"[The purpose of the directive] is not to establish a Community-wide framework regarding national support schemes, but rather to guarantee the proper functioning of existing schemes in order to maintain investor confidence until such a time as a Community framework is put into operation," it said.

"[The directive] states that schemes for the guarantee of origin do not by themselves imply a right to benefit from national support mechanisms established in different member states. Regarding more specifically support mechanisms using tradable green certificates, [the directive] states that it is important to distinguish guarantees of origin clearly from those certificates," it said.

That said, national renewable support schemes must still respect general EU principles, such as that of free movement of goods, and it was clear that the Flemish legislation was "capable, in various ways, of hindering - at least indirectly and potentially - imports of electricity, especially green electricity, from other member states". The legislation was therefore "in principle incompatible with the obligations under EU law" unless it could be "objectively justified", the CJEU said.

EU law allows "overriding requirements relating to protection of the environment" to interfere with free trade provided that the interference is proportionate, the CJEU said. In this case, the national support scheme directly favoured the production of green electricity, which was the most effective stage at which to reduce greenhouse gas emissions. It would be up to the national courts to decide whether the measures were proportionate, it said.