In an important but little-noticed opinion delivered on 8 May, Advocate-General Bot expressed the view that national renewable support mechanisms that recognise renewable generation only where it is certified as originating within the Member State concerned, are in breach of EU rules on the free movement of goods.

Although the question referred to the ECJ relate to the mechanism for guarantees of renewable origin under Article 5 of the Renewables Directive 2001/77 (now replaced by Directive 2009/28), the principles set out in the Advocate-General's opinion seem to be capable of applying equally to the renewable support mechanisms established by many Member States.

Background

Directive 2001/77 provided for Member States to establish arrangements for the issue of guarantees of the origin of electricity produced from renewable sources. A Member State must recognise a guarantee issued by another Member State. In the Flemish region of Belgium, the implementing measures required electricity suppliers to submit to the energy regulator a certain number of renewable energy certificates in fulfilment of an annual quota. Failure to submit sufficient certificates resulted in a penalty. Renewable energy certificates relating to renewable generation located in the Flemish region qualified towards the quota. While guarantees of origin relating to renewable generation located in other Member States could in principle count also towards the quota, in reality the Flemish government had not adopted the necessary detailed rules allowing the regulator to recognise non-Flemish guarantees of origin as equivalent.

Essent, a supplier of electricity in Belgium, was required to submit renewable energy certificates to the Flemish regulator. It submitted a number of renewable energy certificates relating to electricity producers located in Belgium, and guarantees of origin relating to producers located in the Netherlands, Norway and Denmark. In the absence of measures allowing it to recognise the overseas guarantees of origin towards Essent's quota, the Flemish regulator imposed penalties on Essent, totalling approximately €1.5m. Essent appealed, and the Brussels Court of First Instance referred a number of questions to the European Court of Justice for a preliminary ruling, on the questions of whether the Flemish regime was compatible with the Renewables Directive, and whether it was compatible with the rules on the free movement of goods, equality and non-discrimination contained in Articles 28 and 18 of the Treaty on the Functioning of the EU and their counterparts in the EEA agreement.

Analysis

Advocate-General Bot first considered the Renewables Directive itself. He concluded that Article 5 of the Directive provided for the mutual recognition of guarantees of origin exclusively for the purposes of providing evidence of the renewable origin of the electricity. Recital 10 of the Directive also made it clear that Member States were not required to accept guarantees of origin from other Member States, or the purchase of electricity corresponding to those guarantees, as contributing towards national renewable quotas, or as entitled to benefit from national renewable support mechanisms. This analysis of the text was supported by the structure of the Directive. It differentiates clearly between Article 4, which provides for a review by the European Commission of national renewables support mechanisms, and Article 5, which provides for guarantees of origin, intended to facilitate cross-border trade in renewable electricity. Guarantees of origin and green certificates are therefore two very different types of instrument. Finally, Advocate-General Bot noted that the objective of Directive 2001/77 was not complete harmonisation of the sector, but the creation of a transitional regime, allowing Member States to introduce different support mechanisms, on the basis that it was premature to establish an EU framework. To require Member States to accept guarantees of origin in the context of their respective renewables support mechanisms would limit them in a way that the EU legislators had clearly not intended. He therefore concluded that the Directive itself did not require guarantees of origin to be treated as equivalent to green certificates in the context of national support regimes.

The Advocate-General then went on to consider whether Articles 28 and 30 TFEU, and the corresponding Article 11 of the EEA Agreement, create an obstacle to national rules such as those found in the Flemish region.

Restriction of free movement

As a preliminary comment, he noted that electricity is classified as "goods", so that a restriction on the free movement of electricity is in principle contrary to Article 28. There was no need to establish whether the guarantees of origin or the green certificates were goods. 

Although the Flemish rules did not prohibit the import of renewable electricity from other Member States, they favoured producers of renewable electricity established in the Flemish region, because the sale of green certificates produced revenue in addition to that derived from the sale of electricity. Suppliers within the Flemish region would be dissuaded from buying renewable electricity from outside the region, whose source was evidenced by guarantees of renewable origin, because in addition to purchasing the electricity they would need to acquire Flemish green certificates too. The Flemish rules therefore amounted to restrictions on imports.

Justification for the restriction

The next step for the Advocate-General was therefore to determine whether the restriction was justified. While the protection of the environment was not originally a justification for restrictions on free movement, it has gradually become accepted as one. The question was therefore whether the Flemish measures were in fact justified in the interests of the protection of the environment. 

Advocate-General Bot recalled that the European Court of Justice, in its 2001 PreussenElektra judgment, analysed German rules requiring electricity suppliers to purchase electricity from renewable sources located within their respective supply areas. In that case, the ECJ concluded that the rules restricted the free movement of electricity, but were justified under Article 30 TFEU because they contributed to the reduction of greenhouse gas emissions. At that time, the EU electricity market was not fully liberalised, and some obstacles to cross-border trade therefore remained.  In addition, the Court observed that the nature of electricity was such that "once it has been allowed into the transmission or distribution system, it is difficult to determine its origin and therefore the source of energy from which it was produced". The Advocate-General considered that the internal electricity market had developed in the intervening period, such that neither of those possible justifications is now valid.  Since PreussenElektra, the second electricity liberalisation Directive 2003/54 has been adopted, and has further liberalised electricity markets. And precisely because of the Renewables Directive and its introduction of guarantees of origin, the origin of renewable electricity can be determined. The reduction of greenhouse gas emissions was not a convincing justification for restricting free movement, because renewable electricity produced in another Member State would reduce emissions in the Flemish region just as much as renewable electricity produced in the Flemish region.

The Advocate-General was also not convinced by the argument that Directive 2001/77 sets out specific national objectives which could be undermined if state support were made available to all foreign producers of renewable energy. He noted that in its Communication to the Council and European Parliament on the share of renewable energy in the EU, the Commission explained that while national objectives were set out in terms of the consumption of electricity derived from renewable sources, that consumption is defined as the national production plus imports, less exports, and that a Member State could include contributions in the form of imports from other Member States, subject to agreement by the exporting Member State and to there being no double counting. The Commission has therefore recognised the possibility of taking imported electricity into account in determining whether the objectives of the importing Member State are met. On that basis, he did not see how the import of green electricity could undermine the achievement of national objectives. As environmental protection is an EU-wide policy, it is appropriate to take account of the possible benefits of cross-border movements of green electricity. Although it is difficult to measure the impact of such movements, it is conceivable that they could contribute to reducing energy costs by permitting a more rational location of electricity production. 

Advocate-General Bot therefore concluded that while Article 5 of Directive 2001/77 did not prohibit national rules for the support of renewable generation from denying recognition to foreign guarantees of renewable origin, Article 28 TFEU did prohibit them, and they were not justified by the essential requirements of environmental protection.

Comment

While the case arose from what Advocate-General Bot described as a "muddle" between the Flemish regimes for green certificates and guarantees of origin, the principles that he outlines in his opinion seem capable of general application. In particular, his comments about the development of an EU-wide electricity market, and about the value of emergence of guarantees of origin as a means of ensuring that support mechanisms are applied correctly, seem to indicate that certain national renewables support regimes should be opened to renewable generation based in other Member States. If so, that would be a significant development in the creation of an EU-wide renewables market. Of course, there is no guarantee that the ECJ will follow the Advocate-General's opinion on this issue. While it generally does, realisation of the potential impact of a ruling along these lines may encourage the Court to seek to dispose of the reference in some way that avoids making a clear ruling on this issue. Its judgment in a few months' time will be eagerly awaited, and studied keenly.