EU Law Blog

Emissions Trading, Greenhouse Gas Emissions, National Allocation Plans : Case T-374/04

The Court of First Instance has annulled yet again a Commission decision that sought to oblige a member State to stick to the total amount of allowances of greenhouse gas emissions. In Case T-374/04 Germany v. Commission it held that the Commission was wrong to prevent Germany from foreseeing the possibility of ex post reductions in greenhouse gas emissions once it national allocation plan ("NAP") had been notified pursuant to Directive 2003/87/EC.

Directive 2003/87/EC of the European Parliament and of the Council of October 13th, 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC sets up a Community scheme for greenhouse gas emission allowance trading in order to reduce such emissions. Each Member State must develop a national plan for the allocation of greenhouse gas emission allowances (‘NAP’), in accordance with certain criteria set out in the directive. The NAP must state the total quantity of allowances that the Member State intends to allocate and how it proposes to allocate them. The first NAP, for the three-year period beginning on January 1st, 2005, had to be published and notified to the Commission by March 31st 2004 at the latest. Under the directive, the Commission has three months to reject a NAP, in whole or in part, if it is incompatible with the criteria laid down by the directive. All amendments made to the NAP by the member State must be approved by the Commission.

Germany duly notified its NAP for the period 2005-2007 to the Commission. Its NAP allowed, in certain specified cases, a reduction in the amount of allowances allocated to an installation in the course of an allocation period. The Commission adopted its decision declaring that the ex post adjustments/reductions in the German NAP were incompatible with the criteria laid down in Annex III to Directive 2003/87/EC. Germany then asked the Court of First Instance to annul that decision.

The Court of First Instance agreed with Germany that the ex post reductions in emissions in the NAP were compatible with Directive 2003/87/EC.

The judgment is quite a complex one but in essence the Court of First Instance held that nothing in Directive 2003/87/EC prevented ex post adjustments of allocations given to installations and that it was possible for member States to change the allocations given to new entrants during the course of the emission trading period.

It seems clear that the German system would not have increased the overall quantities of allowances. It would have led however to changes in the total allowances during a given trading period which would perhaps not have been conducive to creating a robust emission trading market. The question remains whether Directive 2003/87/EC lays down the right rules to set up a proper and effective emissions trading market or whether it should be modified.

For a previous post on emissions trading, see here.

For those interested in the more general aspects of judicial review, the Court of First Instance repeated its classic statement of the standard of review of measures taken consequent upon complex economic and policy assessments. The Court stated at paragraph 81 that Community judicature conducts a full review as to whether the Commission applied properly the relevant rules of law, whose meaning must be determined in accordance with the methods of interpretation recognized by the case-law. On the other hand, the Court of First Instance cannot take the place of the Commission where the latter must carry out complex economic and ecological assessments in this context. Thus, the Court must confine itself to verifying that the measure in question is not vitiated by a manifest error or a misuse of powers, that the competent authority did not clearly exceed the bounds of its discretion and that the procedural guarantees, which are of particularly fundamental importance in this context, have been fully observed (see, Case T-13/99 Pfizer Animal Health v Council, paragraphs 166 and 171; Case T-70/99 Alpharma v Council, paragraphs 177 and 182; and Case T-392/02 Solvay Pharmaceuticals v. Council, paragraph 126).

One of the elements the Court of First Instance took into account to judge the legality of the Commission's decision in this case was some guidance on the application of Directive 2003/87 which the Commission itself had issued and published. Thus, the Court was led to examine whether the decision in question complied with the guidance that the Commission had previously adopted. The Court repeated that in certain circumstances such guidance could have legal effects.

It held in particular that by adopting rules of administrative conduct designed to produce external effects and announcing by publishing them that it will henceforth apply them to the cases to which they relate, an institution limits the exercise of its own discretion and cannot depart from those rules. Should it do so, the institution in question may commit a breach of general principles of law, such as the principles of equal treatment, of legal certainty or of the protection of legitimate expectations. As a result, such rules of conduct of general application may produce legal effects and that, in particular, the administration may not depart from them in an individual case without giving reasons that are compatible with the principle of equal treatment (interestingly, the Court referred to the position of the Commission guidelines on the method of setting fines in competition matters, Joined Cases C-189/02 P, C‑202/02 P, C‑205/02 P, C-208/02 P and C-213/02 P Dansk Rørindustri and Others v Commission , paragraphs 209 to 211; see also, with regard to guidelines adopted by the Commission on State aid, Case T-16/96 Cityflyer Express v Commission, paragraph 57), provided that such an approach is not contrary to other superior rules of EC law. Specifically in the fields of agriculture, health and the environment, the Court has recognized that the EC institutions may lay down for themselves guidelines for the exercise of their discretion by way of measures not provided for in Article 249 EC, in particular by communications, provided that they contain an indication as to the approach to be followed by those Community institutions and do not depart from the Treaty rules (see Pfizer Animal Health v Council, paragraph 119, Alpharma v Council, paragraph 140).

Environmental Law and the EC Legal Order

Here's some more intellectual nourishment for you. Pavlos Eleftheriadis of the Faculty of Law, Oxford University, has written a stimulating article on the development of environmental law in the EC legal order. Its title is, oddly enough, "Environmental Rights in the EC Legal Order".

This is what the abstract says:

This article attempts to offer a general framework for the protection of environmental rights in the European Union's legal order. The article discusses the Aarhus Convention, which follows the international trend for procedural protection of environmental rights. The European Commission proposes to give effect to its 'access to justice' dimension of the Aarhus Convention in a way that endorses uniformtity as a goal. I argue that this goal is mistaken. The guiding constitutional principle in this area should be that unless there are strong reasons to the contrary, EC law will only supplement the public law of the Member States by providing minimum standards. Under the scheme of environmental rights established by the Aarhus Convention each applicant or environmental activist may have slightly different rights depending on the country where he or she starts their actions or launches their campaigns. The public law of the EC, of which environmental law is now a major part, is not an attempt at harmonization nor is it a simple deduction from the principles of direct effect and supremacy.

You can download it here.

Highly recommended.

Chevron Doctrine in the CFI ? Case T-216/05

Has the Court of First Instance embraced the "Chevron Doctrine" or some avatar of it ?

The "Chevron Doctrine" in the US takes its name from the case of Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) in which the US Supreme Court held it would defer to an administrative agency's interpretation of the statute that grants it powers if that interpretation is permissible and reasonable. Consequently, the US Supreme Court will not examine whether there are other, competing interpretations that may be better than the one put forward by the administrative agency.

Now look at the Court of First Instance's judgment in Case T-216/05 Mebrom v. Commission.

In that case, Mebrom, a trader of a pesticide called methyl bromide, sued the Commission because it did not receive quotas for import licenses after January 1st, 2005. Under the Montreal Protocol the use of methyl bromide was to be phased out from January 1st, 2005 except for certain strictly defined uses because it depletes the ozone layer. The Montreal Protocol was implemented in the EC by Regulation 2037/2000 of the European Parliament and of the Council of June 29th, 2000 on substances that deplete the ozone layer. That Regulation was applied by the Commission in such a way that before January 1st, 2005 registered traders received a quota for import licenses of methyl bromide based on their historical import quantities. But from January 1st, 2005 the Commission did not grant quota for licenses to traders at all but gave them in very limited circumstances to fumigators who actually used the product to dust crops. The fumigators with quota then contacted traders to effect the importation of the quantity of methyl bromide required. The result of the change was that traders were no longer assured of a given volume of trade and they had to compete between themselves for the business of the fumigators.

The plaintiff claimed that Regulation 2037/2000 entitled traders to receive quotas after January 1st 2005 and that the Commission was under a legal obligation to give quotas.

The Court of First Instance disagreed and dismissed the action.

What is particularly intriguing is paragraph 83 of the judgment in which the Court of First Instance held :

"In the light of the foregoing, it must be held that the Commission was not obliged under [Regulation 2037/2000] to award an import quota in 2005 to the applicant as an importer and that the new system established by the Commission from 1 January 2005 constitutes a lawful application of Articles 3, 4, 6 and 7 of the Regulation that is compatible with those provisions. In those circumstances, it is not necessary to examine whether the Commission could have done otherwise and continued after 31 December 2004 to award import quotas to importers."

Now then, that last sentence of paragraph 83 looks like a rudimentary form of the Chevron doctrine.

The Court of First Instance also handed down a judgment in another case - Case T-198/05 Mebrom v. Commission - covering a different aspect of the problem.

Escaped sewage and waste: Case C-252/05

The Court of Justice has handed down an interesting judgment in an absolutely delectable case. Just don't read this just before eating...

The issue came up in Case C-252/05 Thames Water Utilities whether sewage that "escapes" from the sewerage network and seeps onto land is "waste" within the meaning of Directive 75/442/EC on waste.

The Court of Justice held in its judgment that escaped sewage was indeed waste. In particular, it held that waste water which leaks accidentally falls within the ambit of Directive 75/442. The fact that waste water escapes from a sewerage network does not affect its character as ‘waste’ within the meaning of Directive 75/442. The escape of waste water from a sewerage network constitutes an event by which the sewerage undertaker, the holder of that waste water, ‘discards’ it. The fact that the waste water is spilled accidentally does not alter the outcome.

The Court has held previously that accidental spillage of hydrocarbons onto land may be characterized as an action by which the holder of those hydrocarbons ‘discards’ them (see, see Case C-1/03 Van de Walle and others, paragraph 47). The Court also held that Directive 75/442 would be made redundant in part if hydrocarbons which cause contamination were not considered waste on the sole ground that they were spilled by accident (Case C-1/03 Van de Walle and others, at paragraph 48). The same reasoning applied, according to the Court, to waste water which leaks accidentally.

French Conseil d'Etat and EC law rights

The French Conseil d'Etat, the supreme administrative court, has handed down a significant judgment on the enforcement of EC law rights and obligations in national courts. The judgment represents a significant departure from its previous practice and entails reconciliation of the recognition of the supremacy of EC law with the requirement of safeguarding the constitutionality of national measures implementing EC law.

The case in n° 287110 Arcelor, decided on February 8th 2007. Unfortunately, it has not yet been translated into English on this site.

In order to implement the Kyoto Protocol, the EC adopted Directive 2003/87/EC. That Directive was in turn implemented in France by ordinance of April 15th 2004 and decree n° 2004-832 of August 19th 2004.

Arcelor and the other plaintiffs requested the President, the Prime Minister and other competent ministers to repeal the decree n° 2004-832 of August 19th 2004. They received no response and so they brought an action before the Conseil d'Etat to annul the implicit rejection of their request. They alleged that decree n° 2004-832 of August 19th 2004 was illegal because it applied to steel producers and infringed the principles of the right to property and to trade freely and the principle of equality guaranteed by the French Constitution.

The Conseil d'Etat noted that decree n° 2004-832 of August 19th 2004 applied to steel producers because that is exactly what was required by Directive 2003/87/EC. Thus, if it declared decree n° 2004-832 of August 19th 2004 to be unconstitutional, it would in effect be declaring invalid a measure adopted by an EC institution. But it did not have jurisdiction to do that.

The Conseil d'Etat found that the right to property and to trade freely as well as the principle of non-dsicrimination were general principles upheld by EC law in the same way as they were protected by the French Constitution. Therefore, in order to give full effect to the supremacy of EC law, the Conseil d'Etat decided to refer a question to the Court of Justice under Article 234 EC on the validity of Directive 2003/87/EC.

The Conseil d'Etat made a press release that explains the importance of this judgment available here.

That marks a significant departure from the Conseil d'Etat's previous practice: Previously, it would simply have ruled on the constitutionality of the French decree without worrying whether the decree was a measure implementing a superior rule of EC law.

Those who consider that direct actions for annulment before the Court of First Instance represent a superior way of protecting individual rights would do well to note that Arcelor did bring an action to annul Directive 2003/87/EC. But that action, Case T-16/04 Arcelor has been pending before the Court of First Instance for over three years.

For a previous post on emissions trading, see here.

Aarhus Convention, environmental information and the EU institutions

The regulation applying the Aarhus Convention to the EU institutions and bodies has been adopted and published. It is Regulation (EC) N° 1367/2006.

The purpose of the Aarhus Convention is to make environmental information available to the public. It was approved by the EC in 2005 by Council Decision 2005/370/EC and the text of the Convention as approved by the EC can be found here. The EC had already adopted Directive 2003/4/EC which has the same substantive content as the Aarhus Convention but only applies to the member States.

What was needed was a measure to make the Aarhus Convention apply to the EC institutions and bodies themselves. And that's what Regulation 1367/2006 does. It complements Regulation 1049/2001 on public access to documents.

The Regulation will lead to changes in the rules of procedure of the different institutions and bodies. Those changes should be made by June 28th, 2007, when Regulation 1367/2006 becomes applicable.

2005 Environmental Policy Review

The EC Commission has published a short but interesting review of its environmental policy in 2005. It is an overview of what the Commission proposed to do during 2005.

Emphasis is placed, unsurprisingly, on climate change. But no mention is made of the CFI's judgment in Case T-178/05United Kingdom v. Commission which tends to undermine it all.

What is also interesting is how the Commission seeks to reconcile environmental protection and economic growth.

United Kingdom scuppers Kyoto greenhouse gas emissions trading

Here's an example of how "lawfare" trumps political posturing.
Despite comments made on a United Kingdom government web site that "[t]he UK Government takes its role in the field of climate change very seriously, and to this end its has instituted a Climate Change Programme to deliver the UK's Kyoto Protocol target", it has endeavored and succeeded in rendering its annual emissions targets legally flexible and modifiable. And that seems at odds with the position the United Kingdom seeks to impose on the US government.

The United Kingdom sought the annulment of a Commission decision that refused to allow an increase the greenhouse gases which the United Kingdom could emit. And it won in the Court of First Instance - see the judgment in Case T-178/05 United Kingdom v. Commission.

Directive 2003/87/EC of the European Parliament and of the Council of October 13th, 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC sets up a Community scheme for greenhouse gas emission allowance trading in order to reduce such emissions. Each Member State must develop a national plan for the allocation of greenhouse gas emission allowances (‘NAP’), in accordance with certain criteria set out in the directive. The NAP must state the total quantity of allowances that the Member State intends to allocate and how it proposes to allocate them. The first NAP, for the three-year period beginning on January 1st, 2005, had to be published and notified to the Commission by March 31st 2004 at the latest. Under the directive, the Commission has three months to reject a NAP, in whole or in part, if it is incompatible with the criteria laid down by the directive. All amendments made to the NAP by the member State must be approved by the Commission.

The United Kingdom submitted its NAP, the Commission Okayed it and then the United Kingdom had second thoughts and wanted to increase the total quantity of its emissions. The Commission took a decision which stated that the United Kingdom could not do that : Once the NAP was approved, its quantities were fixed for the relevant period so that emission trading could take place.

The Court of First Instance held that the Commission could not restrict a Member State’s right to propose amendments, even if they increase the total quantities of greenhouse gas emissions.

But if the total quantities can increase during the course of a trading period, the value of the licenses should go down, right ? And why buy an allowance on the market when political patronage can get you an extra quantity when you may need it ?

GMOs, preemption and Art. 95 § 5 EC

Well, we've got a bit behind with the judgments. Some catching up is required.
So let's start with this interesting judgment in Joined Cases T-366/03 & T-235/04 Land Oberösterreich and Republic of Austria v Commission.

The judgment clarifies a number of points in respect of the procedure and substantive conditions to be complied with when member States want to introduce new legislation on the protection of the environment which diverges from a harmonization measure adopted by the Council pursuant to Article 95 EC. In other words, the judgment deals with the extent to which there is preemption by the EC when it legislates under Article 95 EC.

The Land Oberösterreich, a region of Austria, sought to introduce new measures to ban the cultivation of seed composed of GMOs which were stricter than those laid down by Directive 2001/18/EC of the European Parliament and of the Council of 12 March 2001 on the deliberate release into the environment of genetically modified organisms and repealing Council Directive 90/220/EEC. Austria notified those measures to the Commission under Article 95 § 5 EC. The Commission took a decision prohibiting those measures on the ground that the substantive conditions of Article 95 § 5 EC were not fulfilled. And then the Land Oberösterreich and Austria brought an action to annul the Commission's negative decision.

The Court of First Instance's judgment upheld the Commission's decision. It is interesting because it states that the member State has no specific right to be heard by the Commission during the course of procedure leading to the adoption of the decision specified in Article Article 95 § 6 EC, that the member State invoking Article 95 § 5 EC bears the burden of proving that its conditions are fulfilled and that the precautionary principle cannot apply if the conditions of Article 95 § 5 EC are not fulfilled.

Incidentally, the Court of First Instance held that the Land Oberösterreich had standing to seek annulment of the decision even though that decision was addressed to Austria because it was the legislation of the Land Oberösterreich which was at stake.