Quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between Member States.

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1 The Legal Helpdesk Support Schemes and Free Movement Law An overview over the latest developments Dr. Dörte Fouquet, Rechtsanwältin, Partner, BBH Jana Viktoria Nysten, LL.M., Advocaat, Attorney at law, BBH I. Background - Lately, there has been quite some discussion in the media whether national renewable energy support schemes, i.e. support schemes which only benefit renewable energy installations which are located within the territory of the respective Member State maintaining the support scheme, would be against primary European law and would thus have to be abolished. The Renewable Energy Directive 2009/28/EC was said to be invalid and would have to be changed by the European Commission. In consequence, it was said, Member States would have to support renewable energy installations anywhere within the European This paper seeks to provide an overview over the legal framework of national renewable energy support schemes, starting with the rules on free movement of goods, their interpretation with relation to renewable energy so far given by the European Court of Justice, turning to the Renewable Directive and the regime it presents for national renewable energy support schemes and ending with the conclusions of the Advocate General at the European Court of Justice, who lately had to give his conclusions in two specific cases relating to this topic, and to a certain extent caused the discussions. It will not be argued in favor or against a certain interpretation, but it is the intention purely to inform. However, in an outlook at the very end, the potential future developments will be briefly summarized. II. Article 34 TFEU Article 34 of the Treaty on the Functioning of the European Union (TFEU) states: Quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between Member States.

2 According to the case-law of the European Court of Justice, this prohibition is intended to include all measures having equivalent effect to quantitative restrictions on imports, covers any national measure which is capable of hindering, directly or indirectly, actually or potentially, intra-community trade. 1 However, such measures can in some, limited cases be justified. Article 36 TFEU in this respect allows prohibitions or restrictions on imports ( ) justified on the grounds of public morality, public policy of public security; the protection of health and life of humans, animals or plants; the protection of national treasures possessing artistic, historic or archaeological value; or the protection of industrial and commercial property at least as long they are not arbitrary discrimination of disguised trade restrictions. The European Court of Justice has applied those justifications in the past to measures which openly discriminate based on the origin of the goods. For cases which do not discriminate, but only implicitly interfere with the free movement of goods by making it more difficult for goods from other Member States to participate in the national market (so-called indistinctly applicable rules which thus apply to all goods, but are harder to be met goods from other Member States), additional justifications may be used. In the past, the Court has for examples accepted the following ones to justify indistinctly applicable rules: - Consumer protection, provided that the national rule really works on the facts of the case (i.e. protects consumer choice rather than restricting it to give an advantage to national industry) and there are no less restrictive means to achieve that objective; 2 - Fairness of commercial transactions, for example when it comes to rules against counterfeit and imitations, provided that they do not prohibit or re- 1 ECJ, Case 8/74 Dassonville [1974] ECR 837, par E.g. ECJ, Case 178/84 Commission v. Germany [1987] ECR 1227.

3 strict the marketing of goods which have been made according to fair and traditional practices of another Member State merely because they are similar to the goods produced in the Member State having the rule; 3 - Public health, which can, as mentioned above, also justify discriminatory measures; 4 or - Environmental protection. 5 Those justifications are generally only available in the absence of Community legislation, but the list is not exhaustive, but other reasons may be accepted by the Court as well. Generally, however, the measures will have to stand a balancing test, i.e. the European Court of Justice will look whether they are the least restrictive means to meet the objective and thus do not go beyond what is strictly necessary. III. PreussenElektra 6 The case concerned the predecessor of the present German renewable energy support scheme, the Stromeinspeisegesetz. Similar to the situation today under the Erneuerbare-Energien-Gesetz, the Stromeinspeisegesetz provided for a purchase obligation according to which energy traders had to buy renewable electricity at a fixed price from producers located within Germany. The European Court of Justice first looked to whether such a provision could constitute an obstacle to the free movement of goods as enshrined in Article 34 TFEU and found that according to its own case-law, that an obligation placed on traders in a Member State to obtain a certain percentage of their supplies of a given product from a national supplier limits to that extent the possibility of importing the same product by preventing those traders 3 E.g. ECJ Case 58/80 Dansk Supermarked v. Imerco [1981] ECR E.g. ECJ, Case 178/84 Commission v. Germany [1987] ECR E.g. ECJ, Case 302/86 Commission v. Denmark [1988] ECR ECJ, Case C-378/98 PreussenElektra AG v. Schleswag AG [2001] ECR I-2099.

4 from obtaining supplies in respect of part of their needs from traders situated in other Member States (see, to that effect, Case 72/83 Campus Oil [1984] ECR 2727, paragraph 16; Case C-21/88 Du Pont de Nemours Italiana [1990] ECR I- 889, paragraph 11). However, in case, the Court found the obstacle to be justified. First it was referred to the objective of environmental protection, then to the protection of health and life of humans, animals and plants, to both of which renewable energy is said to contribute. References were made to several provisions in European law expressing the importance of those objectives, such as the former Internal Electricity Market Directive 96/92, which expressly stated in Recital 29 that for purposes of environmental protection, Member States were allowed to give priority to electricity from renewable energy sources. Thus, overall, the European Court of Justice decided that an obligation to purchase renewable electricity from national producers resulting in a certain limit to imports from other Member States was an obstacle to free movement, but justified for the sake of environmental protection and the protection of health and life of humans, animals and plants. In the ruling the formulation was then a bit put in perspective, and it was said that In the current state of Community law concerning the electricity market, such provisions are not incompatible with [Article 34]. One addition the Court made related to the nature of electricity, and the traceability of the green characteristics of renewable energy. It was stated in par. 79f. of the judgment: Moreover, the nature of electricity is such that, once it has been allowed into the transmission or distribution system, it is difficult to determine its origin and in particular the source of energy from which it was produced.

5 In that respect, the Commission took the view, in its Proposal for a Directive 2000/C 311 E/22 of the European Parliament and of the Council on the promotion of electricity from renewable energy sources in the internal electricity market (OJ 2000 C 311 E, p. 320), submitted on 10 May 2000, that the implementation in each Member State of a system of certificates of origin for electricity produced from renewable sources, capable of being the subject of mutual recognition, was essential in order to make trade in that type of electricity both reliable and possible in practice. IV. The Renewable Energy Directive 2009/28/EC The Renewable Energy Directive 2009/28/EC entered into force more than eight years after the PreussenElektra judgment. Article 3(3) Directive 2009/28/EC states: In order to reach the targets set in paragraphs 1 and 2 of this Article Member States may, inter alia, apply the following measures: (a) support schemes; (b) measures of cooperation between different Member States and with third countries for achieving their national overall targets in accordance with Articles 5 to 11. Without prejudice to Articles 87 and 88 of the Treaty, Member States shall have the right to decide, in accordance with Articles 5 to 11 of this Directive, to which extent they support energy from renewable sources which is produced in a different Member State. Recital 25 Directive 2009/28/EC in this respect adds: This Directive aims at facilitating cross-border support of energy from renewable sources without affecting national support schemes. It introduces optional cooperation mechanisms between Member States which allow them to agree on

6 the extent to which one Member State supports the energy production in another and on the extent to which the energy production from renewable sources should count towards the national overall target of one or the other. In order to ensure the effectiveness of both measures of target compliance, i.e. national support schemes and cooperation mechanisms, it is essential that Member States are able to determine if and to what extent their national support schemes apply to energy from renewable sources produced in other Member States and to agree on this by applying the cooperation mechanisms provided for in this Directive. Thus, supporting renewable energy installations in other Member States, from the pure wording of the Directive, appears to be voluntary. The cooperation mechanisms introduced are at the Member States disposal if they decide that they want to support renewable energy production abroad. While the Directive does not seem to prohibit any system which would support renewable energy production outside the own territory of a Member State outside the cooperation mechanisms, it seems clear that such could not be used by the Member States in order to meet their binding national renewable energy targets as imposed by Article 3 Directive 2009/28/EC. V. Advocate General Bot s conclusions On January 28, 2014, Advocate General Yves Bot delivered his conclusions in the case C-573/12 to the European Court of Justice, in which he stated that according to his understanding of the law Article 3(3) of the Directive 2009/28/EC would be violating Article 34 TFEU to the extent that it does make cooperation voluntary and thus does allow the Member States to principally discriminate renewable energy produced in other countries by generally denying access to the national support scheme. The case concerned a power plant located on the Ålands islands, thus close to the Swedish coast but being an autonomous region administratively belonging to Finland. Sweden, maintaining a green certificate scheme to support renewable electricity, refused issuing certificates to the plant, which was connected to the Swedish but not to the Norwegian grid, based on the fact that it was not on Swedish grounds, thus not a Swedish renewable energy installation.

7 The Advocate General answered the first question by the Swedish court, whether such a green certificate scheme would be a support scheme in accordance with the Directive 2009/28/EC, in the affirmative. Then he turned to the Directive 2009/28/EC itself and while he concluded that it would without any doubts as regards its proper interpretation make support to renewable energy produced in other Member States voluntary. However, the second question, whether the Swedish system was in line with Article 34 TFEU, he answered negatively and not only for the Swedish system but also for the Directive 2009/28/EC. In short, he found that Article 34 TFEU would not allow a national rule, according to which producers of renewable electricity are granted green certificates, which have to be used by electricity suppliers and users in order to reach a certain quota, in so far as this rule excludes producers whose installations are located in another Member State. Article 3(3) of the Directive 2009/28/EC would be invalid, according to him, in so far as it would allow the Member States to restrict the access to their national support schemes for producers with renewable electricity installations located in other Member States. To substantiate his findings he referred to the development of the internal energy market as an objective of the European Also he said that since there are guarantees of origin one can trace the green quality of the renewable electricity even though they may not be used for target achievement as expressed in Article 15(3) of the Directive 2009/28/EC and do not by themselves give any right in the course of a national support scheme. Therefore, the line of argumentation in PreussenElektra would no longer fly: Unlike back then, now there would be a means of proving the green quality. He added that the attempt to rely on the restrictions as regards the use of guarantees of origin in the Directive 2009/28/EC would amount to a justification of a breach of primary EU law by reference to secondary EU law, which under the hierarchy of norms is anyways not possible. Having set out those principles underlying his conclusions, the Advocate General turned to the arguments presented by the parties in order to support their submis-

8 sion that any restrictions would be justified for the purposes of environmental protection: First, he said, that there would be no proof that allowing renewable electricity produced in other Member States access to the national support scheme would undermine the functioning of such schemes. Rather, the extent to which such electricity would in fact be imported was limited due to technical obstacles in the international electricity trade. Further, the Member States would have tools at hand in order to adapt their support schemes, i.e. to avoid the price decline of green certificates through for example setting a higher quota. Second, he rejected the argument that opening up national support schemes would require a cooperation agreement. He seems to agree with the German submission that the cooperation mechanisms under the Directive 2009/28/EC were intended to help the Member States, but finds that in practice they may rather hinder attempts to open up national support schemes: Prohibiting cooperation agreements may lead to adaption and coordination of national support schemes, the Advocate General seems to think. Third, he says that the argument that Article 194(2) AEUV protects the sovereignty of the Member States over their national energy mix cannot be successfully invoked either, as the Directive 2009/28/EC itself and in particular the binding national renewable energy targets would prove that such restrictions are possible. Fourth, he rejects the argument that open support schemes would allow cherry-picking by the renewable energy producers and abuse, as he thinks that the cooperation mechanisms could be used so as to adapt and coordinate national support schemes, so that e.g. getting support from two Member States at the same time would not be possible. Finally, he considers the argument brought forward by the Swedish Regulator that allowing support to renewable electricity installations in other Member States would lead to a situation in which national consumers would have to pay for renewable electricity installations in other Member States. In this regard he questions how this could be related to environmental protection, as environmental protection would rather require making national consumers pay for renewable electricity imports instead of letting them pay for national production from fossil fuels.

9 Thus, Advocate General Bot, after discussion and rejection of all the arguments presented, insists in his conclusions and asks the European Court of Justice to invalidate Article 3(3) of the Directive 2009/28/EC in so far as it allows restrictions in national support schemes as regards renewable electricity installations located in other Member States. However, as he understands the problems this would create i.e. the Directive 2009/28/EC would need to be amended he also asks to give a period of grace of 24 months during which the Directive 2009/28/EC would remain in force the way it is, so as to allow for its amendment. VI. Summary and Outlook With the conclusions of the Advocate General, the oral proceedings have ended and the judges will now take the case into consideration and draft their judgment. This normally takes between three and five months. Noteworthy in this regard is that there is a at least somewhat similar case on the desk of the European Court of Justice: In May 2013 Advocate General Bot concluded in the joined cases C-204/12 until C-208/12 that the Flemish regulator was acting in conflict with Article 34 TFEU when he rejected foreign guarantees of origin in the context of meeting the Flemish quota obligation support scheme while accepting Flemish guarantees of origin. No judgment has been issued so far, and it may well be that the European Court of Justice will take the opportunity to treat the two cases and thus the question of the relation between national support schemes under the Directive 2009/28/EC and the free movement of goods according to Article 34 TFEU together in order to come to a coherent and hopefully satisfactory outcome. In this regard, one may add that the European Court of Justice is not in any way bound by what the Advocate General states, although in most cases the judges follow the Advocate General. In any event, at least as long as there is no judgment, the Directive 2009/28/EC remains in force as it is.