Subsidies for green electricity permitted to restrict trade between EU Member States – CJEU

It is normal for Member States to make support for renewable generation available only to generators based in their own territory.  Until recently, it was generally assumed that this was entirely consistent with EU law.  Article 3(3) of the EU Renewables Directive (2009/28/EC) states that Member States “shall have the right to decide…to which extent they support energy from renewable sources which is produced in a different Member State”.

However, a case referred to the Court of Justice of the EU by the Swedish courts called this into question.  Ålands Vindkraft, operator of a wind farm in the Åland Islands, applied to participate in the Swedish “green certificate” scheme.  Although connected to the Swedish grid, the project was in Finnish territory, and its application was refused on that ground, pursuant to the relevant Swedish law.

As well as the question whether that law was in line with the Directive, the resulting appeal to the Swedish courts raised a more fundamental issue.  Are schemes that restrict the availability of subsidy to home-grown renewables, and the provisions of the Directive that ostensibly permit such restrictions, consistent with the EU Treaties’ rules on the free movement of goods?

The Advocate General, who gave his opinion on the case on 28 January 2014, came to the conclusion that in permitting such restrictions, the Directive, as a species of secondary legislation, had gone beyond what was permissible under the primary legislative authority of the Treaties.  Although restrictions on imports can be compatible with the Treaties, they must first be shown to be justified in terms of the protection of one of the public interests that case-law has recognised as capable of overriding the right of free movement, as well as being proportionate.  In this case the overriding interest was supposedly the protection of the environment: the promotion of renewable generation reduces greenhouse gas emissions and helps to avoid harmful climate change.  But the Advocate General could not see how preventing the import of “foreign” green electricity helped the environment.

In so far as the Directive could not be interpreted as doing anything other than permitting the restrictions in the Swedish law, the Advocate General concluded that it should be annulled, but with the Court allowing a two year stay of execution to allow the EU legislature to put its house in order.

It isn’t every day that an Advocate General reaches this kind of conclusion about a Directive, let alone one which is a key instrument of EU policy.  So it is perhaps not surprising that the Court’s judgment, delivered by the full Grand Chamber of 15 judges, declined to follow the Advocate General in those parts of his reasoning which were more disturbing for the status quo in EU renewable support schemes.  But the reasoning behind the decision of the full court is arguably rather less clear than that of the opinion of the Advocate General which it departed from.

The Court agreed that legislation such as the Swedish law is capable of impeding imports of electricity and so is in principle incompatible with the free movement rules.  But it found that this restriction could be objectively justified.  Without confronting head-on the question of how the overriding interest of environmental protection is served by a restriction on imports, it concluded that the Swedish scheme as a whole served an environmentally beneficial purpose and found that Sweden could legitimately consider that the territorial limitation in its law did not go beyond what was necessary to attain the objective of increasing the production and consumption of green electricity in the EU.  Along the way, the Court pointed out that “EU law has not harmonised the national support schemes for green energy”; that it is hard to tell green electricity from other types once they are fed into the transmission and distribution networks; and that the national targets set in the Directive “are formulated in terms of quotas for the production [rather than consumption] of green electricity”.  All of which may be true, but does it inevitably mean that the Swedish law is compatible with the free movement rules?  One might be forgiven for thinking that this was one of those occasions where a majority of the CJEU judges agreed on the result, but not on a single way of reaching it, and some readers may find that the points they could all agree on make for a less than compelling rationale.

The Court’s judgment will no doubt be met with sighs of relief across the EU.  As well as Sweden, Germany, Norway and the Netherlands participated in the case.  The UK did not intervene, perhaps because the ability of a Member State to restrict renewable benefits to generators on its own territory is a point of some sensitivity in domestic politics at present.  The UK Government has been at pains to try to undermine the assumption put forward by the Scottish Government, as part of its case for independence, that consumers in England and Wales will inevitably carry on subsidising renewable generators in an independent Scotland through the Renewables Obligation and Contracts for Difference.  If Scotland does vote “yes” to independence on 18 September, it will be interesting to see whether the Government of what remains of the UK will be minded to try to introduce Swedish-style territorial restrictions into its renewable support schemes – and whether the Ålands Vindkraft judgment will prove a secure precedent on which to found such restrictions.

Adam Brown

About Adam Brown

Adam is a senior associate in the Energy practice. He has extensive experience in energy, planning, environmental and general public law, much of it gained over a decade spent working for the UK Government in a variety of legal and policy-making roles.

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