Judgment of the General Court of 7 March 2013 in Case T-370/11 – natural gas as a benchmark fuel lawfully implemented in the secondary legislation
Thursday, 21 March 2013 00:07

 

Without entering into specific polemic with certain parts of the Court's reasoning, in any case a general conclusion comes to mind, namely that when designing any emission trading scheme such an important determination like the choice of reference fuel for the benchmarks-setting process should be done in primary legislation, and not in implementing acts. Such an approach would better serve democratic procedures.

 

 

The consideration of the General Court's legal assessments set out in the judgment of 7 March 2013 in Case T-370/11 inevitably leads to some doubts. And the problem is not only in that the applicant’s pleadings were partly dismissed based on arguments procedural in nature.

 

When it comes to the substance of the dispute, it appears that the Court attached the crucial weight to the fact that natural gas is second-ranked, after biomass, least CO2 emission-intensive fuel available. However, the preceding consideration does not prejudge the conclusion that natural gas should be without any discussion taken as a reference fuel for any estimations of the preferred technology when designing emission trading scheme.

 

Evenly justified could be the thesis that the first-ranked fuel (i.e. biomass) should be chosen for benchmark’s-setting process, or the third- or fourth-ranked. Although the Court has made considerable effort to show this is not an arbitrarily taken decision it couldn’t change the impression that the appropriate place for a political choice of that weight should be the EU ETS Directive, and not the European Commission’s decision.

 

Another general reflection is striking when watching the scene of the current political battles (regarding reference fuel for benchmarks but also the backloading issues or many others). This is that current eight years period is to long in such a dynamically changing economical and technological environment. Taking into account there are serious arguments supporting the stance that the rules mustn’t be changed in the course of the trading period, and that the said rules were established in 2008, we have a timeframe of 12 years in which the rules of the EU ETS should be relatively stable and predictable. Many factors currently indicate, it was an unrealistic assumption.

 

In the current judicial dispute the principle of equal treatment was often recalled. Its application in the EU ETS context was earlier analysed by the Court in Case C-127/07 Arcelor Atlantique and Lorraine and Others.

 

The problem to be resolved by the General Court in the judgment of 7 March 2013 in Case T-370/11 was to assess whether the European Commission, in determining the product, heat and fuel benchmarks in the contested Benchmarking Decision (Commission Decision of 27 April 2011 determining transitional Union-wide rules for harmonised free allocation of emission allowances pursuant to Article 10a of Directive 2003/87/EC of the European Parliament and of the Council), breached the principle of equal treatment.

 

The applicant claimed that the Benchmarking Decision affects a Member State’s right to determine the conditions for exploiting its energy resources, its choice between different energy sources and the general structure of its energy supply. According to the Republic of Poland, in adopting rules to define the emission benchmarks for certain products from installations included in the greenhouse gas emission trading scheme, the Commission has focused on natural gas, which is dominant only in some Member States, compared to other fuels such as coal, which is used as the main fuel in other Member States. The Commission used natural gas as the reference fuel to determine the product, heat and fuel benchmarks. Given that coal technology has given rise to a steady decline in emission intensity, that choice is arbitrary and unjustified. An installation that uses the most recent coal technology would therefore obtain less free allowances than another installation using an older technology, but based on natural gas, which would result in a drastic decline in the competitiveness of companies using coal technology. That situation would lead to a reduction in their production and, consequently, a decrease in the gross domestic product (GDP) of the Member States using coal as the main fuel, as well as ‘carbon leakage’, that is, relocation of business activities in sectors exposed to strong international competition, located in the European Union, to third countries where the requirements regarding greenhouse gas emissions are less stringent. Redirecting companies towards purchasing gas technology, as a consequence of the contested decision, would increase the natural gas needs of the State concerned, disrupt its energy balance and force it to redefine its overall energy policy.

 

According to the case-law, such treatment is justified if it is based on an objective and reasonable criterion.

 



 

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