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Category: Judgments of the European Court of Justice

 

The judgement determines the temporal scope of the scheme for greenhouse gas emission allowance trading within the European Union.

 

 

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Summary

Case C- 457/15 Directive 2003/87/EC Vattenfall Europe Generation AG/ DE When does the emission trading obligation arise for the inclusion of combustion of fuels in installations with a total rated thermal input > 20 MW in Annex I? 28.07.2016 

 

Inclusion of ‘Activities for the combustion of fuels in installations with a total rated thermal input > 20 MW’ in Annex I starts on the date of the first emissions of GHGs produced by the installation (even before producing electricity).

 

 

 

Case description: Report from the Commission to the European Parliament and to the Council, Report on the functioning of the European carbon market, 23 November 2017 (COM(2017) 693 final, p. 42 - 44

 

Judgment of the Court (Sixth Chamber) of 28 July 2016, Vattenfall Europe Generation AG v Bundesrepublik Deutschland, Case C-457/15 - extract


As regards the question:


“Does the inclusion of the category ‘Activities for the combustion of fuels in installations with a total rated thermal input exceeding 20 MW’ in Annex I to Directive 2003/87 … result in the emissions trading obligation of an installation for the generation of electricity thereby starting on the date of the first emissions of greenhouse gases and thus potentially before the date of the first generation of electricity by the installation?”

 

the Court’s stance is as follows (numerals omitted):

 

“By its first question, the referring court asks, in essence, whether, in so far as Annex I to Directive 2003/87 includes the ‘combustion of fuels in installations with a total rated thermal input exceeding 20 MW’ in the list of categories of activities to which that directive applies, it must be interpreted as meaning that the emissions trading obligation of an installation for the generation of electricity starts on the date of the first emissions of greenhouse gases, and thus potentially before the date of the first generation of electricity.

It should be noted that the overall structure of Directive 2003/87 is based on the strict accounting of the issue, holding, transfer and cancellation of allowances. That accurate accounting is inherent in the very purpose of the directive, consisting in the establishment of a scheme for allowance trading, which aims to reduce greenhouse gas emissions in the atmosphere to a level that prevents dangerous anthropogenic interference with the climate, with the ultimate objective of protection of the environment (see, to that effect, judgment of 29 April 2015 in Nordzucker, C‑148/14, EU:C:2015:287, paragraph 28).

For the purposes of the implementation of that scheme, Article 2(1) of Directive 2003/87 provides that the scope of that directive applies to emissions from the activities listed in Annex I and greenhouse gases listed in Annex II, including, in particular, carbon dioxide.

Moreover, it follows from Article 4 of that directive that the Member States are to ensure that no installation undertakes any activity listed in Annex I resulting in emissions specified in relation to that activity unless its operator holds a permit issued by a competent authority in accordance with the conditions laid down in that directive.

Under Article 6(2) of Directive 2003/87, the issue of such permits is subject to compliance, in particular, with the obligation, referred to in Article 12(3) thereof, in accordance with which operators are required to surrender, by 30 April of the current year, in order to have them cancelled, a number of allowances equal to their total emissions during the preceding calendar year (see, to that effect, judgment of 29 April 2015 in Nordzucker, C‑148/14, EU:C:2015:287, paragraph 29).

As is apparent from Article 14(3) of Directive 2003/87, that obligation to surrender is based on the reports that the operators of an installation draw up in accordance with the rules set out in the regulation which the Commission is to adopt pursuant to Article 14(1) of that directive (see, to that effect, judgment of 29 April 2015 in Nordzucker, C‑148/14, EU:C:2015:287, paragraph 31).

On the basis of that provision, the Commission adopted Regulation No 601/2012, the second paragraph of Article 20(1) of which provides that, within the monitoring boundaries defined for each installation by the operator, the latter is to take into account all the relevant greenhouse gas emissions concerned, from all emission sources and source streams belonging to activities carried out at the installation and listed in Annex I to Directive 2003/87.

The third paragraph of Article 20(1) of Regulation No 601/2012 states that that obligation covers not only emissions from regular operations but also those generated by abnormal events, such as the start-up and shut-down of an installation. Since that list is not exhaustive, emissions generated during other abnormal events, such as those produced during the trial period of an installation, must also be taken into account for the purposes of the monitoring and reporting of emissions.

Moreover, it should be recalled that Article 3(e) of Directive 2003/87 defines an installation for the purposes of that directive as a stationary technical unit where one or more activities listed in Annex I to that directive are carried out and any other directly associated activities which have a technical connection with the activities carried out on that site and which could have an effect on emissions and pollution (judgment of 9 June 2016 in Elektriciteits Produktiemaatschappij Zuid-Nederland EPZ, C‑158/15, EU:C:2016:422, paragraph 25).

The activities referred to in Annex I to that directive include the combustion of fuels in installations with a total rated thermal input exceeding 20 MW, except in installations for the incineration of hazardous or municipal waste.

The concept of combustion is defined in Article 3(t) of Directive 2003/87 as any oxidation of fuels, regardless of the way in which the heat, electrical or mechanical energy produced by this process is used, and any other associated activities.

It is therefore not relevant, in an initial trial period during which there are releases of greenhouse gases into the atmosphere, that a power plant within the scope of Directive 2003/87 does not generate electricity, since it is not necessary, in the light of the obligation to surrender allowances, that the heat resulting from the combustion of fuels be used for that purpose.

It follows from the foregoing that an installation for the generation of electricity from the combustion of fuels whose production capacity exceeds the value set out in Annex I to Directive 2003/87 is subject to the obligations of the emissions trading scheme and, in particular, to the reporting obligation, with respect to emissions from all sources and source streams belonging to activities carried out at the installation, including the emissions generated during a trial period preceding the start of normal operation of that installation.

That interpretation of Directive 2003/87 is compatible with its primary objective, namely to protect the environment by means of a reduction of greenhouse gas emissions (see, to that effect, judgment of 28 April 2016 in Borealis Polyolefine and Others, C‑191/14, C‑192/14, C‑295/14, C‑389/14 and C‑391/14 to C‑393/14, EU:C:2016:311, paragraph 79) and cannot be invalidated by the fact that the classification of an installation as electricity generator, within the meaning of Article 3(u) of that directive, is subject to the condition that it produce electricity for sale to third parties.

That provision does not seek to define the scope of Directive 2003/87 but contributes to the implementation of a distinction which is important for the determination of the maximum annual amount of allowances within the meaning of Article 10a(5) of that directive (see, to that effect, judgment of 28 April 2016 in Borealis Polyolefine and Others, C‑191/14, C‑192/14, C‑295/14, C‑389/14 and C‑391/14 to C‑393/14, EU:C:2016:311, paragraphs 64 to 70).

As the Court has already held, in accordance with the third paragraph of Article 10a(1) and Article 10a(3) to (5) of Directive 2003/87, a distinction needs to be made between the installations covered by Article 10a(3) of that directive and other installations which generate greenhouse gases. Electricity generators, inter alia, within the meaning of Article 3(u) of that directive fall within the first group (judgment of 28 April 2016 in Borealis Polyolefine and Others, C‑191/14, C‑192/14, C‑295/14, C‑389/14 and C‑391/14 to C‑393/14, EU:C:2016:311, paragraph 70).

Moreover, it should be noted that the fact that those obligations are addressed to operators of an installation does not mean that the emissions generated during trials performed by the constructor of those installations may not be taken into account. First, and as the Commission pointed out, the concept of ‘electricity generator’ referred to in Article 3(u) of Directive 2003/87 is not relevant for the purposes of the start of the emissions trading obligation. Secondly, the operator’s reporting and surrender obligations concerns also those emissions, since the emissions trading system applies, in accordance with Article 2(1) of that directive, to all emissions from the activities listed in Annex I to that directive.

In the light of the above, the answer to the first question is that in so far as Annex I to Directive 2003/87 includes the ‘combustion of fuels in installations with a total rated thermal input exceeding 20 MW’ in the list of categories of activities to which that directive applies, it must be interpreted as meaning that the emissions trading obligation of an installation for the generation of electricity starts on the date of the first emissions of greenhouse gases, and thus potentially before the date of the first generation of electricity.

[...]

On those grounds, the Court (Sixth Chamber) hereby rules:

In so far as Annex I to Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC, as amended by Directive 2009/29/EC of the European Parliament and of the Council of 23 April 2009 includes the ‘combustion of fuels in installations with a total rated thermal input exceeding 20 MW’ in the list of categories of activities to which that directive applies, it must be interpreted as meaning that the emissions trading obligation of an installation for the generation of electricity starts on the date of the first emissions of greenhouse gases, and thus potentially before the date of the first generation of electricity.”