Environmental law

By Paul Sheridan, CMS Cameron McKenna, London

Environment, energy and state aidThe interface between energy and the environment is currently a major topic.

It was important in the November 2000 climate change negotiations in the Hague.

In October Stephen Byers, the Trade Secretary, outlined proposals to increase to 10% by 2010 the quantity of electricity generated from renewable sources purchased by electricity suppliers.

Also in October, environment campaigners applauded an opinion of Advocate General Jacobs of the European Court of Justice delivered in the German case of PreussenElektra AG v Schleswag AG (C-379/98).

In that case, PreussenElektra has attacked a German law designed to promote the use of electricity from renewable sources.

Proponents of that law claim that it has successfully created a significant expansion in the capacity of German renewables.

There is concern amongst many environmentalists that if PreussenElektra is ultimately successful, other similar schemes in other EU member states could founder.The relevant law relates to the feeding of electricity from renewable sources into the public grid.

It was originally passed in 1990 (the StrEG 1990) and amended in 1998 (the StrEG 1998).

The law requires regional electricity distributors to purchase at fixed minimum prices electricity produced from renewable sources within their area of supply.

It obliges upstream suppliers of electricity from conventional sources partially to compensate the distributors for the additional costs of that purchase obligation.

The purchase obligation relates only to electricity from renewable sources in Germany which is important for the second question before the European Court of Justice.Concerning StrEG 1990, the Commission originally had doubts whether the law was compatible with art.92 of the EC treaty (now art.87) which relates to state aid.

The Commission said it would keep the law under review.

Indeed, it wrote to the German government in 1996, setting out a number of concerns and suggested several changes to the law to ensure compatibility.

While the law was amended by StrEG 1998, the Commission's suggestions were not followed.PreussenElektra supplies electricity to regional electricity distributors including Schleswag.

StrEG 1998 obliges Schleswag to purchase electricity from renewable sources within its area of supply.

This area is ideal for the production of electricity from wind.

The proportion of electricity from wind increased steadily from 0.77% of Schleswag's 1991 total sales to an estimated 15% in 1998.

The additional costs to Schleswag on account of the purchase obligation rose from DM5.8million in 1991 to an estimated DM111.5million in 1998.

Under the compensation scheme a substantial proportion of those monies had to be reimbursed by PreussenElektra.

In proceedings before the German court, PreussenElektra contends that the law is not compatible with the EC Treaty and seeks return of some of the compensation monies.The German court referred the case to the ECJ asking in essence whether the scheme under StrEG 1998 constitutes State aid (within the meaning of art.92 of the EC Treaty) in favour of the producers of electricity from renewable sources, and, as a subsidiary question, whether the scheme is a measure equivalent to a quantitative restriction on imports within the meaning of art.30 of the EC Treaty (now art.28).

(There is considerable cross-border trade in electricity).There were numerous arguments made before the ECJ on a number of subsidiary issues.

However, on the central issue, Advocate General Jacobs was firmly of the opinion that the scheme did not constitute state aid.

While his opinion on this aspect is lengthy, in essence his view was that to constitute state aid there must be financing through state resources which he thought was not the case in this instance.

Environmentalists warmly welcome the opinion on this central question, but the outcome regarding the subsidiary question was not so clear cut.

Unfortunately, because the relevant issues had not been fully dealt with by the parties and the court was not fully informed of the relevant facts, the ECJ might find it necessary to re-open the matter or alternatively merely indicate in general terms its interpretation of the rules on the movement of goods.

For these reasons Advocate General Jacobs proffered only a tentative opinion.

He suggested that the purchase obligation should be regarded as a measure having effect equivalent to a quantitative restriction on imports.

However, such a quantitative restriction can nonetheless be justified under the treaty - in accordance with settled case-law - if it was properly imposed to protect the environment.

The advocate general made it clear that because the law confines the purchase obligation to renewable electricity generated in Germany, he doubted whether it could be justified on the grounds of protection of the environment.Obviously the ECJ is not obliged to follow the opinion of the advocate general.

Certainly, its decision and reasoning will be awaited with keen interest.