The Essent Judgment: To A Greater Extent Than Or Less Other Revolution Inward The Illustration Police Pull On Gratis Campaign Of Goods?

Filippo Fontanelli, Lecturer inward International Economic Law, University of Edinburgh

Introduction

On xi September 2014, the Court of Justice of the European Union delivered the judgment inward the Essent illustration (Joined Cases C-204 to C-208/12, non to endure confused with Case -91/13, also named Essent, of the same day). The judgment contains a fragile assessment of proportionality involving several interlaced interests: advertisement of complimentary loose energy trade, protection of the surround too human health, compliance with international commitments on emission-reduction, advertisement of local employment, too incentives to attain loose energy self-sufficiency.

If this maelstrom of values were insufficient to heighten the involvement of the readership, the judgment has also a purely doctrinal undertone. Indeed, the Court appears to ignore – deliberately – the summae divisiones which it itself has maintained for decades betwixt distinctly too indistinctly applicable measures, as good as betwixt justifications nether Article 36 TFEU (which laid the explicit Treaty-based grounds for restricting the complimentary motion of goods) too other mandatory requirements (the other grounds for restricting such complimentary movement). Thousands of European Union police clit academics powerfulness instantly demand to finally drib the touchstone exam-questions on “Measures equivalent to a quantitative restriction (MEQRs) from Cassis to Keck too beyond” yearly rephrased too administered since fourth dimension immemorial: it powerfulness plow out that, subsequently all, Cassis is no longer skillful law.

The case

The facts of the primary proceedings relate to a complex domestic regulatory regime which, inward turn, implements devilishly detailed European Union acts. However, the crux of the dispute is easily summarised: a Flemish Regional system requires loose energy suppliers connected to the electricity grid to demonstrate the usage of a for certain amount of renewable energy, on hurting of a hefty penalty. Only locally produced greenish loose energy counts toward that quota, hence suppliers cannot usage greenish loose energy produced abroad to evidence compliance.

Essent could receive got met or at to the lowest degree approached the quota had it been allowed to cistron inward the calculation renewable loose energy that it had sourced from Norway, Denmark, Sweden too the Netherlands, but it was not. It so incurred a serial of yearly sanctions, too challenged them repeatedly earlier the Belgian courts. The Belgian judges raised a preliminary enquiry to the Court of Justice asking, essentially, whether the discriminatory handling of unusual greenish loose energy towards the fulfilment of the compulsory quota is inward violation of the treaty obligations regarding liberty of motion of goods too the prohibition of discrimination based on nationality.

[Skip to the adjacent department if you lot arrived to this post past times Googling “mandatory requirements” too you lot must submit your essay 3 hours from now. For the others, a few words on the legal context of the dispute.]

Directive 2001/77 (governing the facts of the primary proceedings, instantly replaced past times Directive 2009/28) recognizes that renewable energies are underused inward the Union, an unfortunate circumstance given that the evolution of a greenish loose energy manufacture could, at once, alleviate the dependence of European Union countries from unusual supply, contribute to the fulfilment of the climate-change commitments entered into nether the Kyoto protocol, too foster local work policies. Therefore, the European Union encourages national schemes supporting the consumption of renewable energy, without harmonising them. Better, “until a [Union] framework is pose into operation”, which is presumably inward the works (see recital fourteen of the Preamble of Directive 2001/77).

In companionship to facilitate the merchandise inward greenish energy, the Directive established a compulsory organisation of certification, whereby loose energy derived from renewable sources is entitled to a “guarantee of origin”. Guarantees of beginning issued inward European Union members are mutually recognized across the Union.

National back upwardly schemes tin provide diverse incentives to facilitate the production too consumption of greenish energy. Typically, benefits are available exclusively to producers too suppliers handling greenish energy, which necessarily handgrip the relative guarantees of origin. However, fellow member states are non required to brand the specific benefits subject on the possession of the guarantees. The Preamble of the Directive is clear inward this sense: “[s]chemes for the guarantee of beginning do non past times themselves imply a correct to do goodness from national back upwardly mechanisms established inward dissimilar Member States”. Guarantees of beginning are hence necessary but peradventure insufficient weather condition to bask national incentives.

The Flemish system implementing the Directive, for instance, is premised on the possession (and periodic surrendering) of “green certificates”. Green certificates are granted to producers of greenish loose energy based inward the Flemish region, which sell them with the energy. Suppliers are nether an obligation to give upwardly a for certain quota of greenish certificates to avoid sanctions. At the phase of surrendering, guarantees of beginning attached to greenish loose energy purchased abroad cannot substitute for the missing greenish certificates to fill upwardly the quota.

A provision of the relevant Flemish Decree envisages the possibility for the Flemish authorities to convey non-Flemish certificates for the purpose of filling the quota, but no implementing deed has been adopted to regulate this possibility, which hence remained wishful thinking.

The Flemish system was challenged nether the Directive, nether Article 34 TFEU prohibiting measures equivalent to quantitative restrictions (MEQRs), too nether Article eighteen TFEU prohibiting discrimination based on nationality.

The Directive clearly does non require Member U.S.A. to link back upwardly schemes to guarantees of origin. It only requires U.S.A. to number them too recognize them across the Union, so that consumers are ever informed of the green-ness (or lack thereof) of the loose energy they purchase.

The existent challenge to the Flemish system was brought nether Article 34 TFEU. The domestic mensurate encourages suppliers operating inward the Flemish regions to purchase renewable loose energy from local producers, as as greenish unusual loose energy is unusable towards fulfilment of the quota. Local greenish loose energy is artificially made to a greater extent than precious, because of the greenish certificates it is associated with, which rational producers must crave, to avoid fines. The restrictiveness of the system was plainly acknowledged past times the Court (para. 83), although it focused on the merchandise of electricity rather than the merchandise of guarantees of origin, an impossibly murky number that would receive got required determining whether intangible guarantees qualify as “goods”.

The Court hence examined whether the system was justifiable “on i of the populace involvement grounds listed inward Article [34 TFEU] or past times overriding requirements” too whether it satisfied the assay of proportionality (para. 89).

The purpose of the system was found inward the advertisement of the usage of renewable sources for producing loose energy (para. 95). This legitimate purpose does non characteristic inward Art. 36 TFEU too therefore, past times exclusion, was provisionally accepted past times the Court nether the doctrine of the dominion of reason. Under this principle, domestic measures setting mandatory requirements on goods, which confine inter-state trade, are justified if they pursue a reasonable policy objective too the restriction entailed is non disproportionate to the contribution made towards that objective. Mandatory (or “overriding”) requirements are non limited to the values listed inward Art. 36 TFEU, too routinely include objectives such as consumer interests too environmental protection. In its customary incarnation, the dominion of ground tin exclusively endure used to justify rules that do non discriminate according to the beginning of the goods.

The reasoning of the Court on the proportionality of the Flemish system is non linear, but proceeds past times accumulation. It essentially lists the reasons why the system is non as vicious as Essent would claim, invoking contextual elements, policy considerations too semantic tricks. In short, the Courts makes the next remarks, which I briefly assess inward the brackets.

Essent claimed that the Flemish system does non encourage the consumption of greenish energy, but exclusively its production. The Court objected (para. 98) that this is normal, as the greenness of loose energy relates just to its method of production (This is a massive non sequitur. If taken seriously, this would hateful that greenish loose energy powerfulness as good endure wasted subsequently production, as the do goodness to the surround was done already. To the contrary, the exclusively raison d’être of renewable loose energy is that it is supposed to replace the consumption of non-renewable energy).

The Court also noted that Member U.S.A. are allowed past times the Directive to laid national targets of production of greenish loose energy (para. 99), suggesting perhaps that the discrimination inherent inward the back upwardly system was dictated past times the concern to attain these targets (This proffer is misleading. Whether its motivation is allowed or non past times European Union police clit has nix to do with the EU-compliance of the Flemish measure).

The Court answered also the most hard question. If the Flemish system truly aims to increment the production of greenish loose energy for environmental purposes, how come upwardly it does inward fact discourage the purchase of greenish loose energy produced abroad, past times refusing to convey unusual guarantees of beginning as substitutes of Flemish greenish certificates? The brief reply is worthy of a Sibyl: “it should endure observed that the starting points, the renewable loose energy potential too the loose energy mix of each Member State vary” (para. 100) (This is besides obscure to travail a reading. Suffice it to say that because guarantees of beginning are acre of written report to usual recognition nether the Directive, i would presume that these alleged variations are capable of existence taken into line of piece of work organisation human relationship to certify the greenish nature of the energy, hence an equivalence betwixt Flemish certificates too whatever other guarantee is arguably possible to concoct).

Finally, the Court noted (para. 101) that national back upwardly schemes are of import to attain the objectives of the Directive (irrelevant per se) too that “it is essential that Member U.S.A. endure able to command the termination too costs of their national back upwardly schemes according to their potential, whilst maintaining investor confidence” (para. 102) (With a combat of effort, i tin run across why discrimination is justified: Member U.S.A. do non desire to brand available to all European Union producers subsidies whose cost is “ultimately [borne] past times the [local] consumers” (para. 107). Also, they cannot of a abrupt withdraw back upwardly schemes when it turns out that they operate mainly for the benefits of unusual producers: investor claims would follow too hitting hard).

“In the calorie-free of the foregoing,” the Flemish system was found to endure proportionate, too hence compliant with Article 34 TFEU (para. 103).

The Court so extended the proportionality analysis to other accessory elements of the schemes. It considered the penalties imposed, leaving it to the national approximate to assess their proportionality to the sought objective (para. 114). It also speculated on the fairness of the marketplace position of greenish certificates that tin fulfil the compulsory quotas, whose render is artificially restricted. The Court hence advocated the institution of mechanisms nether which these certificates tin endure traded “under fair terms” (para. 111). The irony of the finally remark is highlighted inward the comments below.

Comments

The Court nonchalantly applied a mandatory requirement to a facially discriminatory measure, sending Cassis to the museum of judge-made police clit no longer inward force, too tacitly ignoring the exhaustiveness of Article 36 TFEU. It conflated overriding requirements too values listed inward Article 36 TFEU into a unmarried puddle of excuses.

The passing reference to the contribution of reduced emissions to human wellness (para. 93) should non mislead: if human wellness chapeau were indeed the relevant objective of the Flemish scheme, it would receive got been at the centre of the ensuing proportionality assay (just to shout out i element, in that location should receive got been an analysis of the Flemish scheme’s contribution to increased wellness protection). That the quota has discriminatory effects which hinder merchandise was also undoubtable.

Therefore, a distinctly applicable mensurate was justified on the ground of a populace involvement other than those listed inward Article 36 TFEU. This had also been the illustration inward the parallel illustration of Ålands Vindkraft, C‑573/12, on which the Court delivered its judgment on 1 July 2014; run across paras. 76-77 (the Opinion of this illustration was also prepared past times Bot, too delivered before long subsequently his Opinion inward Essent). Indeed, the Court has seemingly lost involvement inward making a large bargain of the departure betwixt discrimination de jure and discrimination de facto.

Advocate Bot had suggested the Court to abandon the distinction too expressly overturn its previous case-law. The Court did the old but non the latter, of a abrupt dropping a carefully constructed judicial assay that it itself had devised inward the wild years of Article 34 TFEU to suit reasonable policies which cruel exterior the orbit of Article 36 TFEU.

That straight too indirect discrimination should endure treated alike makes perfect sense. This is, for instance, the exercise inward the GATT, the understanding regulating the removal of merchandise barriers for merchandise inward goods inward the WTO regime. Treating them differently, for instance allowing i to endure justified past times excuses that do non apply to the other, is irrational: the hindering termination of de jure or de facto discriminatory measures tin endure identical inward the facts, too a harsher handling of straight discrimination serves exclusively as an incentive for Member U.S.A. to disguise discrimination on the ground of nationality inside the folds of maliciously designed neutral measures.

However, in that location was around intuitive value to the bygone distinction: straight discrimination is prima facie illegal too must endure hard(er) to justify. Think of the judgment inward Test-Achats, which does non fifty-fifty travail to await at a justification for gender-based straight discrimination. In fact, as registered past times AG Kokott inward the Opinion to that illustration (para. 59), justifications based on statistical information tin back upwardly a proportionality assessment of indirect discrimination but cannot suffice to excuse direct discrimination.

In his proposal, AG Bot had reflected this concern, calling for a reinforced assay of proportionality applicable to distinctly applicable measures: the reasons advanced to justify straight discrimination must endure of exceptional weight. See at para. 94: “I mean value that discriminatory measures, peculiarly those which infringe a regulation as key as that of the prohibition of straight discrimination on grounds of nationality, ought to endure acre of written report to a strict requirement of proportionality” (emphasis added).

The Court did non deem it necessary to devise a reinforced (“strict”) proportionality assay and, inward my view, this powerfulness receive got contributed to a puzzling proportionality analysis, which features several controversial passages.

In short, past times applying the routine assay of proportionality the Court focused on the pursued objective (protection of the surround through increased production of greenish energy). In so doing, the discriminatory (and trade-restrictive) nature of the Flemish system was side-lined inward the analysis. Once a decent contribution to the surround was somewhat found, it was downhill from there. The happy run of proportionality manifestly skipped the halt of necessity: was in that location a less restrictive mensurate available for Flemish authorities to encourage the consumption too production of greenish energy? Yes in that location was: the interchangeability of greenish certificates too unusual guarantees of beginning would receive got averted trade-restriction too promoted environmental protection fifty-fifty more than the Flemish system could peradventure do.

The mensurate tin exclusively look proportionate if the elective purpose is around other unconfessed one, which is itself somewhat discriminatory. For instance, it could endure argued that the growth too functioning of a local green-energy manufacture is the existent purpose, too hence no option policy is available: whatever babe manufacture policy inherently involves around bargain of temporary protectionism, but is for a skillful cause. The Court, however, did non resort to this “lesser-evil” reasoning, too pretended that discrimination is fully justified past times the environmental purpose of the mensurate at large.

The irony of the finding is the after-thought of the Court with honour to the fairness of the marketplace position for greenish certificates. By virtually banning substitutable unusual certificates, the Flemish authorities is providing absolute protection to local producers, which powerfulness endure few inward number and, past times definition, receive got the luxury of setting a higher cost than they could if an undistorted transnational marketplace position were inward function. Formally, in that location is no ban, but the value of local certificates is artificially inflated past times the Flemish schemes, too makes it inconvenient for energy-suppliers to purchase greenish loose energy from abroad. This is a textbook illustration of a marketplace position distorted past times protectionism, where demand is forced to opt for the local product, too unusual competitors are treated much less favourably. The Court concedes that buyers of greenish certificates, which demand to comply with a compulsory quota, powerfulness give away it unfair that the render of certificates is artificially restricted to the collective monopoly of local producers, which tin accuse above-market prices. Local content requirements such as those envisaged past times the Flemish system constitute a prototypical musical instrument of protectionism, too non surprisingly they are included, for instance, amongst the measures prohibited inward the WTO Agreement on Trade-Related Investment Measures. It does non instruct whatever to a greater extent than protective too trade-distorting than that.

However, the Court limits itself to elegantly telephone phone for around “mechanisms” to ensure that suppliers tin purchase greenish certificates “under fair terms” (para. 111), a puzzling tilt inward calorie-free of the previous validation of a protectionist system which is merchandise unfairness incarnated.

Ultimately, this is a memorable case, because it seemingly puts to bed the dominion of ground as nosotros knew it. Also, the reasoning on the merits is rattling hard to decode because the dropping of straight discrimination as a crucial chemical cistron of the analysis resulted indeed inward a confusing assessment of proportionality, which oft loses sight of the differential handling at stake too forgets almost the necessity assay altogether.

Barnard & Peers: chapter 12, chapter 16, chapter 22

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