Opinion of the Advocate General — ECLI:EU:C:2013:191
Date: 2013-03-21
Language of the case: Spanish
Subject matter: Environment
Procedure: Reference for a preliminary ruling
Origin: Spain

summary, the market mechanism under Directive 2003/87 does not preclude the levy at issue in the main proceedings. b) The aim of reducing emissions 68. The levy may not, however, provide any incentives in the context of this market mechanism which would run counter to the aim of Directive 2003/87, which is to reduce greenhouse gas emissions. – Consumer prices 69. A first conflict with the aim of reduction could stem from the levy’s effects on consumer prices. The electricity producers involved argue that when it adopted Directive 2003/87 the Union legislature assumed that the value of allowances allocated free of charge would be integrated into prices. (21) 70. This argument is essentially well-founded. If the opportunity costs of the allowances are integrated into consumer prices, that price signal gives consumers an additional incentive to consume less electricity and thus to help to reduce greenhouse gas emissions. 71. Although Directive 2003/87 does not expressly mention this incentive for final consumers, it is consistent with the logic of the market mechanism created by it. That mechanism is intended to put a price on environmental pollution so that those costs are included in the decision-making of all relevant actors. 72. Nevertheless, a levy on the ‘windfall profit’ stemming from the inclusion of those costs is not necessarily contrary to this objective of the market mechanism. The price signal to final consumers is not impaired because electricity-producing undertakings are required to pay out any surplus revenue on the wholesale market. 73. The contested levy could be inconsistent with this mechanism, however, in so far as it is intended to relieve final consumers of the ‘windfall profit’ made by the electricity-producing undertakings. 74. According to the Tribunal Supremo, it is connected with a claim which will probably have to be satisfied in future by private final consumers. That claim corresponds to the ‘tariff deficit’. The deficit arises because consumer prices in Spain are fixed by the State. For some years the prices fixed in this way have been too low to cover the costs of local electricity suppliers which purchase electricity on the wholesale market. A deficit is thus created for those undertakings. The contested levy is deducted from the amount of that deficit pursuant to the additional provision to Order ITC/3315/2007, thereby contributing to its reduction. If it is assumed that the Spanish State will at some point impose the tariff deficit of local suppliers on consumers by means of higher electricity prices, the levy would therefore relieve the burden on consumers indirectly. 75. This effect of relieving the burden is nevertheless too uncertain to impair the price signal. That signal is instead prevented by the fact that consumer prices are fixed by the State, since they are so low that the integrated opportunity costs do not reach consumers. 76. Any relieving of the burden on consumers through the levy as such is not therefore contrary to Directive 2003/87. – Discrimination against more energy-efficient power plants 77. Iberdrola and Tarragona Power, supported by Gas Natural, Bizkaya Energia and Bahía de Bizkaia Electricidad, argue that the levy discriminates against more energy-efficient power plants. In fact, in the case of the particularly energy-efficient COGAS power plants, a much higher proportion of the market value of the allowances allocated free of charge is absorbed than in the case of less energy-efficient power plants. In examples described by Iberdrola and Tarragona Power, (22) for a COGAS power plant allowances worth around EUR 11.9 million were allocated and a levy of EUR 7.4 million was collected, that is to say, around 62%. For a coal-fired power plant which received allowances worth around EUR 12.7 million, on the other hand, levies amounting to only EUR 3 million were incurred, that is to say, 23.6%. They claim that this different intensity of burden constitutes unjustified discrimination. 78. This argument is based on the idea expressed in recital 20 in the preamble to Directive 2003/87 that the reduction of greenhouse gas emissions is also to be achieved by means of more energy-efficient production. Measures which adversely affect the incentives to use more energy-efficient technologies would run counter to that aim. 79. The burden on types of power plant appears unbalanced only as regards the allocation of allowances, however. In fact, all types of power plant have the same burden, equal to the windfall profit accrued. However, this does not correspond in every case to the quantity of allowances allocated free of charge. 80. This effect stems from the fixing of electricity prices on the wholesale market in Spain, as described above. (23) Because the price is determined by the bids from COGAS power plants, all more cost-effective generating power plants in any case receive for their electricity a profit margin amounting to the difference between their other costs and the price bid by the COGAS power plants. The ‘windfall profit’ corresponds solely to the proportion of that profit margin by which it increases on account of the integration of opportunity costs of the allowances for the COGAS power plants. This is also shown by the fact that this ‘windfall profit’ is absorbed in the same amount even in the case of power plants which do not require or have not received any allowances at all. (24) 81. A more extensive levy for other power plants would no longer be justified by the ‘windfall profit’. It would fall back on revenue which would have accrued even without the integration of opportunity costs for allowances allocated free of charge. 82. The particularly energy-efficient COGAS power plants are not therefore discriminated against compared with other power plants. Rather, their proportionately heavier burden stems from the fact that they determine the price of electricity and the opportunity costs of the allowances integrated by them represent the ‘windfall profit’ to be absorbed. This is ultimately the necessary consequence of their higher production costs. – Discrimination against energy efficiency improvements 83. However, the Spanish levy is structured in such a way that it adversely affects the incentive to reduce emissions. In response to a question from the Court, Spain confirmed that the levy increases on the basis of the formula applied if the energy efficiency of a power plant is improved. 84. This effect is caused by the structure of the formula for calculating the levy. It includes a division of the emission factor of a COGAS power plant by the emission factor of the power plant whose levy is to be calculated. The emission factor of an installation is the quantity of carbon dioxide in tonnes which is produced in the generation of one megawatt hour of electricity. 85. As a result of an improvement in the energy efficiency of a power plant, less carbon dioxide is produced in the activity of electricity generation; its emission factor is therefore lower. Accordingly, the result of the abovementioned division of the emission factor of a COGAS power plant by the reduced emission factor is larger. Since all the other factors in the formula remain the same, the levy must increase in this case. 86. Spain argues that an energy efficiency improvement is economically advantageous because fewer allowances are required. However, this economic advantage is at least reduced considerably because of the higher levy. 87. This is illustrated by an example of the application of Article 4(b) of Order ITC/3315/2007 described by Spain in response to a question from the Court. The hypothetical power plant under examination would originally produce one tonne of carbon dioxide in the generation of one megawatt hour of electricity. With a total production of 2 259 gigawatt hours, 2 258 762 of tonnes of carbon dioxide would be accumulated. At a price of EUR 15.6636 per tonne of carbon dioxide, the necessary allowances would have a value of EUR 35 380 339. The levy would be EUR 9 699 252. 88. If the energy efficiency of that power plant were improved such that in generating one megawatt hour of electricity only 0.8 tonnes of carbon dioxide equivalent were produced, only allowances worth EUR 28 304 271 would be required. The levy would nevertheless be EUR 12 124 065. 89. A cost advantage of EUR 7 076 068 through savings of allowances is therefore reduced by the increase in the levy to EUR 4 651 255. 90. For more energy-efficient types of installation than the example under examination, even larger reductions of the economic advantage are conceivable. Moreover, the levy would fall where energy efficiency worsens. 91. It is therefore undeniable that the graduation of the levy to the detriment of an emissions reduction adversely affects the incentive to increase energy efficiency and to avoid efficiency losses. In this respect, the Spanish levy undermines the scheme established by Directive 2003/87 and is incompatible with it. 92. This does not, however, call into question the levy as a whole. Rather, it is sufficient to apply the legislation in such a way that an improvement in the energy efficiency of a power plant does not result in a higher levy. – Interim conclusion 93. The aim of reducing emissions precludes the levy at issue in the main proceedings only in so far as an improvement in the energy efficiency of a power plant results in a higher levy. 3. Fundamental rights under EU law 94. For the sake of completeness, I should like to consider briefly the Charter of Fundamental Rights of the European Union. Under Article 51(1), the Charter is applicable to the Member States only when they are implementing Union law. (25) 95. The Spanish levy neither implements Directive 2003/87 directly nor was it introduced by Spain when it exercised the powers conferred on it by the directive. (26) Nevertheless, the levy is in response to a problem arising from the principle of allocation free of charge laid down in the directive. Furthermore, the allowances allocated free of charge on the basis of the directive are a factor in the calculation of the levy. Consequently, the levy cannot be excluded from the field of the implementation of EU law. I shall therefore examine below whether the levy is compatible with the principle of equal treatment and with the principles of the protection of legitimate expectations and legal certainty. a) The principle of equal treatment 96. The principle of equal treatment and the prohibition of discrimination require that comparable situations must not be treated differently and that different situations must not be treated in the same way unless such treatment is objectively justified. (27) A difference in treatment is justified if it is based on an objective and reasonable criterion, that is, if the difference is necessary for a legally permitted aim pursued by the legislation in question, and it is proportionate to the aim pursued by the treatment. (28) The provision concerned must therefore be proportionate to the differences and similarities of the particular situation. (29) In Directive 2003/87 this principle finds specific expression in the allocation criterion under point 5 of Annex III, which prohibits the Member States from unduly favouring certain undertakings or activities in the allocation of allowances. 97. Since the Spanish levy applies only to electricity production, it is compatible with the principle of equal treatment if that sector is sufficiently different from other economic sectors. Such differences are supported by the preceding observations and by the fact that when it revised Directive 2003/87 the Union legislature stated that the electricity sector could pass on cost increases caused by the scheme established by the directive and that the allowances in that sector should therefore be allocated fully through auctioning. (30) The Union legislature thus also implied that ‘windfall profits’ accrued in that sector. It did not make any such statements with regard to other sectors. Rather, they continue to receive a proportion of the required allowances free of charge. b) The principles of the protection of legitimate expectations and legal certainty 98. Although in general the principle of legal certainty precludes a measure from taking effect from a point in time before its publication, it may exceptionally be otherwise where the purpose to be achieved so demands and where the legitimate expectations of those concerned are duly respected. (31) 99. The amount of the levy at issue was fixed only by Order ITC/3315/2007 of 15 November 2007, but the levy applied to 2006. A breach of the principle of legal certainty cannot therefore be simply dismissed. If, however, Spain’s assumptions regarding the accrual of ‘windfall profits’ on the basis of allowances allocated free of charge in the present case are correct, I consider their retroactive absorption to be justified. If the amount of the levy is fixed from the start, it is to be feared that it will simply be integrated into the price as a further cost factor. Because, however, the principle of absorption has been established since the adoption of Royal Decree-Law 3/2006 in March 2006, the undertakings could not have legitimate expectations that they could retain any ‘windfall profits’. V – Conclusion 100. I therefore propose that the request for a preliminary ruling be answered as follows: Article 10 of 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 does not in principle prevent application of national legislative measures of the kind under review in these proceedings, the effect of which is to reduce remuneration for the activity of electricity production, by means of a levy, by the amount by which that remuneration increased because the emission allowances were received free of charge. However, such legislation may not be applied in such a way that an improvement in the energy efficiency of a power plant results in a higher levy. 1 – Original language: German. 2 – 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 (OJ 2003 L 275, p. 32), as amended by Directive 2004/101/EC of the European Parliament and of the Council of 27 October 2004 (OJ 2004 L 338, p. 18). Directive 2009/29/EC of the European Parliament and of the Council of 23 April 2009 amending Directive 2003/87/EC so as to improve and extend the greenhouse gas emission allowance trading scheme of the Community (OJ 2009 L 140, p. 63), which is not yet applicable in the present case, made substantial amendments to the provisions at issue. 3 – BOE No 275 of 16 November 2007, p. 53807. 4 – Variations may result from different operating times, which are, however, also taken into account in the formulas. 5 – Written pleading of 18 January 2013, Annex, p. 8 (Table 3, Comparison of Anllares and Palos 2 power plants). See also point 15 of the written pleading submitted by E.ON on 18 January 2013. 6 – See above, point 26, and below, point 79 et seq. 7 – Case C‑127/07 Arcelor Atlantique et Lorraine and Others [2008] ECR I‑9895, paragraph 31, and Case C‑366/10 Air Transport Association of America and Others [2011] ECR I‑13755, paragraph 139. 8 – Arcelor Atlantique et Lorraine and Others, cited in footnote 7, paragraph 32, and Air Transport Association of America and Others, cited in footnote 7, paragraph 140. 9 – COM(2001) 581 final, point 1.2. (p. 3). 10 – Cited in footnote 9, point 13 (p. 11 et seq.). 11 – Cited in footnote 9, point 13 (p. 12). 12 – See Arcelor Atlantique et Lorraine and Others, cited in footnote 7, paragraph 61 et seq. 13 – Case C‑558/07 S.P.C.M. and Others [2009] ECR I‑5783, paragraph 57. See also Case C‑504/09 P Commission v Poland [2012] ECR, paragraph 77, and Case C‑505/09 P Commission v Estonia [2012] ECR, paragraph 79. 14 – See recital 19 in the preamble to Directive 2009/29. See also the Communication from the Commission to the Council and to the European Parliament on the assessment of national allocation plans for the allocation of greenhouse gas emission allowances in the second period of the EU Emissions Trading Scheme accompanying Commission Decisions of 29 November 2006 on the national allocation plans of Germany, Greece, Ireland, Latvia, Lithuania, Luxembourg, Malta, Slovakia, Sweden and the United Kingdom in accordance with Directive 2003/87/EC (COM(2006) 725 final, p. 13, section 2.4., subsection ‘Auctioning’), and the Proposal for a Directive of the European Parliament and of the Council amending Directive 2003/87/EC so as to improve and extend the greenhouse gas emission allowance trading system of the Community (COM(2008) 16, p. 8, section 4.). 15 – See Commission v Poland and Commission v Estonia, cited in footnote 13. 16 – See the Commission Proposal, cited in footnote 9, point 13 (p. 11). 17 – See Red Eléctrica de España ‘Intercambios internacionales físicos de energía eléctrica’ (http://www.ree.es/sistema_electrico/series_estadisticas.asp, visited on 12 February 2013). 18 – See Joined Cases C‑393/99 and C‑394/99 Hervein and Others [2002] ECR I‑2829, paragraph 51; Case C‑387/01 Weigel [2004] ECR I‑4981, paragraph 55; Case C‑211/08 Commission v Spain [2010] ECR I‑5267, paragraph 61. 19 – See Case C‑307/97 Saint-Gobain ZN [1999] ECR I‑6161, paragraph 57, and Case C‑370/12 Pringle [2012] ECR, paragraph 69. 20 – Case C‑205/07 Gysbrechts and Santurel Inter [2008] ECR I‑9947, paragraph 43. 21 – See the Green Paper on greenhouse gas emissions trading within the European Union of 8 March 2000 (COM(2000) 87 final, point 7.3. (p. 23)). 22 – Point 17 of the written pleading of 18 January 2013. 23 – See above, point 17 et seq. 24 – See above, points 12 and 27. 25 – See, with regard to the other language versions of that provision, Kokott, J./ Sobotta, Ch.,, Die Charta der Grundrechte der Europäischen Union nach dem Inkrafttreten des Vertrags von Lissabon, in: Europäische Grundrechte Zeitschrift (2010), pp. 265 to 271. 26 – See Case C‑376/02 ‘Goed Wonen’ [2005] ECR I‑3445, paragraph 32. 27 – Case C‑344/04 IATA and ELFAA [2006] ECR I‑403, paragraph 95; Case C‑558/07 S.P.C.M. and Others [2009] ECR I‑5783, paragraph 74; and Case C‑550/07 P Akzo Nobel Chemicals and Akcros Chemicals v Commission and Others [2010] ECR I‑8301, paragraph 55. 28 – Arcelor Atlantique and Lorraine and Others, cited in footnote 7, paragraph 47. 29 – See the Opinion of Advocate General Poiares Maduro in Case C‑524/06 Huber [2008] ECR I‑9705, point 7, and my Opinions in Case C‑540/03 Parliament v Council [2006] ECR I‑5769, point 107, with further references, and in S.P.C.M. and Others, cited in footnote 27 point 134. 30 – See the references in footnote 14. 31 – ‘Goed Wonen’, cited in footnote 26, paragraph 33 et seq. with further references.