OPINION OF ADVOCATE GENERAL

SHARPSTON

delivered on 10 November 2016 ( 1 )

Case C‑460/15

Schaefer Kalk GmbH & Co. KG

v

Bundesrepublik Deutschland

(Request for a preliminary ruling from the Verwaltungsgericht (Administrative Court, Berlin, Germany))

‛Environmental policy — Directive 2003/87/EC — Greenhouse gas emission allowance trading within the European Union — Article 3(b) — Definition of ‘emission’ — Regulation (EU) No 601/2012 — Monitoring and reporting — Carbon dioxide transferred from an installation to another installation producing precipitated calcium carbonate and chemically bound to that product’

1. The present reference concerns the meaning of ‘emissions’ in Directive 2003/87/EC. ( 2 ) That concept is central to the greenhouse gas emission allowance trading scheme (the ‘allowance trading scheme’) put in place by that directive.

2. According to Article 3(b) of Directive 2003/87, greenhouse gas ‘emissions’ for the purposes of that directive exist only where gases (including carbon dioxide) ( 3 ) covered by the allowance trading scheme are released ‘into the atmosphere’. Certain provisions of Commission Regulation (EU) No 601/2012, ( 4 ) which implements Directive 2003/87, arguably widen the concept of ‘emissions’ in that directive. That is because they treat carbon dioxide transferred from one installation to another installation which transforms that gas into a stable chemical product ( 5 ) in which it is chemically bound (so that in effect it is not released into the atmosphere) as an ‘emission’ of the first installation. In consequence, the operator of the first installation (the installation of origin) must include that carbon dioxide in its yearly report to the competent national authority and surrender corresponding allowances. The Verwaltungsgericht Berlin (Administrative Court, Berlin, Germany) (‘the referring court’) wonders whether that is compatible with the scope of ‘emissions’ in Directive 2003/87 and whether the relevant provisions of Regulation No 601/2012 are therefore invalid.

EU Law

Directive 2003/87

3. As recital 5 in its preamble makes clear, Directive 2003/87 is intended to make an effective contribution to fulfilling the commitments of the European Union and its Member States under the Kyoto Protocol to the United Nations Framework Convention on Climate Change to reduce anthropogenic greenhouse gas emissions (‘the Kyoto Protocol’), ( 6 ) through an efficient European market in greenhouse gas emission allowances (‘allowances’), with the least possible diminution of economic development and employment.

4. Directive 2003/87 establishes, in accordance with the first subparagraph of Article 1, an allowance trading scheme within the European Union ‘in order to promote reductions of greenhouse gas emissions in a cost-effective and economically efficient manner’. The second subparagraph of Article 1 provides for progressively greater reductions of greenhouse gas emissions so as to contribute to the levels of reductions that are considered scientifically necessary to avoid climate change.

5. Article 2(1) indicates that Directive 2003/87 applies to emissions from the activities listed in Annex I and greenhouse gases listed in Annex II. Carbon dioxide (CO2) is among the gases listed.

6. Article 3(b) defines ‘emissions’ for the purposes of Directive 2003/87 as ‘the release of greenhouse gases into the atmosphere from sources in an installation …’. According to Article 3(e), ‘“installation” means a stationary technical unit where one or more activities listed in Annex I 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’.

7. Article 10a (‘Transitional Community-wide rules for harmonised free allocation’) provides in particular: ‘1. By 31 December 2010, the Commission shall adopt Community-wide and fully-harmonised implementing measures for the allocation of the allowances referred to in paragraphs 4, 5, 7 and 12 … … The measures referred to in the first subparagraph shall, to the extent feasible, determine Community-wide ex-ante benchmarks so as to ensure that allocation takes place in a manner that provides incentives for reductions in greenhouse gas emissions and energy efficient techniques, by taking account of the most efficient techniques, substitutes, alternative production processes, high efficiency cogeneration, efficient energy recovery of waste gases, use of biomass and capture and storage of CO2, where such facilities are available, and shall not provide incentives to increase emissions. … For each sector and subsector, in principle, the benchmark shall be calculated for products rather than for inputs, in order to maximise greenhouse gas emissions reductions and energy savings throughout each production process of the sector or the subsector concerned. … 2. In defining the principles for setting ex-ante benchmarks in individual sectors or subsectors, the starting point shall be the average performance of the 10% most efficient installations in a sector or subsector in the Community in the years 2007-2008. … The regulations pursuant to Articles 14 and 15 shall provide for harmonised rules on monitoring, reporting and verification of production-related greenhouse gas emissions with a view to determining the ex-ante benchmarks. …’

8. Article 12 concerns ‘Transfer, surrender and cancellation of allowances’. Under Article 12(3), ‘Member States shall ensure that, by 30 April each year, the operator of each installation surrenders a number of allowances, other than allowances issued under Chapter II, ( 7 ) equal to the total emissions from that installation during the preceding calendar year as verified in accordance with Article 15, and that these are subsequently cancelled’.

9. Pursuant to Article 12(3a), ‘an obligation to surrender allowances shall not arise in respect of emissions verified as captured and transported for permanent storage to a facility for which a permit is in force in accordance with Directive 2009/31/EC of the European Parliament and of the Council of 23 April 2009 on the geological storage of carbon dioxide [ ( 8 )]’.

10. Article 14 (‘Monitoring and reporting of emissions’) provides in particular: ‘1. By 31 December 2011, the Commission shall adopt a regulation for the monitoring and reporting of emissions … from the activities listed in Annex I … which shall be based on the principles for monitoring and reporting set out in Annex IV [ ( 9 )] and shall specify the global warming potential of each greenhouse gas in the requirements for monitoring and reporting emissions for that gas. That measure, designed to amend non-essential elements of this directive by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 23(3). 2. The regulation referred to in paragraph 1 shall take into account the most accurate and up-to-date scientific evidence available, in particular from the IPCC, [ ( 10 )] and may also specify requirements for operators to report on emissions associated with the production of goods produced by energy intensive industries which may be subject to international competition. That regulation may also specify requirements for this information to be verified independently. … 3. Member States shall ensure that each operator of an installation … monitors and reports the emissions from that installation during each calendar year, … to the competent authority after the end of that year in accordance with the regulation referred to in paragraph 1. …’

11. The first subparagraph of Article 15 (‘Verification and accreditation’) provides that ‘Member States shall ensure that the reports submitted by operators … pursuant to Article 14(3) are verified in accordance with the criteria set out in Annex V and any detailed provisions adopted by the Commission in accordance with [Article 15], and that the competent authority is informed thereof.’

12. Article 16 (‘Penalties’) provides in particular: ‘1. Member States shall lay down the rules on penalties applicable to infringements of the national provisions adopted pursuant to this directive and shall take all measures necessary to ensure that such rules are implemented. The penalties provided for must be effective, proportionate and dissuasive. … … 3. Member States shall ensure that any operator … who does not surrender sufficient allowances by 30 April of each year to cover its emissions during the preceding year shall be held liable for the payment of an excess emissions penalty. The excess emissions penalty shall be EUR 100 for each tonne of carbon dioxide equivalent emitted for which the operator … has not surrendered allowances. Payment of the excess emissions penalty shall not release the operator … from the obligation to surrender an amount of allowances equal to those excess emissions when surrendering allowances in relation to the following calendar year.’

Regulation No 601/2012

13. As it appears from its second legal base reference, Regulation No 601/2012 implements, in particular, Article 14(1) of Directive 2003/87. Article 1 of Regulation No 601/2012 states that the regulation lays down rules for the monitoring and reporting of greenhouse gas emissions and activity data pursuant to Directive 2003/87 in the trading period of the allowance trading scheme commencing on 1 January 2013 and in subsequent trading periods.

14. Article 5 requires monitoring and reporting ‘to be complete and to cover … all process and combustion emissions from all emission sources and source streams belonging to activities listed in Annex I to Directive 2003/87 … and of all greenhouse gases specified in relation to those activities while avoiding double-counting’. ( 11 )

15. Article 11(1) states that ‘each operator … shall monitor greenhouse gas emissions, based on a monitoring plan approved by the competent authority in accordance with Article 12, taking into account the nature and functioning of the installation … to which it applies’. ( 12 )

16. Pursuant to Article 20(2), ‘when defining the monitoring and reporting process, the operator shall include the sector specific requirements laid down in Annex IV’. The fourth subparagraph of point 10.B of Annex IV to Regulation No 601/2012 indicates that ‘where CO2 is used in the plant or transferred to another plant for the production of PCC…, that amount of CO2 shall be considered emitted by the installation producing the CO2’.

17. Article 49(1) provides: ‘The operator shall subtract from the emissions of the installation any amount of CO2 originating from fossil carbon in activities covered by Annex I to Directive 2003/87/EC, which is not emitted from the installation, but transferred out of the installation to any of the following: (a) a capture installation for the purpose of transport and long-term geological storage in a storage site permitted under Directive 2009/31/EC; (b) a transport network with the purpose of long-term geological storage in a storage site permitted under Directive 2009/31/EC; (c) a storage site permitted under Directive 2009/31/EC for the purpose of long-term geological storage. For any other transfer of CO2 out of the installation, no subtraction of CO2 from the installation’s emissions shall be allowed.’ ( 13 )

German law

18. The Law on greenhouse gas emission allowance trading (Gesetz über den Handel mit Berechtigungen zur Emission von Treibhausgasen) of 21 July 2011 transposes Directive 2003/87 in Germany. Article 3 of that law defines the concept of ‘emission’. It refers to the release into the atmosphere of greenhouse gases having their source in activities defined in Annex I to that law. Pursuant to Article 5(1), the operator must calculate the emissions of its installation for every calendar year and report that amount to the competent authority by 31 March of the following year. Article 6 requires the operator to submit to the competent authority, for approval, a monitoring plan relating to every trading period.

Factual background, procedure and questions referred

19. Schaefer Kalk GmbH & Co. KG (‘Schaefer Kalk’) operates an installation for calcination of lime in Hahnstätten (Germany). That activity is subject to the allowance trading scheme. ( 14 ) Schaefer Kalk transfers part of the carbon dioxide which it produces as a result of that activity to an installation where the carbon dioxide is used for producing PCC.

20. On 31 July 2012, Schaefer Kalk applied to the Deutsche Emissionshandelsstelle (the ‘German Emissions Trading Authority’) for approval of its monitoring plan. It asked specifically not to be required to report on the carbon dioxide transferred for producing PCC (and thus to surrender emissions trading allowances equivalent to the transferred carbon dioxide). Schaefer Kalk argued in essence that that carbon dioxide is chemically bound to PCC and therefore not released into the atmosphere.

21. The German Emissions Trading Authority approved Schaefer Kalk’s monitoring plan on 10 January 2013, without addressing the issue of carbon dioxide transferred for producing PCC. By subsequent decision of 29 August 2013 (‘the August 2013 decision’), that authority rejected Schaefer Kalk’s request to subtract from its emissions transferred carbon dioxide, on the ground that Article 49 of, and Annex IV to, Regulation No 601/2012 do not provide for that possibility.

22. Schaefer Kalk challenged the August 2013 decision before the referring court. It argued in essence that the second subparagraph of Article 49(1) of, and the fourth subparagraph of point 10.B in Annex I to, Regulation No 601/2012 are incompatible with Articles 3(b) and 14(1) of Directive 2003/87 in so far as they include in an installation’s ‘emissions’ carbon dioxide that is not released into the atmosphere but transferred to another installation for producing PCC in which that carbon dioxide is chemically bound. The ensuing financial burden (that is, the yearly surrender of a number of allowances equal to that carbon dioxide) is liable to discourage operators from making such transfers, and thus to undermine the objective of emissions reduction pursued by Directive 2003/87.

23. The referring court stayed the proceedings and requested a preliminary ruling on the following questions: ‘1. Is Commission Regulation No 601/2012 invalid and does it infringe the aims of Directive 2003/87 in so far as the second [subparagraph] of Article 49(1) [of that regulation] provides that CO2 that is not transferred within the meaning of the first [subparagraph] of Article 49(1) is to be considered emitted by the installation producing the CO2? 2. Is Commission Regulation No 601/2012 invalid and does it infringe the aims of Directive 2003/87 in so far as point 10 of Annex IV provides that CO2 that is transferred to another plant for the production of [PCC] is to be considered emitted by the installation producing the CO2?’

24. Written observations have been submitted by Schaefer Kalk, the German Government and the European Commission. The same parties and the German Emissions Trading Authority presented oral argument at the hearing on 30 June 2016.

Assessment

Admissibility of Schaefer Kalk’s challenge to the validity of Regulation No 601/2012

25. The German Government queries whether Schaefer Kalk may still invoke, in the context of the national proceedings pending before the referring court, the invalidity of the second subparagraph of Article 49(1) of, and the fourth subparagraph of point 10.B in Annex IV to, Regulation No 601/2012, having omitted to seek annulment of that regulation before the General Court. The German Government refers here to the wider access to EU courts that individuals now enjoy by virtue of the third limb of the fourth subparagraph of Article 263 TFEU, which states that any natural or legal person may institute proceedings against a regulatory act which is of direct concern to them and does not entail implementing measures.

26. It is settled case-law that the possibility for a litigant to plead the invalidity of provisions in EU acts before the court hearing its action presupposes that the party in question had no right of direct action under Article 263 TFEU by which it could challenge those provisions. ( 15 ) However, only a person who would undoubtedly have been entitled to apply for the annulment of the act in question under the conditions laid down in that article is prevented from pleading before the national court having jurisdiction that the act is invalid. ( 16 ) I have elsewhere explained why that case-law should apply also to the third limb of the fourth subparagraph of Article 263 TFEU. ( 17 )

27. In the present case, Schaefer Kalk was justified in having doubts that it could, on the basis of the fourth subparagraph of Article 263 TFEU, bring a direct action before the General Court against the provisions of Regulation No 601/2012 that it now contests.

28. It is true that that regulation is a ‘regulatory act’ within the meaning of the fourth subparagraph of Article 263 TFEU, that is to say, an act of general application which was not adopted in accordance with a legislative procedure and which is therefore not legislative in nature. ( 18 ) However, standing under the third limb is also contingent on, inter alia, the absence of implementing measures as regards those seeking to challenge the act. Both the second subparagraph of Article 49(1) of, and the fourth subparagraph of point 10.B in Annex IV to, Regulation No 601/2012 required the adoption of implementing measures applicable to Schaefer Kalk, ( 19 ) such as the decision which the German Emissions Trading Authority adopted on 10 January 2013 at that company’s request for approval of its monitoring plan. ( 20 )

29. In those circumstances, Schaefer Kalk must be entitled to challenge the validity of those provisions of Regulation No 601/2012 before the referring court and ask it to refer that issue to the Court for a preliminary ruling.

Preliminary observations

30. It is common ground that the calcination of lime is an activity to which Directive 2003/87 applies. By contrast, the production of PCC is not listed in Annex I to that directive and is therefore not subject to the allowance trading scheme.

31. Both the German Government and the German Emissions Trading Authority argue that the chemical transformation of carbon dioxide used for producing PCC is incomplete, at least 20% of the input gases being ultimately released into the atmosphere as waste gas. ( 21 ) In its written submissions, the Commission explains that the chemical process for producing PCC does not in itself result in emissions. However, it submitted at the hearing, in answer to a question put to it by the Court, that part of the ‘input’ carbon dioxide might ultimately be lost and thus released into the atmosphere. Moreover, the German Government contends that, in a situation such as that in the main proceedings, it is necessary to take into account possible losses of carbon dioxide during transport or leakages from the plant. At the hearing, Schaefer Kalk contested those submissions of fact and explained that they had not been raised in the national proceedings.

32. In the context of proceedings under Article 267 TFEU, the Court of Justice may rule on the interpretation or validity of EU law provisions only on the basis of the facts which the national court puts before it. ( 22 ) It is therefore not for this Court to assess whether part of the carbon dioxide transferred from Schaefer Kalk’s installation to another installation for producing PCC was (or might plausibly be) lost during transport or was indeed released into the atmosphere as a result of that production. In any event, it is common ground that at least the major part of the carbon dioxide used in the chemical process for producing PCC is chemically bound to that product. It is against that background that I shall address the questions referred. It will be for the referring court, where appropriate, to carry out the necessary verifications of fact.

33. In a situation such as that in the main proceedings, the result of the second subparagraph of Article 49(1) of Regulation No 601/2012 and the fourth subparagraph of point 10.B in Annex IV to that regulation is that all carbon dioxide transferred for producing PCC is regarded as ‘emissions’ of the installation where it was produced, even though (at least) most of it is not released into the atmosphere, and that that installation’s operator is thus required, in accordance with Article 12(3) of Directive 2003/87, to report those quantities of carbon dioxide as emissions and to surrender allowances accordingly. The question is whether the Commission could introduce such a rule without disregarding the definition of ‘emissions’ in Article 3(b) of Directive 2003/87, to which reference is made in Article 14(1) of that directive. The two questions referred both concern that issue and should therefore be addressed together.

Can carbon dioxide transferred to an installation for producing PCC be regarded as ‘emissions’ for the purposes of the emissions trading system?

34. Recital 5 of Directive 2003/87 explains that the directive establishes an allowance trading scheme in order to contribute to fulfilling the commitments of the European Union and its Member States under the Kyoto Protocol, which aims to reduce greenhouse gas emissions in the atmosphere to a level that prevents dangerous anthropogenic interference with the climate system, with the ultimate objective of protecting the environment. ( 23 )

35. The economic logic of the allowance trading scheme consists in ensuring that the reductions of greenhouse gas emissions required to achieve a predetermined environmental outcome take place at the lowest cost. By allowing the allowances that have been allocated to be sold, the scheme is intended to encourage a participant in the scheme to emit quantities of greenhouse gases that are less than the allowances originally allocated to him, in order to sell the surplus to another participant who has emitted more than his allowance. ( 24 ) That can be achieved in essentially two ways: either by reducing greenhouse gases produced (typically, by using more efficient production methods) or by avoiding the release of greenhouse gases into the atmosphere (for example, by transforming those gases into a product in which they are chemically bound).

36. Accordingly, one of the pillars on which the allowance trading scheme is built is Article 12(3) of Directive 2003/87, under which each operator must surrender by 30 April of the current year, in order to have them cancelled, a number of greenhouse gas emission allowances equal to his emissions during the preceding calendar year. ( 25 )

37. The scope of that requirement, which is central to providing an answer to the referring court, depends above all on the meaning of ‘emissions’ as defined in Article 3(b) of Directive 2003/87. I shall therefore, in accordance with settled case-law, interpret that provision taking into consideration not only its wording but also the context in which it occurs and the objectives pursued by the rules of which it forms part. ( 26 )

38. The wording of Article 3(b) of Directive 2003/87 makes clear that there can be no ‘emissions’ unless greenhouse gases are released‘into the atmosphere’, that is to say, into the layer of gases surrounding the earth. Consistent with the directive’s objective to reduce emissions in order to avoid dangerous climate change, ( 27 ) the mere production of greenhouse gases therefore does not result in ‘emissions’ where those gases are not released into the atmosphere. ( 28 ) Annex IV to Directive 2003/87, which sets out the general principles for monitoring and reporting, does not point to a different conclusion: it requires the operator to include in the installation’s report the ‘total emissions’ calculated or measured for each activity covered by the allowance trading scheme. ( 29 )

39. However, as the German Emissions Trading Authority, the German Government and the Commission rightly submit, the definition in Article 3(b) is not limited to ‘direct and immediate’ release of greenhouse gases into the atmosphere. Thus, the circumstance that greenhouse gases are released into the atmosphere only some time after they were produced and possibly outside the installation from which they originate does not affect their classification as ‘emissions’. A contrary interpretation would enable operators to circumvent the allowance trading scheme by capturing greenhouse gases produced in an installation and transferring them to another installation in order to postpone their release into the atmosphere.

40. I therefore agree that if, in a situation such as that in the main proceedings, part of the carbon dioxide transferred to another installation for producing PCC is effectively released into the atmosphere as a result of transport losses or leakages, or of the production process itself, ( 30 ) regarding that part of the carbon dioxide transferred as ‘emissions’ of the installation of origin is compatible with the definition in Directive 2003/87. That interpretation is in line both with the scope of that directive as set out in Article 2(2) and with the definition of ‘emissions’ in Article 3(b): that carbon dioxide is ultimately (although indirectly) ‘released into the atmosphere’ and results from an activity which is subject to the allowance trading scheme (in the main proceedings, the calcination of lime).

41. But the second subparagraph of Article 49(1) of, and the fourth subparagraph of point 10.B in Annex IV to, Regulation No 601/2012 have a much broader effect. Not just that part of the transferred carbon dioxide which may possibly be released into the atmosphere, but the entirety of the carbon dioxide transferred to another installation for producing PCC, is regarded as ‘emissions’ of the installation of origin and therefore subject to the allowance trading scheme. In other words, those provisions create a non-rebuttable presumption that all the transferred carbon dioxide will be released into the atmosphere.

42. That outcome is not only inconsistent with the wording of Article 3(b) of Directive 2003/87: it also risks undermining that directive’s objective to protect the environment through the reduction of emissions. ( 31 )

43. As Schaefer Kalk correctly submitted at the hearing, the economic incentive underlying the allowance trading scheme is undermined if allowances must be surrendered for all the carbon dioxide transferred for producing PCC. Since the corresponding allowances can no longer be sold as ‘surplus’, the result is to treat the operator in exactly the same way as if he had released all that carbon dioxide into the atmosphere.

44. The German Government nevertheless argues that the contested provisions of Regulation No 601/2012 are necessary to ensure consistency with the ex-ante product benchmark for the production of lime laid down in Commission Decision 2011/278/EU. ( 32 ) In accordance with Article 10a of Directive 2003/87, that benchmark serves to determine the amount of free allowances granted for that activity during the transitional periods set out in that provision. Pursuant to point 1 in Annex I to Decision 2011/278, that benchmark is calculated taking into account ‘all processes directly or indirectly linked to the production of lime’. It follows that free allowances are granted for carbon dioxide resulting from the calcination of lime and transferred for producing PCC, regardless of whether that carbon dioxide is ultimately released into the atmosphere or not. The German Government submits in essence that, considering the harmonisation objective reflected in the second subparagraph of Article 10a(2), the Commission had to make sure that, in a situation such as that in the main proceedings, the operator is subject to the obligation to surrender allowances corresponding to that carbon dioxide. The Commission raises a similar argument.

45. I do not accept that argument.

46. The second subparagraph of Article 10a(2) of Directive 2003/87 requires regulations adopted pursuant to, inter alia, Article 14(1) of that directive, such as Regulation No 601/2012, to provide for harmonised rules on monitoring, reporting and verification of production-related greenhouse gas emissions with a view to determining the ex-ante benchmarks. I see nothing in that provision to suggest that, in a situation such as that in the main proceedings, an operator’s yearly emissions should or will include carbon dioxide transferred for producing PCC and not released into the atmosphere. It is true that the ex-ante product benchmark for the production of lime which the Commission calculated in Decision 2011/278 took into account, inter alia, carbon dioxide transferred for producing PCC and not released into the atmosphere. Such transfer of carbon dioxide indeed forms part of the ‘processes directly or indirectly linked to the production of lime’. In the main proceedings, that resulted in granting Schaefer Kalk more free allowances than if transferred carbon dioxide had not been taken into account. ( 33 ) That however has no impact on the scope of, on the one hand, the obligation to surrender allowances in Article 12(3) of Directive 2003/87 and, on the other hand, the regulation on monitoring and reporting that the Commission was to adopt in accordance with Article 14(1) of that directive. Both provisions cover only ‘emissions’ as defined in Article 3(b) of Directive 2003/87.

47. For the same reason, I disagree with the Commission’s submission at the hearing that, because the production of PCC with transferred carbon dioxide is not innovative and offers no guarantee against possible release of that gas into the atmosphere, Article 14(2) of Directive 2003/87 required that institution to regard carbon dioxide transferred for producing PCC as ‘emissions’. That provision’s sole purpose is to require the Commission, when it adopts a regulation in accordance with Article 14(1), to take into account ‘the most accurate and up-to-date scientific evidence available, in particular from the IPCC’. Consequently, it cannot be read as widening the definition of ‘emissions’ in Article 3(b) of Directive 2003/87 so as to cover carbon dioxide not released into the atmosphere. Whether avoidance of such release results from an innovative process or not is immaterial in that regard.

48. Contrary to the submission made by the German Emissions Trading Authority, the German Government and the Commission, an operator does not moreover benefit from an undue competitive advantage if it is able to ‘spare’ free allowances corresponding to carbon dioxide which it transfers to an installation for producing PCC, unlike operators who do not make such transfers.

49. It is true that preserving the conditions of competition in the internal market in the allowance trading scheme is among the objectives pursued by Directive 2003/87. ( 34 ) However, in a situation such as that in the main proceedings, the ‘advantage’ of having ‘spare’ allowances cannot be regarded as undue and thus distortive of competition. That advantage merely results instead from the objective difference between an operator who releases greenhouse gases into the atmosphere and an operator who avoids such emissions by chemically transforming part of the carbon dioxide produced into a new, stable chemical in which it is bound. That advantage is thus fully in keeping with the economic logic of the allowance trading scheme. ( 35 )

50. Moreover, I am not convinced by the argument (advanced by the German Government, the German Emissions Trading Authority and the Commission) that, in essence, operators would be able to circumvent the allowance trading scheme (in particular, the obligation to surrender allowances) without much difficulty if they were entitled to subtract from their total emissions greenhouse gases transferred to other units of production. In answer to a question from the Court at the hearing, the Commission explained that, in a situation such as that in the main proceedings, it is necessary to include transferred carbon dioxide in an installation’s emissions because production of PCC is not among the activities covered by the allowance trading scheme. In those circumstances, it may not be possible to carry out inspections at the installation to which carbon dioxide has been transferred for producing PCC.

51. Avoiding potential loopholes connected to the transfer of carbon dioxide is certainly a legitimate objective. ( 36 ) However, that argument does not in my view sufficiently take into account all the safeguards resulting from the reporting and monitoring system put in place by Directive 2003/87 and the regulations implementing it.

52. It follows from Article 14(3) of Directive 2003/87 that the obligation for operators to surrender allowances, which is one of the pillars on which the allowance trading scheme is built, is based on the reports which operators draw up, following the rules set out in Regulation No 601/2012 for the monitoring and reporting of greenhouse gas emissions. ( 37 ) Those rules require from the operator, inter alia, completeness (Article 5), accuracy (Article 7) and integrity of the methodology used (Article 8) when monitoring and reporting emissions. Under the second subparagraph of Article 8 of Regulation No 601/2012, reported emission data and related disclosures must be ‘free from material misstatement, avoid bias in the selection and presentation of information, and provide a credible and balanced account of an installation’s emissions’.

53. In accordance with the requirement for strict accounting of the allowances issued, and pursuant to Articles 6(2)(e) and 12(3) of Directive 2003/87, those reports, before being submitted to the competent national authorities, are subject to a verification process provided for by, inter alia, Article 15 of that directive. ( 38 ) It follows from Article 15, read in conjunction with Annex V to Directive 2003/87, that the verification of emissions reports by an independent verifier is an essential condition for surrendering allowances. An operator may not transfer allowances until the report he has produced has been verified and declared to be satisfactory. ( 39 )

54. One of the verifier’s main tasks is precisely to verify ‘with reasonable assurance that the operator’s … report is free from material misstatements’. ( 40 ) Material misstatements may relate to emissions which an operator ‘disguises’ as transfers of greenhouse gases to another installation. Any material misstatements that were not corrected before the report was issued must be included in the verification report drawn up by the verifier. ( 41 ) And until his report has been verified, the operator concerned is not able to surrender allowances corresponding to the total emissions from his installation during the preceding calendar year, as required by Article 12(3) of Directive 2003/87. That operator will therefore be subject to the lump-sum penalty provided for in Article 16(3) of that directive. ( 42 )

55. Directive 2003/87 does not provide for other control mechanisms and does not make the surrender of allowances subject to any condition other than the emissions report being accepted as satisfactory. ( 43 ) However, the Court has made clear that it follows from the provisions of that directive as a whole that it does not preclude the competent authorities of the Member States from carrying out additional controls or verifications, even where an operator’s report has been verified and declared to be satisfactory. To the extent that such verifications may reveal irregularities or attempted fraud, they also contribute to the correct functioning of the allowance trading scheme. ( 44 )

56. In my view, use of those investigation powers is notably justified where carbon dioxide is transferred from one installation to another: that situation involves a clear risk of circumvention of the allowance trading scheme. Thus, the competent authority of a Member State is, in a case such as that in the main proceedings, entitled to conduct all necessary investigations to verify that transferred carbon dioxide is indeed used for producing PCC and is not released into the atmosphere. I see nothing to preclude such inspections from being carried out in the installation to which carbon dioxide is transferred. If that authority concludes that a verified emissions report does not include all the emissions subject to the allowance trading scheme, the operator concerned is subject to an ‘effective, proportionate and dissuasive’ penalty set up by national law in accordance with Article 16(1) of Directive 2003/87, taking into account the operator’s behaviour, its good faith or its fraudulent intentions. ( 45 )

57. I therefore conclude, contrary to the submission made by the German Emissions Trading Authority, the German Government and the Commission, that a rule requiring an operator to surrender allowances corresponding to the entire quantity of carbon dioxide transferred to an installation for producing PCC, regardless of whether that carbon dioxide is released into the atmosphere, is not necessary to ensure that the allowance trading scheme is effective.

58. The Commission argues in essence that it follows from Article 12(3a) of Directive 2003/87, which concerns the capture and transport of greenhouse gases for permanent geological storage, that the EU legislature did not intend to lay down any other exception to the compulsory surrender of allowances for carbon dioxide that is not directly and immediately released into the atmosphere.

59. However, Article 12(3a) of Directive 2003/87 does not call into question the reasoning I have set out above on the concept of ‘emissions’ in Directive 2003/87.

60. Article 12(3a) sets out the conditions under which emissions verified as captured and transported for permanent geological storage are not subject to the obligation to surrender allowances laid down in Article 12(3) of Directive 2003/87. It was introduced in that directive in order to create an incentive for operators to use that technology, ( 46 ) at the same time as the EU legislature decided to insert into the list of activities covered by Directive 2003/87 (Annex I) the ‘capture of greenhouse gases from installations covered by [that directive] for the purpose of transport and geological storage in a storage site permitted under Directive 2009/31/EC’, the ‘transport of greenhouse gases by pipelines for geological storage in a storage site permitted under Directive 2009/31/EC’ and the ‘geological storage of greenhouse gases in a storage site permitted under Directive 2009/31/EC’. ( 47 ) The EU legislature thus acknowledged that, although these activities’ primary purpose is to avoid emissions (justifying the conditional exemption in Article 12(3a)), their purpose is not to eliminate greenhouse gases: there therefore remains a clear risk that such gases may end up being released into the atmosphere. ( 48 ) By contrast, the EU legislature did not subject transfers of carbon dioxide for producing PCC, as such, to the allowance trading scheme. That is logical since (most of) the carbon dioxide is chemically bound within the PCC and cannot, therefore, end up being released into the atmosphere. Having regard to its specific purpose, the exception in Article 12(3a) of Directive 2003/87 therefore provides no general guidance on the concept of ‘emission’ in Article 3(b) of that directive.

61. Finally, can the contested provisions of Regulation No 601/2012 be regarded as merely amending a ‘non-essential element’ of Directive 2003/87 ‘by supplementing it’ and thus remaining within the boundaries fixed by the second subparagraph of Article 14(1) of that directive?

62. In my opinion, the answer is clearly ‘no’.

63. The effect of those provisions is, as I explained, to widen the scope of the definition of ‘emission’ in Article 3(b) of Directive 2003/87, to which reference is made in Article 14(1) of that directive. That concept unquestionably forms part of the essence of the allowance trading scheme which Directive 2003/87 put in place and thus plays a key role in achieving that directive’s objective of protecting the environment. Consequently, the Commission could not, through the adoption of an implementing regulation, alter the scope of that concept without encroaching upon political choices which it is only for the EU legislature to make. ( 49 )

Conclusion

64. In the light of all the foregoing considerations, I am of the opinion that the Court should answer the questions raised by the Verwaltungsgericht Berlin (Administrative Court, Berlin, Germany) to the following effect: ‘The second subparagraph of Article 49(1) of, and the fourth subparagraph of point 10.B in Annex IV to, Commission Regulation (EU) No 601/2012 of 21 June 2012 on the monitoring and reporting of greenhouse gas emissions pursuant to Directive 2003/87/EC of the European Parliament and of the Council are invalid in so far as they include in an installation’s ‘emissions’, for the purposes 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, carbon dioxide resulting from calcination of lime and transferred to another installation for producing precipitated calcium carbonate, regardless of whether that carbon dioxide is released into the atmosphere or not.’

( 1 ) Original language: English.

( 2 ) Directive 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). The version of that directive relevant to the main proceedings is that last amended by Directive 2009/29/EC of the European Parliament and of the Council of 23 April 2009 (OJ 2009 L 140, p. 63).

( 3 ) In what follows, I shall use ‘carbon dioxide’ and ‘CO2’ interchangeably.

( 4 ) Regulation of 21 June 2012 on the monitoring and reporting of greenhouse gas emissions pursuant to Directive 2003/87 (OJ 2012 L 181, p. 30).

( 5 ) Precipitated calcium carbonate (‘PCC’). That substance is used for manufacturing a variety of industrial products such as glue, paint, paper, etc.

( 6 ) The Kyoto Protocol to the United Nations Framework Convention was adopted on 11 December 1997. The Council of the European Union approved the Kyoto Protocol by Decision 2002/358/EC (OJ 2002 L 130, p. 1).

( 7 ) That chapter concerns ‘aviation’ and is therefore not relevant in the main proceedings.

( 8 ) OJ 2009 L 140, p. 114.

( 9 ) The principles for monitoring and reporting set out in that annex require the operator to include in the installation’s report, in particular, total emissions of that installation calculated or measured for each Annex I activity. See Annex IV, Part A, ‘Reporting of emissions’, points B and C.

( 10 ) Intergovernmental Panel on Climate Change.

( 11 ) See point 5 above.

( 12 ) The monitoring plan consists of detailed, complete and transparent documentation of the monitoring methodology of a specific installation, including general information on the installation, a detailed description of the calculation-based or measurement-based methodologies applied, and a detailed description of the monitoring methodology in case of transfer of CO2 in accordance with Article 49 of Regulation No 601/2012. See Article 12(1), second subparagraph of, and point 1 in Annex I to, Regulation No 601/2012.

( 13 ) The rationale underlying Article 49 appears in recital 13, which explains that, to ‘close potential loopholes connected to the transfer of pure CO2’, such transfer ‘should only occur for the purposes of storage in a geological storage site pursuant to the Union’s greenhouse gas emission allowance trading scheme, which is at present the only form of permanent storage of CO2 accepted under the Union’s greenhouse gas emission trading scheme’.

( 14 ) Annex I mentions, among the activities covered by the allowance trading scheme, the ‘production of lime or calcination of dolomite or magnesite in rotary kilns or in other furnaces with a production capacity exceeding 50 tonnes per day’.

( 15 ) See, most recently, the judgment of 28 April 2016, 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 46 and the case-law cited.

( 16 ) See, inter alia, the judgment of 17 March 2016, Portmeirion Group, C‑232/14, EU:C:2016:180, paragraph 23 and the case-law cited.

( 17 ) See my Opinion in A and Others, C‑158/14, EU:C:2016:734, points 67 to 72.

( 18 ) See, to that effect, the judgment of 3 October 2013, Inuit Tapiriit Kanatami and Others v Parliament and Council, C‑583/11 P, EU:C:2013:625, paragraph 60.

( 19 ) Whether a regulatory act entails implementing measures should be assessed by reference to the person pleading the right to bring proceedings under the third limb of the fourth subparagraph of Article 263 TFEU. It is therefore irrelevant that the act in question entails implementing measures with regard to other persons. See, inter alia, the judgment of 28 April 2015, T & L Sugars and Sidul Açúcares v Commission, C‑456/13 P, EU:C:2015:284, paragraph 32 and the case-law cited.

( 20 ) That approval is required by Article 12(1), first subparagraph, of Regulation No 601/2012.

( 21 ) The German Emissions Trading Authority submitted at the hearing that, whilst a lower level of ‘surplus’ carbon dioxide is conceivable, an optimal harvest of PCC involves at least 20% waste gas.

( 22 ) See, inter alia, the judgments of 9 October 2014, Traum, C‑492/13, EU:C:2014:2267, paragraph 19, and of 21 July 2016, Argos Supply Trading, C‑4/15, EU:C:2016:580, paragraph 29.

( 23 ) Judgment of 16 December 2008, Arcelor Atlantique et Lorraine and Others, C‑127/07, EU:C:2008:728, paragraph 29.

( 24 ) Judgment of 16 December 2008, Arcelor Atlantique et Lorraine and Others, C‑127/07, EU:C:2008:728, paragraph 32. See also the judgment of 7 April 2016, Holcim (Romania) v Commission, C‑556/14 P, not published, EU:C:2016:207, paragraphs 64 and 65.

( 25 ) Judgment of 29 April 2015, Nordzucker, C‑148/14, EU:C:2015:287, paragraph 29.

( 26 ) See, inter alia, the judgment of 4 February 2016, Hassan, C‑163/15, EU:C:2016:71, paragraph 19 and the case-law cited.

( 27 ) Article 1, second subparagraph of Directive 2003/87.

( 28 ) A nuance to that principle results from the inclusion in Annex I to Directive 2003/87 of the capture, transport and geological storage of greenhouse gases in a storage site permitted under Directive 2009/31. See points 59 and 60 below.

( 29 ) Annex IV, Part A, ‘Reporting of emissions’, points B and C.

( 30 ) As I have already indicated, it is not for the Court to decide on these factual matters.

( 31 ) See, to that effect, the judgment of 16 December 2008, Arcelor Atlantique and Lorraine and Others, C‑127/07, EU:C:2008:728, paragraph 31.

( 32 ) 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 (OJ 2011 L 130, p. 1).

( 33 ) See point 44 above.

( 34 ) See, inter alia, the judgments of 29 March 2012, Commission v Poland, C‑504/09 P, EU:C:2012:178, paragraph 77, and of 22 June 2016, DK Recycling und Roheisen v Commission, C‑540/14 P, EU:C:2016:469, paragraphs 49 and 50.

( 35 ) See point 35 above.

( 36 ) See recital 13 of Regulation No 601/2012.

( 37 ) Judgment of 29 April 2015, Nordzucker, C‑148/14, EU:C:2015:287, paragraph 31.

( 38 ) Judgment of 29 April 2015, Nordzucker, C‑148/14, EU:C:2015:287, paragraph 31.

( 39 ) Judgment of 29 April 2015, Nordzucker, C‑148/14, EU:C:2015:287, paragraph 32.

( 40 ) Article 7(1) of Commission Regulation (EU) No 600/2012 of 21 June 2012 on the verification of greenhouse gas emission reports and tonne-kilometre reports and the accreditation of verifiers pursuant to Directive 2003/87/EC of the European Parliament and of the Council (OJ 2012 L 181, p. 1).

( 41 ) Point (a) of the first subparagraph of Article 27(1) of Commission Regulation No 600/2012.

( 42 ) See, to that effect, the judgment of 29 April 2015, Nordzucker, C‑148/14, EU:C:2015:287, paragraph 35.

( 43 ) Judgment of 29 April 2015, Nordzucker, C‑148/14, EU:C:2015:287, paragraph 34.

( 44 ) Judgment of 29 April 2015, Nordzucker, C‑148/14, EU:C:2015:287, paragraph 37.

( 45 ) See, to that effect, the judgment of 29 April 2015, Nordzucker, C‑148/14, EU:C:2015:287, paragraph 39.

( 46 ) See recital 20 of Directive 2009/29, which inserted Article 12(3a) into Directive 2003/87.

( 47 ) Emphasis added.

( 48 ) See, to that effect, recital 39 of Directive 2009/29.

( 49 ) See, to that effect, judgment of 22 June 2016, DK Recycling und Roheisen v Commission, C‑540/14 P, EU:C:2016:469, paragraph 47 and the case-law cited.