OPINION OF ADVOCATE GENERAL

KOKOTT

delivered on 21 March 2013 ( 1 )

Joined Cases C‑566/11, C‑567/11, C‑580/11, C‑591/11, C‑620/11 and C‑640/11

Iberdrola, SA and Others

v

Administración del Estado

(Request for a preliminary ruling from the Tribunal Supremo (Spain))

‛Environment — Directive 2003/87/EC — Greenhouse gas emission allowance trading scheme — Allocation of allowances free of charge — Levy on ‘windfall profits’’

I – Introduction

1. The European scheme for greenhouse gas emission allowance trading under Directive 2003/87 ( 2 ) is intended to resolve an environmental problem by means of a market mechanism. However, a key element in its introduction does not comply with market rules: at the relevant time, 95% of emission allowances had to be allocated free of charge even though they can be sold for cash on the secondary market.

2. The present case stems from an attempt by Spain to tackle the consequences of this policy. That Member State collects a levy on the ‘windfall profit’ realised by the electricity-producing undertakings because they integrate the value of used emission allowances which were allocated free of charge into the price of electricity.

3. It must be examined whether that levy infringes the obligation to allocate allowances free of charge. Regard must also be had to the aim of Directive 2003/87, which is to reduce greenhouse gas emissions by means of a market mechanism.

II – Legislative framework

A – EU law

4. The aims and subject-matter of Directive 2003/87 are laid down in Article 1: ‘This Directive establishes a scheme for greenhouse gas emission allowance trading within the Community (hereinafter referred to as the “Community scheme”) in order to promote reductions of greenhouse gas emissions in a cost‑effective and economically efficient manner.’

5. The following recitals in the preamble to the directive underline the market-oriented nature of the scheme: ‘(5) … This Directive aims to contribute to fulfilling the commitments of the European Community and its Member States more effectively, through an efficient European market in greenhouse gas emission allowances, with the least possible diminution of economic development and employment. … (7) Community provisions relating to allocation of allowances by the Member States are necessary to contribute to preserving the integrity of the internal market and to avoid distortions of competition. … (20) This Directive will encourage the use of more energy-efficient technologies … producing less emissions per unit of output … … (23) Emission allowance trading should form part of a comprehensive and coherent package of policies and measures implemented at Member State and Community level. Without prejudice to the application of Articles 87 and 88 of the Treaty, where activities are covered by the Community scheme, Member States may consider the implications of regulatory, fiscal or other policies that pursue the same objectives. ... … (26) Notwithstanding the multifaceted potential of market-based mechanisms, the European Union strategy for climate change mitigation should be built on a balance between the Community scheme and other types of Community, domestic and international action.’

6. The allocation of emission allowances is regulated in Article 10 of Directive 2003/87: ‘For the three-year period beginning 1 January 2005 Member States shall allocate at least 95% of the allowances free of charge. For the five-year period beginning 1 January 2008, Member States shall allocate at least 90% of the allowances free of charge.’

7. Under Article 9(1) of Directive 2003/87, the allocation plan for the allowances must comply with the criteria laid down in Annex III. Mention should be made of the principle of equal treatment under point 5: ‘The plan shall not discriminate between companies or sectors in such a way as to unduly favour certain undertakings or activities in accordance with the requirements of the Treaty, in particular Articles 87 and 88 thereof.’

B – Spanish law

8. Article 2 of Royal Decree-Law 3/2006 provides, with regard to electricity production, for the value of emission allowances allocated free of charge to be deducted: ‘1. As from 2 March 2006, for market matching corresponding to 3 March 2006, the remuneration for the activity of electricity production … shall be reduced by an amount equivalent to the value of the greenhouse gas emission allowances allocated free of charge to electricity producers … . In establishing the amounts of any negative balances following calculation of the tariff for 2006 corresponding to the period from 1 January 2006 to 2 March 2006 inclusive, the said amounts shall be reduced … by an amount equivalent to the value of the emission allowances allocated … during the same period. 2. The reference unit value of the emission allowances shall be the market price for the period to which they correspond, calculated in a transparent and objective manner.’

9. In order to implement that legislation, the Minister for Industry, Tourism and Commerce adopted Order ITC/3315/2007 of 15 November 2007 regulating, for 2006, the reduction of remuneration for the activity of electricity production by an amount equivalent to the value of the greenhouse gas emission allowances allocated free of charge (Orden por la que se regula, para el año 2006, la minoración de la retribución de la actividad de producción de energía eléctrica en el importe equivalente al valor de los derechos de emisión de gases de efecto de invernadero asignados gratuitamente). ( 3 )

10. Under Article 3(1) of Order ITC/3315/2007, the Spanish electricity-producing undertakings are in principle subject, for the period from 3 March 2006 to 31 December 2006, to a levy which is intended to reduce the remuneration for electricity by the value of the emission allowances allocated free of charge.

11. Article 3(2) of Order ITC/3315/2007 defines that reduction as follows: ‘The amount of the reduction shall be proportional to the surplus revenue obtained on the market by internalising the value of the allowances ...’.

12. The calculation of that levy is laid down in Article 4 of Order ITC/3315/2007. Point (a) regulates the levy for installations which do not require any allowances: ‘YTn = QTn × FEm × PCO2T where “YTn” is the payment in euro to be made for the “n’”h installation to which no emission allowances are allocated. … “QTn” is the total electricity production of the “n”th installation … “PCO2T” is the average price for one tonne of CO2 equivalents in the period “T”, which runs from 3 March to 31 December 2006 inclusive, expressed in euro per tonne of CO2 equivalents. … “FEm” is the emission factor for a natural gas combined cycle installation in tonnes of CO2 equivalents per megawatt hour. “FEm” corresponds to the value of 0.365 tonnes of CO2/MWh.’

13. Article 4(b) of Order ITC/3315/2007 governs the calculation of the levy for installations which require allowances: ‘XTn = (d / 365) x DA2006n x PCO2T x (FEm / FEn) where “XTn” is the payment in euro to be made for the “n”th installation to which emission allowances are allocated … For each installation to which allowances are allocated, the maximum value for XTn is the amount resulting from the application to that installation of the deduction formula for technologies for which no allowances are allocated under Article 4(a). “d” is the number of days of economic use of the installation “n” in the period “T”. … “DA2006n” is the quantity of allowances allocated in the national allocation plan for 2005 to 2007 for the “n”th installation in tonnes of CO2 equivalents. “Fen” is the emission factor for 2006 for the “n”th installation in tonnes of CO2 equivalents per megawatt hour. “FEm” and “PCO2T” are variables which are defined in the preceding paragraph.’

14. For the period from 1 January 2006 to 2 March 2006, the corresponding provisions are laid down in Articles 5 and 6 of Order ITC/3315/2007.

III – Request for a preliminary ruling

15. The present case arises from the fact that Spain collects from electricity-producing undertakings a levy on a ‘windfall profit’.

16. The structure of the price of electricity on the Spanish wholesale market and the windfall profit included in that price are illustrated by the following diagram submitted by Spain:

17. Specifically:

18. In Spain the wholesale price of electricity is fixed by an auction in which electricity producers bid to supply certain quantities of electricity for certain periods at certain prices. The price fixed by means of that auction corresponds to the highest bid which must be accepted in order to meet electricity demand fully for the period in question. That price is received by all suppliers whose bids are accepted, including suppliers which submit much lower bids. It corresponds to line P1 on the diagram.

19. The ‘windfall profit’ arises because electricity-producing undertakings fully integrate the value of the allowances allocated to them free of charge by the Spanish State in the price bids as ‘opportunity costs’. Opportunity costs are the revenue which an undertaking loses if the allowances are not sold on the secondary market, but are used for electricity production. In the diagram these opportunity costs correspond to the red sections of the two right-hand bars (Carbón (coal), and Ciclo combinado de gas, (combined gas and steam power plants) (‘COGAS power plants’)).

20. However, the ‘windfall profit’ does not correspond to the integrated opportunity costs in the case of all suppliers. That profit accrues only in the amount by which the price of electricity has increased on account of the integration of opportunity costs in the highest accepted bid.

21. According to Spain, the highest accepted bids during the period in question were submitted by COGAS power plants, whose bids are shown by the right-hand bar in the diagram. For this type of power plant, the ‘windfall profit’ therefore corresponds exactly to the value of the used allowances which were allocated free of charge.

22. All the other types of power plant have lower costs and, as a result, submit lower bids. Since, however, their remuneration is dependent on the highest bid, their ‘windfall profit’ corresponds to the opportunity costs for the use of the allowances under the highest expensive bid, in this instance the COGAS power plants. In the diagram, the windfall profit is the top, hatched band.

23. The levy to absorb this ‘windfall profit’ is calculated using the formulas set out in Article 4(b) and Article 6(b) of Order ITC/3315/2007.

24. A central factor in these formulas is the energy efficiency of power plants. This is the quantity of carbon dioxide in tonnes which is released in the generation of one megawatt hour of electrical energy by the power plant. Because a coal-fired power plant, for example, releases around one tonne of carbon dioxide in order to produce this quantity of electricity, the value is 1 for this type of power plant. COGAS power plants are much more energy-efficient with a value of 0.365; they release only around one third of the quantity of carbon dioxide that would be released by a comparable coal-fired power plant.

25. According to the abovementioned formulas, the energy efficiency value for COGAS power plants is divided by the corresponding value of the power plant in question and the result of that division is multiplied by the quantity of allowances which were allocated to that power plant free of charge. This latter quantity depends on the requirements of the power plant, that is to say, its energy efficiency. This means that in the case of less energy-efficient power plants a lower coefficient – for coal-fired power plants 0.365/1= 0.365 – is multiplied by a larger number of allocated allowances and in the case of more energy-efficient power plants a larger coefficient – for COGAS power plants 0.365/0.365 = 1 – by a smaller quantity of allocated allowances. These calculations should in principle produce convergent values. ( 4 )

26. Since all the other types of power plant which require allowances operate less efficiently than COGAS power plants, their levy corresponds to a much lower proportion of the value of the allowances allocated free of charge than in the case of COGAS power plants. For example, for hard coal-fired power plants, which have to use about three times as many allowances as COGAS power plants in order to produce the same quantity of electricity, that proportion is only around one third of the proportion paid out by the COGAS power plants.

27. It should also be pointed out that power plants which do not require any allowances, in particular nuclear and hydroelectric power plants, are also subject to the levy. The electricity produced by them is charged, under Article 4(a) and Article 6(a) of Order ITC/3315/2007, as if it had been produced by COGAS power plants which use exclusively allowances allocated free of charge.

28. Various Spanish undertakings in the electricity sector are challenging this levy. After they were initially unsuccessful, these proceedings are now pending before the Tribunal Supremo (Supreme Court).

29. Because the undertakings are relying inter alia on Article 10 of Directive 2003/87, the Tribunal Supremo asks the Court the following question in Cases C‑566/11, C‑567/11, C‑580/11, C‑591/11, C‑620/11 and C‑640/11: May Article 10 of Directive 2003/87 be interpreted as not preventing application of national legislative measures of the kind under review in these proceedings, the purpose and effect of which are to reduce remuneration for the activity of electricity production by an amount equivalent to the value of the greenhouse gas emission allowances allocated free of charge during the relevant period?

30. By order of 18 January 2012, the President of the Court joined all the abovementioned cases for the purposes of the remainder of the proceedings.

31. Iberdrola, S.A., Gas Natural SDG, S.A., Tarragona Power, S.L., Bizkaia Energía, S.L., Bahía de Bizkaia Electricidad, S.L., E.ON Generación, S.L. and Endesa, S.A., as parties to the main proceedings, and the Kingdom of Spain and the European Commission took part in the written procedure and in the hearing on 7 February 2013.

IV – Legal assessment

A – The interpretation of the request for a preliminary ruling

32. The Tribunal Supremo asks whether remuneration for the activity of electricity production (on the wholesale market) may be reduced by an amount equivalent to the value of the greenhouse gas emission allowances allocated free of charge during the relevant period. That question takes up the wording of Article 2 of Royal Decree-Law 3/2006 and of Article 3(1) and Article 5(1) of Order ITC/3315/2007, which provide for a reduction and levy to that effect.

33. However, the question does not address the factual circumstances in their entirety. Under Article 3(2) and Article 5(2) of Order ITC/3315/2007, the levy corresponds to the surplus revenue obtained on the market by integrating the value of the allowances. Article 4 and Article 6 of the Order and the parties’ submissions show that the remuneration is not always reduced by the total value of the allowances allocated free of charge. As the requests for a preliminary ruling expressly acknowledge, given that the emission allowances were received free of charge, the Government confined itself to neutralising their impact on the final prices of electricity. At the root of this legislative measure is the idea that, without the reduction, the electricity-producing undertakings would have benefited from a ‘windfall profit’.

34. The request for a preliminary ruling must therefore be construed as asking whether Article 10 of Directive 2003/87 prevents 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.

B – The interpretation of Article 10 of Directive 2003/87

35. Under Article 10 of Directive 2003/87, for the period in question Member States had to allocate at least 95% of the allowances free of charge. According to its very wording, this provision therefore precludes levies which would constitute a fee for the allocation of allowances.

36. By contrast, Article 10 of Directive 2003/87 does not regulate the use of allowances. It follows from Article 12 that the person holding them can transfer them to others or use them by releasing greenhouse gases in the installations covered by the directive. The directive does not regulate the extent to which such use may be made subject to national measures.

37. It must therefore be assumed that in principle Directive 2003/87 does not preclude general provisions which give rise costs in connection with the use of allowances, such as turnover tax or income tax.

38. The principle of allocation free of charge may not, however, be circumvented by measures which superficially do not relate to allocation, but do in fact amount to levying a fee for allocation.

39. Furthermore, other provisions which indirectly link a charge to allocation are likewise incompatible with Directive 2003/87, and in particular with Article 10, if their effect would run counter to the scheme and the aims of the directive.

40. I shall therefore first examine whether the Spanish levy can be regarded directly or indirectly as a fee for the allocation of allowances (see section 1) and then explore the aims of the directive (see section 2). Lastly, I shall consider the Charter of Fundamental Rights of the European Union (see section 3).

1. The fee for the allocation of allowances

41. Under the Spanish legislation, the electricity-producing undertakings are not required to pay directly for the allocation of the allowances in question. Instead, they receive those allowances free of charge.

42. Nevertheless, the levy is linked to the sale of electrical energy on the electricity market. In principle, payment obligations in connection with the sale of electrical energy may indirectly breach the principle that emission allowances are allocated free of charge. In the present case, this is suggested in particular by the fact that the allocation of allowances free of charge for the activity of electricity production is taken into consideration in the calculation of the levy. This could constitute a retrospectively collected levy for the allocation of allowances.

43. Conversely, however, the levy is not directly proportional to the quantity of allowances allocated, but is dependent on the type of power plant. As is shown, for example, by the data submitted by Iberdrola and Tarragona Power, ( 5 ) it must, in principle, be calculated in such a way that it absorbs only the surcharge based on the integration of the opportunity costs for the allowances by COGAS power plants. ( 6 )

44. As Spain also explains, the levy applies not only to electricity producers which use emission allowances allocated free of charge in order to produce electricity, but also, under Article 4(a) and Article 6(a) of Order ITC/3315/2007, to electricity producers which do not require any allowances, such as operators of hydroelectric or nuclear power plants. These power plant operators also benefit, through the uniform price for electricity, from the integration of opportunity costs by operators of COGAS power plants.

45. Lastly, the levy is not incurred where power plant operators sell allowances allocated free of charge on the secondary market.

46. Contrary to what the undertakings maintain, it is not therefore an indirect fee for the allocation of allowances, but a levy on the production of electricity. Allocation is just one of several factors which play a role in its calculation.

2. The aims of Directive 2003/87

47. Directive 2003/87, and in particular Article 10 thereof, may not, however, be interpreted as permitting a charge being imposed on recipients of allowances where the charge in question takes into account, among other criteria, the allocation of allowances free of charge and would be incompatible with the scheme and the aims of the directive.

48. Under Article 1, Directive 2003/87 establishes a scheme for greenhouse gas emission allowance trading in order to promote reductions of greenhouse gas emissions in a cost-effective and economically efficient manner.

49. While the ultimate objective of the allowance trading scheme is thus the protection of the environment by means of a limitation of greenhouse gas emissions, the scheme does not of itself reduce those emissions but encourages and promotes the pursuit of the lowest cost of achieving emissions reductions. ( 7 )

50. It also follows that the economic logic of the allowance trading scheme consists in ensuring that the reductions of greenhouse gas emissions take place at the lowest cost. In particular by allowing the allowances that have been allocated to be sold, the scheme is intended to encourage every 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. ( 8 )

51. Directive 2003/87 may therefore preclude the Spanish levy if the levy impairs the market mechanism created by the directive (see section (a) or the aim of reducing emissions pursued by that mechanism (see section (b).

a) The market mechanism

– The schematic need for the ‘windfall profit’

52. The argument put forward by the undertakings is ultimately based on the idea that a levy on the ‘windfall profit’ runs counter to the scheme. Since Directive 2003/87 allocates to them, free of charge, allowances which they can exploit commercially, they should also be able to retain the return from those allowances, that is to say, the ‘windfall profit’ in the present case.

53. It is correct that the scheme of the directive accepts the possibility of such a ‘windfall profit’ and neither prescribes a levy nor at any point expresses disapproval of ‘windfall profits’.

54. However, it is contrary to fundamental principles of equity, in particular the principle of equal treatment, if the European Union grants certain undertakings advantages which are not quid pro quo or based on some other justification. In the present case, electricity-producing undertakings receive allowances free of charge without providing anything in return. They are able to sell them or use them to produce electricity and, on selling the electricity, to integrate the opportunity costs for the allowances into their price. Undertakings not covered by Directive 2003/87 do not receive any allowances, on the other hand. If those other undertakings are engaged in local electricity supply, when purchasing electricity they even have to finance the advantage enjoyed by the power plants, their ‘windfall profit’.

55. Directive 2003/87 cannot therefore be interpreted as preventing the Member States from depriving electricity-producing undertakings of the advantages of using allowances allocated free of charge. The argument put forward by the undertakings can only therefore be accepted if the ‘windfall profit’ is necessary for other reasons set out in the directive.

– The step-by-step introduction of the scheme

56. According to the Commission proposal for Directive 2003/87, the allowances for the relevant period were to be allocated free of charge because there were not yet any international commitments to limit greenhouse gas emissions. ( 9 ) The price for emission allowances was also still unknown. ( 10 ) The Commission intended to decide on the method of allocation for the subsequent allocation periods on the basis of the experience gained. ( 11 ) This is consistent with the step-by-step approach which characterises the introduction of the allowance trading scheme. ( 12 )

57. That approach may justify allocating allowances free of charge initially. However, it does not rule out the possibility of absorbing the advantage stemming from that allocation if its extent can be determined.

– International competition

58. It must also be assumed that allocation free of charge comes within the aim mentioned in recital 5 in the preamble to Directive 2003/87 of the least possible diminution of economic development and employment. It is consistent with this fundamentally legitimate aim ( 13 ) above all to limit the burden on undertakings which are in international competition. As the Commission argues, it is difficult for them to integrate the costs of allowances into their prices if their competitors do not have to bear any such costs.

59. However, electricity-producing undertakings are generally not in international competition. They are therefore able to integrate the costs of allowances into their prices to a very large extent ( 14 ) and do not require that protection.

– Competition on the internal market

60. According to recital 7 in the preamble to Directive 2003/87, however, European Union provisions relating to allocation of allowances are also necessary to contribute to preserving the integrity of the internal market and to avoid distortions of competition. ( 15 ) Allocation free of charge as far as possible therefore also serves those aims.

61. Competition on the internal market could be impaired in principle if some undertakings benefit from ‘windfall profits’ by virtue of integrating opportunity costs of allowances allocated free of charge, whilst others are required to pay out those profits. ( 16 ) This also holds for the electricity sector, as Spain maintains supplier relationships with France and Portugal. ( 17 )

62. However, full harmonisation of levies is unnecessary even in an internal market. Differences in the laws of the Member States may be to the advantage of the person concerned or not, according to circumstance. ( 18 ) Consequently, having regard to the protection of competition within the internal market as well, the principle of the allocation of allowances free of charge cannot preclude any burden which Member States link indirectly to allocation.

63. It must also therefore be crucial that the Spanish levy is not linked to the allocation of allowances, but to their use for the production of electricity. Whilst allocation is subject to the common rules of Directive 2003/87, that does not apply to levies on the use of allowances. The levy on an additionally accruing ‘windfall profit’ has much less impact on competition than different costs for the allocation of allowances, namely the acquisition of the necessary means of production.

64. The necessary protection of the internal market is ensured because in collecting a levy on a ‘windfall profit’ the Member States are also required to comply with European Union law, ( 19 ) in particular the fundamental freedoms. However, a quantitative restriction on exports within the meaning of Article 35 TFEU, as is relevant here, requires that the actual effect of the measure in question is greater on exports than on marketing in the domestic market. ( 20 ) The contested levy absorbs the ‘windfall profit’ in the case of exports in exactly the same way as in the case of electricity sold on the domestic market.

65. Some of the undertakings involved also object to the levy on the ground that it applies only to electricity production, but not to other economic sectors which also received emission allowances free of charge.

66. It is not clear, however, that electricity production is in direct competition with other economic sectors. The provision of grid-based electrical energy cannot really be substituted on economically viable terms. The difference in treatment of economic sectors cannot therefore impair competition or the effectiveness of the market mechanism appreciably.

– Interim conclusion

67. In 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 2259 gigawatt hours, 2258762 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.