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European Court of Justice: Case Report
Case C-379/98: PreussenElektra AG and Schleswag AG: Electricity - Renewable sources of energy - national legislation requiring electricity supply undertakings to purchase electricity at minimum prices and apporting the resulting costs between those undertakings and upstream network operators - State aid - Compatibility with the free movement of goods; Reference to the Court for a preliminary ruling on the interpretation of Articles 30 (now 28), 92 (now 87) and 93(3) (now 88(3)) of the EC Treaty; Judgment of 13 March 2001 (not yet reported)
This ruling touches upon the tense relationship between the Community's internal market rules and national environmental policy. In this relationship a particularly important role must be awarded to the principle of integration as laid down in Article 6 EC. This case, where the Court for the first time explicitly refers to Article 6 EC, may therefore have important ramifications for the way in which conflicts between national environmental law and the prohibitive provisions of the EC Treaty will be dealt with by the Court in the future.
In the field of electricity, there have so far been only common rules for the internal market in electricity.  A Community sustainable energy policy is, though, beginning to emerge now that the Commission has proposed a directive on the promotion of electricity from renewable sources in the internal electricity market.  Nevertheless, in the absence of harmonisation measures in this area national action to promote the use of sustainable electricity still has to be held up to the light of primary Community law - for the time being with success, for the German legislation designed to promote the use of electricity from renewable sources - Stromeinspeisungsgesetz - is, according to the Court, not incompatible with Community law.
In this case the Landgericht Kiel essentially put forward the following two questions to the Court of Justice:
| · ||whether the German Legislation constitutes State aid in favour of producers of electricity from renewable energy sources within the meaning of Article 92 (now Art. 87 EC); and
| · ||whether that law can be regarded as a measure having equivalent effect to a quantitative restriction within the meaning of Article 30 (now Art. 28 EC).
The parties in this case had concentrated their arguments on the first question. The second question was clearly of a secondary nature since the Court was not fully informed of the possible impact of the German legislation on cross-border trade. Possibly as a result of this the Court let pass the opportunity to clarify its position on Article 28 EC in relation to national (discriminatory) measures to protect the environment, despite Advocate General Jacobs' request that it should do so. 
The Stromeinspeisungsgesetz, or the Law on feeding electricity from renewable energy sources into the public grid, was adopted in 1990 and subsequently modified. The Stromeinspeisungsgesetz 1998 ("the Stromeinspeisungsgesetz") was the subject matter of these proceedings. On 1 April 1999, after these proceedings, the German law on the introduction of an ecological tax reform entered into force and was notified to the Commission pursuant to Article 88(3) EC. On 1 April 2000 a new law for the priority of renewable energy sources - Gesetz fûr den Vorrang Erneuerbarer Energien - replaced the Stromeinspeisungsgesetz 1998 in its entirety.
The Stromeinspeisungsgesetz requires electricity supply undertakings which operate a general supply network to purchase electricity generated from renewable sources within their area of supply and at a fixed minimum price. Paragraph 4(1) of the law contains a compensation mechanism ("hardship clause") in case the electricity from renewable sources exceeds 5% of the total electricity supplied to the undertaking. It means that the upstream network operator must compensate the undertaking for the supplementary costs caused by the purchase obligation. This compensation mechanism plays a central role in these proceedings.
PreussenElektra operates several power plants, convential and nuclear, as well as a maximum-voltage and high-voltage network for the transmission of electricity. It supplies electricity from that system to regional distributors, major town utility companies and large industrial undertakings. Schleswag is a regional electricity distributor at the second level and obtains electricity almost exclusively from PreussenElektra, which is the main shareholder (65%) in Schleswag. Schleswag is, according to the Stromeinspeisungsgesetz, obliged to purchase electricity from renewable sources, particularly wind-generated electricity, in view of the ideal conditions for such production in the area where Schleswag operates. The proportion of electricity generated from wind has increased over the years to approximately 15% in 1998. Since the costs of purchasing wind-generated electricity were considerable, Schleswag invoiced PreussenElektra for compensation in respect of these extra costs. PreussenElektra argued before the national court, though, that the 1998 law is incompatible with Community law.
Compatibility of the law with provisions on State aid
Article 87 EC fails to provide a definition of state aid, but for aid to fall within the article, (i) it may take any form whatsoever; and (ii) it must be granted by a Member State or through Member State resources.
Regarding (i) the Court has always opted for a broad definition of state aid and applied a test which is effect-oriented. If the effects of a measure are advantageous for certain undertakings, then the measure will be considered aid within the meaning of Article 87 EC. Given this broad definition, the Stromeinspeisungsgesetz certainly qualifies as aid. The obligation to purchase electricity from renewable sources at a fixed minimum price benefits producers of electricity from renewable sources. The fact that the Stromeinspeisungsgesetz confers economic advantages on specific undertakings was therefore not contested. It is even more expensive to produce electricity from renewable sources than from conventional fuels, because the environmental benefits are not taken into account. In a liberalised electricity market it may also be cheaper to purchase conventional electricity produced in other Member States. A fixed minimum price combined with a purchase obligation is therefore a means to support electricity from renewable sources. Other approaches to promote electricity from renewable sources may include tax exemptions, in particular from energy and CO2 taxes, support for research and development, green levies to finance support schemes, or quota-based systems. 
It is more difficult to determine is whether a measure can be categorised as aid "granted by a Member State or through State resources" ((ii) above). According to the Court such aid comprises both advantages granted directly by the State or by a public or private body designated or established by the State (para 58). In the present case, though, the obligation to purchase electricity from renewable energy sources at a fixed minimum price did not involve a direct or indirect transfer of State resources to undertakings (para 59), and could not therefore be characterised as state aid within the meaning of Article 87 EC.
In his opinion Advocate General Jacobs discusses two possible ways in which the phrase "granted by a Member State or through State resources" might be read:
"115. On the one hand, it might be argued that the second alternative aid granted 'through State resources' covers measures financed through public funds, whilst the first alternative 'aid granted by a Member State' covers all remaining measures which are not financed through State resources. Under that extensive interpretation of Article 92(1) any measure which confers economic advantages on specific undertakings, and which is the result of conduct attributable to the State, constitutes State aid independently of whether it involves any financial burden for the State.
116. On the other hand, Article 92(1) may be read as stating that aid must be necessarily be financed through State resources and that the distinction between aid granted by a State and aid granted through State resources serves to bring within the definition of aid not only aid granted directly by the State, but also aid granted by public or private bodies designated or established by the State. Under that second narrower interpretation the measure at issue must necessarily cost the State money and financing through public resources is a constitutive element of the definition of State aid."
The national court, the Commission, PreussenElektra, Schleswag and the Finish government argued that the first reading should prevail and that financing through State resources should not be a constitutive element of the concept of aid. According to their opinion, for Article 87 EC to apply, it is sufficient that the measure is a result of action by a Member State. Only a broad interpretation of the concept of aid contributes to the achievement of equal conditions of competition between traders - one of the main objectives of the EC Treaty (Article 3(1) sub g EC). The Commission expressly invited the Court to reconsider its existing case law in this respect. After all, aid measures within an internal market remain, according to the Commission, one of the last instruments of Member States to protect their own industries and to distort competition. A rather formalistic approach may lead to a risk of circumvention of state aid rules and the temptation for Member States to devise schemes which confer economic advantages on certain undertakings but nevertheless escape the Commission's control under Article 88 EC. The Court should thus give more weight to the objectives of the rule of State aid and their overall effectiveness. 
In the line of this approach the Commission designated the Stromeinspeisungsgesetz 1990, as State aid, but approved it on the basis of its slight impact on intra-Community trade and competition. The Commission referred to the Council recommendation of 8 November 1988 on promoting co-operation between public utilities and auto-producers of electricity.  In 1999, the Commission initiated a procedure under Article 88(2) EC in respect of the Law on the electricity tax, which included an increase in the purchase price of electricity from renewable sources. After the withdrawal of the Stromeinspeisungsgesetz, the Commission decided to close its procedure.  More recently, the Commission has taken the view that even an agreement between car producers, car importers and dismantling and recycling companies, which is declared by the Dutch government generally binding on all car producers and importers, may constitute State aid.  Under this agreement car producers and importers have to pay a fee to finance a fund to pay for the dismantling of cars. A private executive organisation (ARN) grants premiums in respect of parts of car wrecks that cannot be dismantled or collected profitably. According to the Commission the fact that the charge is binding on all car producers and importers makes it a parafiscal tax and can therefore be considered as State aid. Would it not, however, be more obvious for the Commission to examine the applicability of Article 10, in conjunction with Articles 3(1) sub g and 81 EC, to the decision to declare the agreement generally binding on all companies in the market.
The Commission's approach to Article 87 EC cannot continue in the light of the present case, where the Court maintains its view that financing through State resources remains a necessary element of the concept of state aid.  Although, regrettably, the Court paid little attention to the arguments in favour of an extensive reading of Article 87 EC , its position is to be welcomed, from both a legal point of view and from an environmental perspective. An extensive reading of Article 87 EC would, as AG Jacobs argues, bring practically all national legislation regulating relationships between enterprises within the scope of the State Aid rules (para 157).  The Court's more restrictive approach provides for more legal certainty and more scope for Member States to choose particular schemes to promote renewable energies.
Current Community policy efforts to promote electricity from renewable sources favour such a position. The amended proposal for a directive on the promotion of electricity from renewable energy sources in the internal electricity market explicitly allows Member States to adopt various individual supporting renewable energy sources, which will, according to Article 4, be monitored by the Commission.  The Commission's communication on the sixth environmental action programme makes clear that tackling climate change is one of the main concerns of Community environmental policy.  The new Community guidelines on state aid for environmental protection are also relevant.  The Commission takes a favourable position on measures that promote the use of electricity from renewable energy sources. The present case, however, makes clear that minimum price schemes, such as the Stromeinspeisungsgesetz, which cannot be qualified as state aid, do not need to be notified to the Commission, subject to the guidelines.
Compatibility of the law with Article 28 EC
Since the 1998 law does not constitute State aid, the second question becomes relevant. The danger, therefore, of Member States adopting support measures which are financed through private resources and escape the Commission's control under Article 88 EC should not, according to AG Jacobs (para 158), be exaggerated. The measures might infringe other rules of the Community legal order, such as Article 28 EC.
In its interpretation of Article 28 EC, the Court follows a classic pattern, but its legal reasoning is at least debatabe. In essence, there are two distinct perspectives to the Court's answer to this second question.
The first perspective revolves around the classic legal doctrine on the free movement of goods and mandatory requirements. From this perspective the reasoning of the Court is flawed. The Court does not touch on whether the Stromeinspeisungsgesetz must be qualified as an (in)distinctly applicable measure which could therefore be justified by imperative requirements of environmental protection; nor does it establish whether the Stromeinspeisungsgesetz complies with the principle of proportionality.
It is well established case law that mandatory requirements, unlike the grounds for justification in Article 30 EC, may not be relied upon to justify national measures which are not applicable to domestic and imported products without distinction. The protection of the environment, which the Court has recognised as a mandatory requirement since the Danish Bottles case , and which is not mentioned in Article 30 EC, thus cannot justify discriminatory, or distinctly applicable, restrictions on the free movement of goods. In the present case the purchase obligation imposed on electricity supply undertakings applies only to electricity produced from renewable energy sources within the relevant supply area of undertaking concerned (para 71), and the obligation prevents electricity undertakings from obtaining electricity from undertakings in other Member States (para 70). The Court simply reiterates its Dassonville formula (para 69) and concludes that intra-Community trade is at least potentially hindered.  The Court also refers to other cases, such as the Campus Oil case , concerning an obligation on traders to obtain a certain percentage of their supplies of a given product from a national supplier (para 70).
The Stromeinspeisungsgesetz treats electricity of domestic origin differently from imported electricty. Electricity produced from renewable sources in Germany benefits from the purchase obligation at a minimum price; the same type of electricity from neighbouring Member States does not.  The Court's conclusion that the law is nevertheless compatible with Article 28 EC for environmental reasons therefore runs counter to its traditional case law.
The second perspective departs from a presumption that, after a series of "environmental" cases, such as Walloon Waste, Dusseldorp, Sydhavnens and Aher Waggon, distinctly applicable measures may be justified on environmental grounds precisely because these measures concern environmental policy.  In the Walloon Waste case the Court upheld an import ban on foreign waste for reasons of environmental protection.  The Court referred to the particular nature of waste and the principle that environmental damage should be rectified at source, as enshrined in Article 174(2) EC and in the Basel Convention. By contrast with the present case, though, the Court in Walloon Waste concluded that the contested import ban was in fact non-discriminatory because of the differences between waste produced in different places and because of the connection of waste with the place of production. A discriminatory measure was thus framed into an indistinctly applicable measure - reasoning which provoked considerable legal uncertainty. 
In Dusseldorp the Court did not rule out the possibility of justifying a discriminatory restriction on exporting waste for reasons relating to the protection of the environment.  In the Sydhavnens case, the Court referred to its ruling in Dusseldorp and held that "the protection of the environment cannot serve to justify any restriction on exports, particularly in the case of waste destined for recovery".  This means that some restrictions on exports, which are by their very nature discriminatory, can be justified on the basis of a mandatory requirement.  Aher Waggon concerned national legislation which made first registration in the national territory of aircraft previously registered in another Member State conditional upon compliance with stricter noise standards than those laid down in a Community directive the Court, without examining the character of the measure, came to the conclusion that the legislation could be justified on environmental grounds.  The non-discriminatory nature of the measure was not unambiguous, for aircraft that had already obtained registration in Germany before the measure was adopted could retain that registration; aircraft registered in other Member States could not. 
The present case demonstrates an increasing willingness by the Court can be seen to take environmental principles into account, even at the cost of the principle of non-discrimination. The principle of integration, which has, since Amsterdam, been awarded a prominent place among the general principles of Community law, together with the principle of non-discrimination, may now take the lead.
The Principle of integration: Article 6 EC
Article 6 EC provides that:
"Environmental protection requirements must be integrated into the definition and implementation of the Community policies and activities referred to in Article 3, in particular with a view to promoting sustainable development."
Originally a requirement to integrate environmental protection requirements into other policies had been laid down in the environmental title introduced by the Single European Act The change of place has turned the integration principle into an instrument to enforce the principle of sustainable development as referred to in Article 2 EC.  The upgrading of the principle of integration by its inclusion in Article 6 EC also stresses its importance in Community law compared with the other policy integration principles in the titles on culture, consumer protection or public health.  The weight and added value of environmental objectives has become even more apparent in relation to other Community objectives, including the objective of the free movement of goods. 
According to AG Jacobs it is clear from Article 6 EC that it imposes legal obligations, which means that special account must be taken of environmental concerns in interpreting the Treaty provisions on the free movement of goods . This has the consequence that the possibility that environmental measures which are inherently liable to be found discriminatory precisely because they are based on environmental principles (e.g. environmental damage should as a principle be rectified at source) may be justified, and should not be excluded. AG Jacobs' opinion is therefore in keeping with the presumption based on Article 6 EC that the protection of the environment and the free movement of goods, in particular the principle of non-discrimination on the basis of nationality, are at least equally important.
Whether a national measure will eventually be justified depends on the proportionality of the measure. The solution to the conflict between the free movement of goods and the protection of the environment cannot be inferred from the integration principle alone.  The Court in fact avoids assessing the proportionality of the Stromeinspeisungsgesetz. By referring to the Commission's proposal for a directive on the promotion of renewable energy sources in the internal market, the Court implicitly acknowledges that the purchase obligation for electricity from German electricity producers is necessary and proportionate to its aim.  According to the Court it is, after all, very difficult to determine the origin of electricity and in particular the source from which it was generated.  In adopting this approach the Court takes a more favourable position to the Stromeinspeisungsgesetz than it did on the Finish law on excise duty on certain sources of energy in the Outokumpu Oy case. There the Court ruled that a differential tax system, under which rates varied according to the environmentally friendliness of the production method, violated Article 90 EC, because imported electricity was in some cases taxed more heavily than domestic electricity.  The tax system could not be justified, because the Finish legislation at issue did not give the importer the opportunity to demonstrate that the electricity imported had been produced by a particular method. The Court in that case referred to the difficulty of determining the precise method of production of imported electricity and hence the primary energy sources, but nevertheless considered that the Finish legislation was disproportionate.
The proportionality of the Stromeinspeisungsgesetz, in the light of the principle of integration, can be assessed from two distinct perspectives. From the Member State's point of view, the measure is proportionate because it aims at stimulating the development of electricity from renewable energy sources in Germany and at the same, in accordance with the principle that environmental damage should be rectified at source, reduces gas emissions from conventional sources of energy.  By referring to the difficulty of identifying the origin of electricity and the source of energy from which it was produced the Court pursues a similar line of thought.
From the Community's perspective, however, it is not self-evident that such a measure is proportionate to its environmental aims. Environmental protection requirements include the environmental policy objectives of Article 174(1) EC and principles referred to in Article 174(2) EC.  This suggests that national measures must be designed to improve the environment in the Community, not merely in the (region of a) Member State itself. After all, regulatory powers of Member States in the field of the environment are shared with the Community.  The integration of environmental protection requirements in the context of the free movement of goods therefore refers to legal goods worthy of special protection in the general interest of the Community.  The reasoning of AG Jacobs appears to be more in accordance with this view, although he also refers to the general interest of reducing gas emissions from conventional sources in Germany. Nevertheless, the effects of extending the purchase obligation to electricity from other Member States may well be the stimulation of electricity from renewable energy sources throughout the Community.
The Court's judgment in this case touches upon three issues:
with regard to Article 87 EC the Court does not reconsider its existing case law and maintains that financing through State resources remains a necessary element of the concept of State aid. The second issue, on the compatibility of the Stromeinspeisungsgesetz with Article 28 EC, raises several difficult doctrinal questions on the scope of Article 28 EC and the mandatory requirements. The third issue concerns the confirmation by the Court of the importance of a sustainable energy policy at Community level. 
The Court's reasoning with regard to the application of Article 28 EC is unsatisfactory. From a classical legal doctrine perspective, the Court fails to explain why distinctly applicable measures should be justifiable by reference to the protection of the environment, and why a more flexible approach to environmental measures is desirable.
From an environmental perspective, this is the first time that the Court has explicitly referred to the principle of integration and the possibility of justifying national discriminatory measures. It is clear that the integration principle indirectly restricts the scope of the provisions on the free movement of goods in relation to national environmental measures. The principle of integration thus serves to fill the gap between Article 30 EC, the text of which has remained unchanged since 1957, and the rule of reason, and requires the degree of protection of the environment to be similar to the protection of interests mentioned by Article 30 EC.
From a more holistic, ecological perspective, however, it is doubtful whether the Stromeinspeisungsgesetz should be upheld on environmental grounds. An assessment of the proportionality of a national measure is necessary to determine whether it really contributes to the protection of the environment in the Community. Unfortunately, and probably due to the lack of information, the Court did not assess whether the Stromeinspeisungsgesetz is actually suitable to protect the environment, or whether alternative measures, equally protective of the environment but less restrictive of trade, were available.
The Court's willingness to uphold the German law can perhaps be explained as follows. The production of electricity from renewable sources should first be stimulated and further developed at national level. An extension of the purchase obligation to imported electricity may curtail existing efforts in Member States to fulfil their national targets for increasing the market share of electricity from renewable sources in the internal market. National measures designed to promote electricity from renewable energy sources are needed to comply with the Kyoto protocol. The Court's ruling now gives Member States considerable choice, under both Article 87 EC and Article 28 EC, in adopting support schemes for renewable energy.
Secondly, the Community legislature is better equipped to deal with the tension between the protection of the environment, energy and free movement of goods.  In anticipation of the adoption of a Community directive on the promotion of electricity from renewable energy sources, the Court avoided the difficult task of assessing the proportionality of the Stromeinspeisungsgesetz. Contrary to what the Court decided in Outokumpu Oy, it is now of the opinion that only the introduction, by a Community directive, of a system of certificates of origin of electricity produced from renewable energy sources makes trade in that type of electricity both reliable and possible. 
Directive 96/92/EC, O.J. 1997, L 27/20.
Para. 229: Advocate General Jacobs had also asked the Court, in view of the lack of arguments and background information, to reopen the oral procedure in respect of the third question (on Article 30, now Art. 28 EC): para. 196.
See also Felix B. Krieglstein, Renewable Energy Schemes and EC State Aids Provisions,  EELR 52.
In legal literature it has also been suggested that there is no a priori
reason why national maximum and minimum price schemes intended to favour a particular sector should not be characterised as state aid for the purposes of Article 87: see also: L. Hancher, T. Ottervanger and P.J. Slot, E.C. State Aids, London 1999, p. 26.
See for example Case 82/77, Van Tiggele
 ECR 25
See also K.J.M. Mortelmans, Europeesrechtelijke complicaties bij de afname van milieuvriendelijke electriciteit
, , Ars Aequi June 2001.
Communication from the Commission to the Coucil, the European Parliament, the Economic and Social Committee and the Committee of the Regions on the sixth environment action programme of the European Community, COM (2001) 31 final.
Case 302/86, Commission v. Denmark
 ECR 4607.
Case 8/74, Dassonville
 ECR 837.
Case 72/83, Campus Oil
 ECR 2727.
See para. 221 of the Opinion of AG Jacobs.
See for an analysis of the Court's case law concerning the free movement of goods and the protection of the environment: Harrie Temmink, From Danish Bottles to Danish Bees: The Dynamics of Free Movement of Goods and Environmental Protection - A Case Law Analysis
in: H. Somsen (Ed.), Yearbook of European Environmental Law, Vol. 1, Oxford 2000, p. 61-102. See also J.H. Jans, European Environmental Law
, Groningen 2000, p. 223-268.
Case C-2/90, Commission v. Belgium
 ECR I-4431.
See also AG Jacobs in para. 225: "In my view, the reasoning in Walloon Waste
is flawed and should not be relied on in the present case."
Case C-203/96, Dusseldorp
 ECR I-4075.
Case C-209/98, Sydhavnens Sten & Grus
, Judgment of 23 May 2000, not yet reported.
See also Nicola Notaro, European Community Waste Movements: the Copenhagen Waste Case
,  EELR 311
Case C-389/96, Aher-Waggon
 ECR I-4473.
See also Harrie Temmink, n. 18 above, p. 91-92; opinion of AG Jacobs, para. 227.
See also Callies, Die neue Querschnittsklausel des Art. 6 ex 3c EGV als Instrument zur Umsetzung des Grundsatzes der nachhaltigen Entwicklung
, DVBL 1998, p. 565.
Callies, ibid, p. 564.
See also Martin Wasmeier, The integration of environmental protection as a general rule for interpreting Community law
, 38 CMLR 2001, p.161; Whether the integration principle implies that the Community's environmental policy has been given some measure of priority over other Community's policy areas remains disputed: see J.H. Jans, European Environmental Law
, Groningen 2000, p. 18. See also H.G. Sevenster and H.H.B. Vedder, Integreren of concurreren? De rol van niet- mededingingsbelangen, in het bijzonder milieubescherming, in het kartelbeleid
, SEW 1 (2000), p. 4; Regarding the relationship between environmental protection and other horizontal and flanking objectives: K.J.M. Mortelmans, Excepties bij non-tarifaire intracommunautaire belemmeringen: assimilatie in het nieuwe EG-Verdrag,
SEW 5 (1997), p. 182-190.
See also the Opinion of AG Jacobs, para. 232.
J.H. Jans, n. 18 above, p. 19.
Para. 80 of the Judgment.
Para. 79 of the Judgment.
Case C-213/96, Outokumpu Oy
 ECR I-1801;  EELR 282.
See also the argument of the Commission referred to by AG Jacobs in para. 235.
J.H. Jans, n. 18 above, p. 18.
Article 6 EC must in this respect be distinguished from, for example, Article 151(4) EC on the integration of cultural aspects. Unlike objectives and principles of environmental policy which are incorporated in the EC Treaty, "aspects of a cultural policy" comprise the cultures of the Member States: S. de Vries, Cultuur en Mededinging: harmonie of dissonantie?
, in: J.W. van de Gronden en K.J.M. Mortelmans, Mededinging en niet-economische belangen, Kluwe, Deventer, 2001, p. 97.
In the context of the free movement of wastes and the protection of the environment as "mandatory requirement": Peter van Wilmowsky, Waste Disposal in the Internal Market: The State of Play after the ECJ's Ruling on the Walloon Import Ban
, 30 CMLR 1993, p. 541-570.
Even in the absence of a legal basis in the Treaty: R. Ruge, EuGH: Deutsches Stromeinspeisungsgesetz enthält keine Beihilferegelung
, EuZW, Heft 8/2001, p. 247.
K.J.M. Mortelmans, note 10 above.
Article 5 of the amended proposal for a directive on the promotion of electricity from renewable energy sources in the internal electricity market, COM (2000) 884 final.