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Société Arcelor Atlantique et Lorraine & Others v. Parliament & Council (Environment & consumers)

Jurisdiction: European Union

Principle law(s): Revision of the EU Emission Trading System (EU ETS) (Directive 2009/29/EC amending Directive 2003/87/EC so as to improve and extend the greenhouse gas emission allowance trading scheme of the Community)

Side A: Arcelor Atlantique et Lorraine and Others (Corporation)

Side B: Parliament and Council (Environment and consumers). (Government)

Core objectives: Application for partial annulment of law

This case concerns an application for partial annulment 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, on the one hand, and application for compensation for the damage suffered by the applicant following the adoption of that directive, on the other. Following the entry into force of the Treaty of Lisbon on 1 December 2009, the Court decided to reopen the oral procedure and called on the parties to set out their views on the possible consequences to be drawn from that fact and, in particular, from the entry into force of the fourth paragraph of Article 263 TFEU in the context of the present proceedings. 

In the context of an action for damages seeking compensation for the damage allegedly suffered by the applicant in consequence of the adoption of that directive, the Court held that the Community legislature enjoys broad discretion when exercising its powers in the field of environmental issues under Article 174 EC and Article 175 EC. The exercise of that discretionary power implies the need for the Community legislature to anticipate and evaluate ecological, scientific, technical and economic changes of a complex and uncertain nature and the weighing up and arbitration by that legislature of the various objectives, principles and interests set out in Article 174 EC. That is reflected in Directive 2003/87/EC in the establishment of a series of objectives and sub-objectives which are in part contradictory. When the Community legislature is called on to restructure or establish a complex scheme, such as the allowance trading scheme, it is entitled to have recourse to a step-by-step approach and to carry out only a progressive harmonisation of the national legislation at issue. 

The Court stressed that, by virtue of the principle of subsidiarity, European Union legislation in the sphere of environmental protection does not seek to effect complete harmonisation, the Member States being free to adopt more stringent protective measures, subject only to the conditions that those be compatible with the EC Treaty and be notified to the Commission. The mere fact that the Community legislature left open a particular question falling within the scope of Directive 2003/87/EC and of a fundamental freedom does not in itself justify that omission's being classified as contrary to the rules of the Treaty. In addition, the implementation of Directive 2003/87/EC being subject to review by the national courts, it is incumbent upon those courts, if they should encounter difficulties relating to the interpretation or validity of that directive, to refer a question to the Court of Justice for a preliminary ruling. Last, the applicant claimed that Directive 2003/87/EC infringes the principle of legal certainty, because there is no provision governing the extent of the financial consequences which may result from both a possible insufficiency of allowances allocated to an installation and the price of those allowances, that price being determined exclusively by the market forces which came into being following the establishment of the allowance trading scheme. 

The Court found that regulation of the prices of allowances might thwart the main objective of Directive 2003/87/EC, which is to reduce greenhouse gas emissions through an efficient allowance trading scheme in which the cost of emissions and investments made to reduce such emissions is essentially determined by market forces. In the event of an insufficiency of allowances, the incentive for operators to reduce, or not to reduce, their greenhouse gas emissions will depend on a complex economic decision taken in the light of the price of emission allowances available on the exchange market and of the costs of possible measures to reduce emissions which may aim either to reduce production or to invest in more efficient methods of production in terms of energy output.

In such a scheme, the increase in the cost of emissions cannot be regulated in advance by the legislature without reducing, or even completely removing, the economic incentives which constitute its very basis and thereby adversely affecting the effectiveness of the allowance trading scheme. The fact that it is not possible to predict how the exchange market will develop constitutes an element inherent in and inseparable from the economic mechanism characterising the allowance trading scheme subject to the classic rules of supply and demand and cannot be contrary to the principle of legal certainty.
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