1.

This request for a preliminary ruling from the Verwaltungsgericht Berlin (Administrative Court, Berlin, Germany) concerns the interpretation of Article 3(u) and Article 10a of, and Annex I to, Directive 2003/87/EC, ( 2 ) which establishes a scheme for greenhouse gas emission allowance trading within the European Union (‘the emission trading scheme’), and of Article 3(c) and (h) of Decision 2011/278/EU, ( 3 ) providing for transitional rules relating to the harmonised allocation of free emission allowances.

2.

The request has been made in proceedings between ExxonMobil Production Deutschland GmbH (‘ExxonMobil’) and the Federal Republic of Germany, represented by the Umweltbundesamt (Federal Office for the Environment, Germany), concerning the refusal to allocate, to a natural gas processing installation operated by ExxonMobil, some of the free emission allowances requested in respect of 2013.

3.

In accordance with the Court’s request, this Opinion will focus on the referring court’s first and second questions. Those questions relate to the scope of the concept of ‘electricity generator’ within the meaning of Article 3(u) of Directive 2003/87 and to the effect that the classification of an installation as an electricity generator has on the free allocation of emission allowances to which it is entitled under Article 10a of that directive.

4.

Article 3(u) of Directive 2003/87 defines the concept of ‘electricity generator’ as ‘an installation that, on or after 1 January 2005, has produced electricity for sale to third parties, and in which no activity listed in Annex I is carried out other than the “combustion of fuels”’.

5.

In the version in force at the material time, ( 4 ) Article 10a of that directive was worded as follows:

‘1.   By 31 December 2010, the Commission shall adopt Community-wide and fully harmonised implementing measures for the allocation of the allowances …

…

… No free allocation shall be made in respect of any electricity production, except for cases falling within Article 10c and electricity produced from waste gases.

…

3.   Subject to paragraphs 4 and 8, and notwithstanding Article 10c, no free allocation shall be given to electricity generators …

4.   Free allocation shall be given to district heating as well as to high efficiency cogeneration, as defined by Directive 2004/8/EC, [ ( 5 )] for economically justifiable demand, in respect of the production of heating or cooling. In each year subsequent to 2013, the total allocation to such installations in respect of the production of that heat shall be adjusted by the linear factor referred to in Article 9.

…’

6.

Article 3 of Decision 2011/278 states:

‘For the purposes of this Decision, the following definitions shall apply:

…

…

…’

7.

Paragraph 9 of the Treibhausgas-Emissionshandelsgesetz (Law on greenhouse gas emissions trading) of 21 July 2011 (BGBl. 2011 I, p. 1475; ‘the TEHG’), is worded as follows:

‘(1)   Installation operators shall receive an allocation of free emission allowances in accordance with the principles laid down in Article 10a … of Directive [2003/87] … and with those laid down in Decision [2011/278] …

…

(6)   The final amount of allowances allocated to the installation shall be equal to the product of the preliminary amount of allowances allocated to the installation calculated pursuant to paragraphs 1 to 5 and the cross-sectoral correction factor set by the European Commission in accordance with Article 15(3) of the uniform EU allocation rules. When allocating allowances in respect of the heat produced by electricity generators, the linear factor provided for in Article 10a(4) of Directive 2003/87/EC shall replace the correction factor referred to in the first sentence, with the calculation being based on the preliminary annual number of allowances to be allocated free of charge to the electricity generator in question for the year 2013.’

8.

Part 2 of Annex I to the TEHG, entitled ‘Activities’, lists, in point 1, among the installations whose emissions fall within the scope of that law, ‘combustion units intended to burn fuel with a total rated thermal input equal to or exceeding 20 [megawatts (MW)] in an installation, unless covered by one of the following points’. Part 2 of Annex I to the TEHG sets out, in points 2 to 4, various types of ‘installations for the production of electricity, steam, hot water, process heat or heated waste gas’ whose emissions also fall within the scope of that law.

9.

Paragraph 2(21) of the Verordnung über die Zuteilung von Treibhausgas-Emissionsberechtigungen in der Handelsperiode 2013 bis 2020 (Regulation on the allocation of greenhouse gas emission allowances in the 2013 to 2020 trading period) of 26 September 2011 (BGBl. I. 2011, p. 1921; ‘the ZuV 2020’) defines ‘electricity generator’ as any ‘installation which, after 31 December 2004, has produced and sold electricity to third parties and in which solely one of the activities listed in points 1 to 4 of Part 2 of Annex 1 to [the TEHG] is carried out’.

10.

Paragraph 2(29) and (30) of the ZuV 2020 defines the concepts ‘process emissions sub-installation’ and ‘heat benchmark sub-installation’ in terms similar to those of Article 3(h) and (c) of Decision 2011/278. Paragraph 2(29)(b)(ee) of the ZuV 2020 corresponds to Article 3(h)(v) of Decision 2011/278.

11.

Up until the end of 2013, ExxonMobil operated a natural gas processing installation (‘the installation’) in Steyerberg (Germany). The installation consisted of natural gas desulphurisation and dehydration facilities, sulphur recovery facilities (called ‘Claus-process’ facilities), waste gas purification facilities and ancillary facilities. The ancillary facilities included a steam boiler, a gas engine facility, emergency gas flaring facilities and a condensing power station.

12.

That power station was connected to the public electricity network, with small amounts of electricity being continuously fed into the network in order to ensure continuity of electricity supply for the installation in the event of an outage of the Claus-process facilities, which would have resulted in the loss of quantities of steam. The order for reference contains an electricity balance report showing data relating to the production, import, export and consumption of electricity at the installation for 2005 to 2010. The report shows that, in some of those years, the installation consumed more electricity than it produced.

13.

On 24 February 2014, the Deutsche Emissionshandelsstelle (German Emission Allowance Trading Authority; ‘the DEHSt’) allocated to ExxonMobil free of charge 1179523 emission allowances for the trading period 2013-2020. The allocation was based, in part, on the application of the heat benchmark and, in part, on the application of the fuel benchmark. The existence of a risk of carbon leakage in the sector concerned was taken into account in the calculation of that allocation. The DEHSt refused to allocate to ExxonMobil the further free allowances which it applied for in respect of process emissions. On the same day, the DEHSt revoked its allocation decision with effect from 1 January 2014 on the ground that ExxonMobil had declared that it had ceased operating. That revocation was not challenged.

14.

ExxonMobil lodged an objection against the allocation decision of 24 February 2014. The DEHSt dismissed that objection on 12 February 2016.

15.

According to the information provided by the DEHSt in its decision of 12 February 2016, the application for an allocation of allowances for process emissions concerned the emissions of CO2 naturally present in the natural gas which occurred at the end of the process in the Claus facilities (‘the Claus process’). The Claus process was an exothermic chemical reaction by which hydrogen sulphide (H2S) was converted into elemental sulphur. The heat generated during that reaction was captured by recovery boilers before being used at the installation. The use made of that heat resulted in the free allocation of emission allowances by applying the heat benchmark. At the end of the Claus process, the CO2 inherent in the natural gas was emitted into the atmosphere through a chimney. The Claus process did not generate additional CO2.

16.

The DEHSt considered that allowances could not be allocated free of charge in respect of a ‘process emissions sub-installation’ within the meaning of Paragraph 2(29)(b)(ee) of the ZuV 2020, a provision which transposes Article 3(h)(v) of Decision 2011/278 into German law. The DEHSt took the view that the condition set out in those provisions that the emissions must result from the use of a raw material containing carbon was not met. It considered that emissions of the CO2 naturally present in the natural gas did not result from the Claus process since the CO2 did not play a part in and was not necessary for the chemical reaction characterising the Claus process. According to the DEHSt, H2S was the only raw material used to produce sulphur and the CO2 cannot be regarded as anything other than an ‘associated gas’ of the H2S.

17.

On 10 March 2016, ExxonMobil brought an action against the decision rejecting its complaint.

18.

In its action, it describes, first of all, the activities carried out at the installation, noting that it served to process natural gas extracted from gas reserves. The extracted natural gas, known in this form as sour gas, contained H2S, water vapour, methane (CH4) and CO2. At the installation, that gas was desulphurised and then, after drying, fed into the gas distribution network. The H2S and CO2 removed from the natural gas during the desulphurisation process were fed into the Claus-process facilities where H2S was converted into sulphur by means of an exothermic reaction consisting of two steps.

19.

In the first step, approximately a third of the H2S was burned in a furnace, with the combustion process generating sulphur dioxide (SO2). The SO2 was already partially reacting in that furnace with the H2S to produce elemental sulphur and water. In order to maintain oxidation and optimise the process, heat was removed in the form of steam by means of the recovery boiler. The remaining H2S reacted by catalysis with the SO2 to produce elemental sulphur.

20.

In the second step, additional sulphur was obtained following an exothermic reaction in two or three successive catalytic stages. The gas remaining at the end of that reaction, called ‘Claus gas’, still contained, inter alia, CO2 and traces of sulphur compounds. The Claus gas was then routed to downstream waste gas purification facilities and further desulphurised and CO2 was released into the atmosphere through the chimney.

21.

Next, ExxonMobil claims that it is entitled to the free allocation of emission allowances for a process emissions sub-installation on the ground that those CO2 emissions were the result of using a raw material containing carbon in the form of CO2. According to ExxonMobil, the raw material used for sulphur production is the sour gas, not the H2S viewed in isolation. If sour gas had not been used in the Claus process, the CO2 inherently present in the natural gas would not have been released into the atmosphere. Moreover, the extraction of CO2 from the sour gas by means of the Claus process had been necessary for the recovery of pure sulphur from that gas. It is immaterial that the CO2 was present from the outset in the raw material and played no part in the chemical reaction in question. Nor could the CO2 emissions have been avoided by switching fuel or by adopting more efficient techniques.

22.

Furthermore, ExxonMobil submits that the free allocation of allowances through application of the heat benchmark in respect of measurable heat produced at the installation, as a side effect of the chemical reaction characterising the Claus process, does not preclude the additional allocation applied for. Although the Court held, in the judgment in Borealis and Others, ( 6 ) that allocation on the basis of the product benchmark takes precedence over the three fallback approaches, namely allocation on the basis of the heat benchmark, the fuel benchmark or process emissions, no hierarchy exists between those three fallback options.

23.

Lastly, ExxonMobil observes that the main action is a pilot case to settle issues surrounding the allocation of free allowances for CO2 emissions occurring in the context of the Claus process, which also takes place in other installations operated by ExxonMobil.

24.

In its defence, the DEHSt stated, for the first time, that sulphur production is not an activity subject to compulsory emission allowance trading. It argued, also for the first time, that the installation should be classified as an ‘electricity generator’ since electricity was produced there and sold to third parties after 31 December 2004 and only a combustion activity referred to in points 1 to 4 of Part 2 of Annex 1 to the TEHG was carried out there. According to the DEHSt, the installation applied for and received an allocation intended for electricity generators, which was reduced by applying the linear factor for electricity generators in accordance with Paragraph 9(6) of the TEHG. However, the free allocation of emission allowances to electricity generators was permissible only if the conditions laid down in Article 10a of Directive 2003/87 were complied with.

25.

As to the remainder, the DEHSt reiterates its view that the free allocation of emission allowances for a process emissions sub-installation must be refused and contests the claim made by ExxonMobil that the emissions in question were unavoidable. The DEHSt relies, moreover, on the existence of a hierarchy between the factors of allocation on the basis of the heat benchmark, the fuel benchmark and process emissions.

26.

In that context, the Verwaltungsgericht Berlin (Administrative Court, Berlin) considers, first of all, that the outcome of the main proceedings depends on whether the installation must be classified as an electricity generator within the meaning of Article 3(u) of Directive 2003/87. Although an answer in the affirmative seems to the referring court to follow from the wording of that provision, it is uncertain whether such an answer would broaden the scope of that provision beyond that intended by the spirit and purpose of the directive. ( 7 )

27.

Next, the referring court observes that to classify the installation as an electricity generator would, in principle, mean that the free allocation of emission allowances that it received was unlawful. That would be so since electricity generators can receive free emission allowances only in the cases set out in the third subparagraph of Article 10a(1) and Article 10a(4) of Directive 2003/87, which do not cover the emissions in question. The referring court wonders, however, whether it is possible to override that restriction on the basis of the definition of the term ‘heat benchmark sub-installation’ set out in Article 3(c) of Decision 2011/278, which contains no such restriction.

28.

Lastly, the referring court seeks to ascertain whether the emissions resulting from the Claus process may give rise to a free allocation of emission allowances in respect of a ‘process emissions sub-installation’ within the meaning of Article 3(h) of Decision 2011/278. Given that the heat generated by that process can also be the subject of an allocation through application of the heat benchmark, the referring court asks whether one of those two types of allocation takes priority over the other.

29.

In the light of those considerations, the Verwaltungsgericht Berlin (Administrative Court, Berlin) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

30.

ExxonMobil, the German Government and the Commission lodged written observations before the Court and were represented at the hearing on 14 November 2018.

31.

By its request for a preliminary ruling, the referring court essentially asks the Court to determine whether and, if so, to what extent an installation such as that at issue in the main proceedings can be allocated free emission allowances under Article 10a of Directive 2003/87. The relevant facts characterising the situation of that installation and on which I will base my analysis may be summarised as follows.

32.

According to the information provided in the order for reference, ( 8 ) the installation at issue in the main proceedings was engaged, inter alia, in an activity consisting in the recovery, through the Claus process, of the sulphur found, in the form of H2S, in sour gas extracted from gas reserves. ( 9 ) That process started with the combustion of some of the sour gas, giving rise to a chemical reaction which generated heat subsequently used at the installation. The installation produced electricity at a secondary facility. ( 10 ) Although the electricity produced was largely intended for its own supply, the installation permanently fed a small proportion of it for consideration into the public network so as to ensure continuity of the electricity supply at the facility. The CO2 naturally found in sour gas was removed from the H2S through the Claus process. That CO2 was released into the atmosphere after passing through the Claus facilities, downstream purification facilities and – as is apparent, subject to verification by the referring court, from the documents before the Court submitted by the referring court and from the observations of the German Government – downstream afterburners. The Claus process did not generate additional CO2.

33.

The installation was allocated free emission allowances, in respect of a ‘heat benchmark sub-installation’ within the meaning of Article 3(c) of Decision 2011/278, for measurable heat produced during that process. ( 11 ) By contrast, it did not receive the additional free allowances requested for a ‘process emissions sub-installation’ within the meaning of Article 3(h) of Decision 2011/278. ExxonMobil considers, in essence, that the allocation calculated on the basis of the heat benchmark is not sufficient to account for the unavoidable emissions of the CO2 found in sour gas, in respect of which it had to surrender a number of allowances. ( 12 )

34.

The main action is directed against the decision by which the DEHSt rejected that application. However, the arguments put forward by the DEHSt in its defence also raise doubts as to the lawfulness of the free allocation of emission allowances received by the installation.

35.

In that context, the referring court seeks to ascertain, by its first and second questions, whether the installation must, having regard to the fact that it sold electricity to the public network, be denied any free allocation of emission allowances. If the answer is in the negative, the referring court asks the Court its third and fourth questions, in order to be able to determine whether the emissions of the CO2 naturally present in sour gas may give rise to a free allocation of allowances for a process emissions sub-installation.

36.

As demonstrated by the written and oral observations submitted to the Court, the matters at stake in the main proceedings and the usefulness of the answers to the questions referred for the purpose of resolving the dispute are, first and foremost, dependent on the applicability of Directive 2003/87 to those emissions.

37.

In that regard, the Commission, supported in this regard by ExxonMobil at the hearing, submits, in essence, that the emissions of the CO2 naturally present in sour gas, which are covered by the application for additional free allowances, do not fall within the scope of that directive. Consequently, they should not be declared or monitored, or give rise to the surrender of allowances, and therefore the free allocation of allowances for those emissions is excluded from the outset. By contrast, the German Government considers, in essence, that, since the sour gas was used as fuel in the course of the installation’s activities, all the CO2 in the composition of that fuel, released at the end of those activities, is subject to the emissions trading scheme. For the reasons set out below, I agree with the latter point of view.

38.

Under Article 2(1), Directive 2003/87 applies to emissions from the activities listed in Annex I thereto and to greenhouse gases listed in Annex II thereto, which include CO2. Annex I covers, inter alia, in point 6, the ‘combustion of fuels in installations with a total rated thermal input exceeding 20 MW’.

39.

In the present case, emissions of CO2 naturally present in the sour gas that are released from the installation are liable to fall within the scope of Directive 2003/87 only in so far as they resulted from such activity. It is common ground that the installation did not engage in any other activity listed in Annex I to that directive, which makes no mention of either sulphur recovery or natural gas processing.

40.

The concept of ‘combustion of fuels’ in point 6 of Annex I to Directive 2003/87 must be understood in the light of Article 3(t) of that directive. That provision defines ‘combustion’ as ‘any oxidation of fuels, regardless of the way in which the heat, electrical or mechanical energy produced by this process is used, and any other directly associated activities, including waste gas scrubbing’.

41.

It seems to me that that definition covers the heat generating oxidation reaction undergone by H2S during the Claus process. It also includes the postcombustion process for gases emerging from the Claus facilities, including the CO2 naturally present in sour gas, as described in the file submitted to the Court by the referring court and the observations of the German Government.

42.

Since that CO2 was emitted after passing through the Claus facilities and, subject to verification by the referring court, the afterburners where those processes took place, those emissions resulted, in my opinion, from combustion activities for the purposes of point 6 of Annex I to Directive 2003/87, ( 13 ) read in the light of Article 3(t) thereof.

43.

That finding is not called into question, in the first place, by the fact that those processes served to produce energy only as a secondary aim, since their main purpose was to recover the sulphur contained in the sour gas and to purify that gas before releasing it into the atmosphere.

44.

In that regard, as demonstrated by the preparatory documents preceding the adoption of Directive 2009/29/EC, ( 14 ) by which Article 3(t) of Directive 2003/87 was inserted, that insertion was intended to give the concept of ‘combustion’ a broad definition. That concept was to cover any oxidation of fuels, regardless of the objective, whether it be to generate energy for third parties or as part of a production process at the installation at issue. ( 15 )

45.

Point 3 of Annex 1 to Directive 2003/87 reflects the broad scope afforded to that concept by stating that the units in which fuels are combusted include ‘all types of boilers, burners, turbines, heaters, furnaces, incinerators, calciners, kilns, ovens, dryers, engines, fuel cells, chemical looping combustion units, flares, and thermal or catalytic post-combustion units’. Some of these, in particular flares and some afterburner units, are not intended for the supply of energy. ( 16 )

46.

In the second place, the emissions in question cannot fall outside the scope of that directive on the ground that, as the CO2 released into the atmosphere was already contained in the extracted sour gas, it did not itself result from an oxidation reaction produced by the activities at the installation. ( 17 )

47.

Article 3(t) of Directive 2003/87 does not restrict the concept of ‘combustion’ to oxidation reactions generating one of the greenhouse gases listed in Annex II to that directive. It is sufficient, in view of the wording of that provision, that any constituent element of the fuel is oxidised. In the same way, Article 2(1) of that directive does not make the applicability of that directive subject to the condition that the CO2 released is itself the result of an activity listed in Annex I. Only greenhouse gas emissions, and not the gas itself, must result from such an activity. ( 18 )

48.

As pointed out by the German Government, that reading underpins Article 48(1) of Commission Regulation (EU) No 601/2012 on the monitoring and reporting of greenhouse gas emissions pursuant to Directive [2003/87]. ( 19 ) In accordance with that provision, emissions of ‘inherent CO2’ – defined in Article 3(40) of that regulation as ‘CO2 which is part of a fuel’ – must be included in the emission factor for that fuel. In addition, Article 48(1) of that regulation refers to inherent CO2 contained in natural gas.

49.

In line with this, the Commission, in a document entitled ‘Frequently Asked Questions Regarding Monitoring and Reporting in the EU ETS’, ( 20 ) states that the CO2 emissions linked to natural gas processing are subject to the obligations of the emission allowances trading scheme provided that the CO2 emitted is, at any point during the purification process, fed into a combustion process. Those emissions must therefore be reported and monitored as emissions of inherent CO2 pursuant to Article 48 of Regulation No 601/2012. The Commission refers therein, by way of example, to Claus facilities. ( 21 ) Although that document is not binding, the information it contains constitutes, in my view, contextual elements which may cast light on the interpretation of Directive 2003/87 and Regulation No 601/2012. ( 22 )

50.

In the light of those considerations, I take the view that the emissions of CO2 naturally present in the sour gas that arise at the end of the Claus process, such as those at issue in the main proceedings, result from the activity of ‘combustion of fuels’ within the meaning of point 6 of Annex I to Directive 2003/87, read in conjunction with Article 3(t) thereof. Those emissions therefore fall within the scope of that directive, as defined in Article 2(1) thereof.

51.

By its first question, the referring court seeks to ascertain whether the installation is an ‘electricity generator’, within the meaning of Article 3(u) of Directive 2003/87, in so far as it has produced electricity in the course of its activity of ‘combustion of fuels with [an] input exceeding 20 [megawatts (MW)]’ within the meaning of point 6 of Annex I to that directive. The referring court asks, more specifically, whether that is so in the light of circumstances that, first, the installation, at the same time, was engaging in the activity of production of a product which does not fall within the scope of any other activity listed in that annex and, second, the electricity produced was used for that installation’s own needs and only a small proportion of that electricity was fed for consideration into the public electricity network, to which, for technical reasons, the installation had to be permanently connected.

52.

Following an analysis of the wording and objectives of Article 3(u) of Directive 2003/87, the general scheme of that directive and the origin of that provision, ( 23 ) I take the view that the Court should answer that question in the affirmative.

53.

In accordance with Article 3(u) of Directive 2003/87, the status of electricity generator presupposes, first, that the installation in question, ‘on or after 1 January 2005, has produced electricity for sale to third parties’. Second, that status implies that in that installation ‘no activity listed in Annex I is carried out other than the “combustion of fuels”’.

54.

Interpreted literally, the second criterion laid down in Article 3(u) of Directive 2003/87 is, by definition, met in the situation referred to in the first question concerning an installation which carries out, in addition to a combustion activity, solely an activity not listed in Annex I to that directive.

55.

As the German Government has pointed out, that reading corresponds to that adopted in a document, published by the Commission, entitled ‘Guidance paper to identify electricity generators’. ( 24 ) It is maintained in that document that an installation which carries out, in addition to a combustion activity, an activity not listed in that annex meets the aforementioned criterion. That would be the case even where the electricity is generated for the installation’s own consumption, for the execution of the activity not listed. That document, although not binding, provides information to clarify the meaning of the concept of ‘electricity generator’ in the light of the general scheme of Directive 2003/87 and Decision 2011/278. ( 25 )

56.

With regard to the first criterion set out in Article 3(u) of that directive, the expression ‘for sale to third parties’ may, as noted by ExxonMobil, suggest that electricity must not simply be sold to third parties but rather produced for the purpose of such a sale. However, whatever the approach taken on this point, there is nothing in the wording of that provision to indicate that the sale to third parties should be the only objective, or at least the main objective, of the electricity production. Therefore, on the basis of that wording, as submitted by the German Government and the Commission, that criterion is met where, as in the present case, an installation produces electricity for its own supply whilst planning to feed an albeit tiny proportion of that electricity for consideration into the public electricity network.

57.

That reading also follows from the Guidance paper to identify electricity generators, which states that Article 3(u) of Directive 2003/87 does not contain any threshold for sales in order for an installation to be classified as an electricity generator. According to that document, that status is also not subject to the condition that the electricity is produced with the intention of sale to third parties. ( 26 )

58.

I would add that that provision does not set out any requirement relating to the continuity of electricity production and of sale of the electricity produced. It establishes a clear rule that the status of electricity generator is acquired provided that the installation has, at any time on or after 1 January 2005, produced electricity for sale to third parties, irrespective of any fluctuation over time in the ratio between the quantity of electricity sold and the quantity produced to meet the installation’s own needs.

59.

Consequently, on a literal interpretation of Article 3(u) of Directive 2003/87, an installation such as that at issue in the main proceedings is an electricity generator. However, the referring court wonders whether, as ExxonMobil argues, that interpretation leads to the extension of the category of electricity generators beyond the installations intended to be classified as electricity generators by the legislature. That interpretation would then exceed what is required to achieve the objective pursued by that provision.

60.

As is apparent, in particular, from Article 10a(3) of Directive 2003/87, an installation’s status as an electricity generator has the consequence that the principle of full emission allowance auctioning applies to it. ( 27 ) Free allowances can be allocated to electricity generators only in limited circumstances, the more precise determination of which is the subject of the second question referred. ( 28 )

61.

In that regard, ExxonMobil rightly observes that recital 19 of Directive 2009/29, which introduced Article 3(u) and Article 10a of Directive 2003/87, reveals that that restriction on free allocation was introduced in response to a trend amongst ‘power sector’ installations to pass on the costs associated with acquiring allowances in electricity prices. Those installations had, moreover, included the economic value of the free allowances in those prices as an ‘opportunity cost’, thus making ‘windfall profits’. ( 29 )

62.

According to ExxonMobil, an installation’s status as an electricity generator should, therefore, be assessed in the light of its ability to recover the costs of the CO2 from customers, but the installation at issue in the main proceedings has no such ability. In that regard, the referring court is inclined to the view that the legislature intended, by the insertion of the aforementioned provisions, to cover only those installations belonging to the ‘conventional electricity sector’, ( 30 ) of which the installation at issue in the main proceedings is not part.

63.

In that context, the referring court tends to agree with ExxonMobil that the second criterion set out in Article 3(u) of Directive 2003/87 requires the installation not to carry out any activity – irrespective of whether that activity is listed in Annex I to that directive – other than combustion activities. ( 31 ) The concept of ‘electricity generator’, it is argued, does not include installations which carry out, in addition to combustion activities, an activity not covered by that annex – such as, in the present case, sulphur recovery.

64.

In addition, the referring court has doubts as to whether, as ExxonMobil has argued, the first criterion laid down in that provision means that the electricity produced is ‘principally’ for sale to third parties. That would not be so in the present case, since the electricity was produced for the installation’s own supply, with a small amount of electricity being fed into the public network only for technical reasons.

65.

ExxonMobil has stated, in that regard, that that feeding of electricity sought to synchronise the frequency and voltage of the internal electric current and of that coming from the network. In the absence of such synchronisation, the transition from stand-alone operation to network operation, necessary to ensure the continuity of the installation’s supply, could have been accompanied by fluctuations in frequency and voltage causing damage. The electricity report set out in the order for reference is said to show that the sale of electricity to third parties is marginal.

66.

In my view, the contention that installations which have sold to third parties a proportion of the electricity that they have produced principally for the purposes of their activity not covered in Annex I to Directive 2003/87 are not always able to recover from those third parties a significant proportion of the costs of the allowances which they have had to surrender is not unfounded. That possibility depends, it seems to me, at least in part, on the proportion of electricity supplied to third parties in relation to the total amount of electricity and heat generated at the installation. It cannot be ruled out that some of those installations, on account of the marginal nature of the sale of electricity to third parties in relation to their total production of electricity and heat, in particular where the supply of electricity to third parties was for technical reasons, ( 32 ) have not been able to pass on in their sale prices a significant proportion of the CO2 costs related to their activities.

67.

However, for the reasons set out below, those considerations do not justify a reading which departs from the wording of Article 3(u) of Directive 2003/87.

68.

In the first place, as the Commission has pointed out, that provision must be seen in the light of the general scheme and overall purpose of Directive 2003/87 and, in particular, the arrangements for the free allocation of allowances provided for in Article 10a thereof.

69.

In that regard, I observe, first, that those arrangements derogate from the principle of the auctioning of allowances, ( 33 ) which the legislature considered to be generally ‘the simplest, and … the most economically efficient, system,’ ( 34 ) in the light of the objective to promote ‘reductions of greenhouse gas emissions in a cost-effective and economically efficient manner’ set out in Article 1 of Directive 2003/87. That derogation is only a transitional measure intended to prevent undertakings from losing competitiveness pending a scheme for full emission allowance auctioning. ( 35 ) Accordingly, since 2013, the amount of allowances allocated free of charge has decreased each year, with a view to their abolition, initially envisaged in 2027. ( 36 ) Accompanying that process, any restriction on the free allocation of allowances contributes to the progressive implementation of the scheme for full emission allowance auctioning sought by the legislature. As the Commission has argued, that consideration supports a broad interpretation of the provisions restricting the free allocation of allowances, which include Article 3(u) of that directive in that it defines the concept of ‘electricity generator’.

70.

Second, defining the scope of the category of electricity generators is, pursuant to Article 10a of Directive 2003/87, of decisive importance for the purposes of calculating the free allocation of allowances granted not only to installations falling within that category but also to other installations (called, for convenience, ‘industrial installations’ ( 37 )). As observed by the German Government, the definition of its scope influences the Commission’s calculation of the uniform cross-sectoral correction factor, the application of which to the preliminary annual amount of allowances allocated free of charge for each industrial installation determines the final total annual amount of emission allowances which it receives. ( 38 ) That finding reinforces the need for clear rules making it possible to identify, with a sufficient degree of certainty and predictability, the installations which fall within the scope of the definition laid down in Article 3(u) of Directive 2003/87.

71.

As argued by the Commission, to have made the status of electricity generator dependent on there being no activity carried out other than the production of electricity or on a requirement that the sale to third parties is the ‘main objective’ of the production of electricity would have made determination of that status uncertain. In particular, as the German Government has also noted, such an approach would give rise to confusion in the absence of thresholds predefined by the legislature making it possible to distinguish the main objective from the secondary objective of the production of electricity and, accordingly, to identify the installations belonging to the ‘conventional electricity sector’. ( 39 )

72.

In the second place, the literal interpretation of Article 3(u) of Directive 2003/87 does not preclude its compliance with requirements of primary law and, in particular, the general principle of equal treatment. ( 40 )

73.

The referring court and ExxonMobil have argued, in that regard, that that interpretation results in a difference in treatment between, on the one hand, installations engaged in a combustion activity and another activity listed in Annex I to that directive and, on the other, those carrying out, in addition to a combustion activity, an activity not listed in that annex. I take the view that, contrary to ExxonMobil’s contentions, such a difference in treatment does not amount to discrimination.

74.

In principle, those two categories of installations are not, in my view, in objectively comparable situations in the light of the principles governing the applicability of the emissions trading scheme. As noted by the Commission, installations in the second category are subject to that scheme only in respect of emissions resulting from their combustion activities. By contrast, installations in the first category are subject to that scheme for all of their emissions, irrespective of whether they result from combustion activities.

75.

In that regard, it is apparent from the preparatory documents preceding the adoption of Directive 2009/29 that the inclusion of activities other than the ‘combustion of fuels’ in Annex I to Directive 2003/87 was intended to include in its scope certain emissions – ‘process emissions’ – which are the result not of ‘combustion’ processes – even defining that concept widely – but of certain industrial processes. ( 41 ) The list of specific activities therein was adopted by the legislature in view of the magnitude of the associated process emissions. ( 42 )

76.

In any event, even assuming that the situation of an installation such as that at issue in the main proceedings is objectively comparable to that of an installation carrying out, in addition to its combustion activity, an activity listed in Annex I to Directive 2003/87, ( 43 ) the difference in treatment of those installations would appear to me to be justified.

77.

As the Court has already held, ( 44 ) the legislature had a broad discretion for the purpose of establishing and restructuring the ‘complex scheme’ – involving political, economic and social choices underpinned by complex assessments and evaluations – that the emissions trading scheme constitutes. The legislature was entitled to have recourse for that purpose to a step-by-step approach and to proceed in the light of the experience gained. As is apparent from the judgment in Arcelor Atlantique et Lorraine and Others, ( 45 ) that choice had, however, to be based on objective criteria appropriate to the aim pursued and not produce results that were manifestly less appropriate than those that would have been produced by other measures that were also suitable.

78.

The restriction of the free allocation of emission allowances to electricity generators is based, specifically, on a step-by-step approach aimed at the progressive implementation of the scheme for full emission allowance auctioning. In that context, the legislature decided that electricity generators, in view of the objective assessment that the CO2 costs related to their activities may generally be passed on in electricity prices, were to be subject to the principle of full emission allowance auctioning from 2013. It also considered it necessary to determine the scope of the category of electricity generators by means of clearly defined criteria, given, in particular, the structural importance of that determination within the framework of the arrangements for the free allocation of emission allowances. ( 46 )

79.

In my view, the literal interpretation of Article 3(u) of Directive 2003/87 does not call for the conclusion that the legislature exceeded its margin of discretion by defining the concept of ‘electricity generator’ by means of the criteria set out therein for the purpose of achieving those objectives. This is so even if some installations falling under that definition, considered individually, would not have been able, where appropriate, to recover from customers a significant proportion of the allowance costs associated with their activities. ( 47 )

80.

The proportionality of that legislative choice is also apparent from the fact that the status of electricity generator does not preclude the installations in question from receiving any free allocation of emission allowances, since those installations remain eligible under certain conditions aimed at ensuring greater energy efficiency. ( 48 )

81.

Furthermore, I do not agree with the argument put forward by ExxonMobil that to classify as electricity generators installations which produce electricity secondarily to meet the needs of their primary production activity not listed in Annex I to Directive 2003/87 would amount to discrimination against those installations compared with installations which obtain the electricity required for that purpose from third parties. To counter that argument, it is sufficient to note that installations which generate their own electricity for the purposes of their activity not listed in that annex do not, by that fact alone, qualify as electricity generators. They still have to sell a proportion of that electricity to third parties, which is an objective and non-discriminatory criterion.

82.

In the third place, contrary to ExxonMobil’s contentions, the classification of an installation such as that at issue in the main proceedings as an electricity generator cannot be called into question because of an alleged contradiction between that classification and the inclusion of the natural gas extraction sector in the list of sectors and subsectors exposed to a significant risk of carbon leakage, ( 49 ) set out in the annex to Decision 2010/2/EU. ( 50 ) According to ExxonMobil, the installation does not belong to the electricity sector – which, in view of its ability to recover allowance costs from its customers, is not exposed to distortions of competition resulting from the application of the emissions trading scheme. The sector to which it belongs, namely the natural gas extraction sector, is characterised, on the contrary, by the existence of such distortions accompanied by a significant risk of carbon leakage on account of its inability to pass on the CO2 costs in its prices.

83.

In my view, while it seems at first sight to be paradoxical that one and the same installation falls simultaneously within a sector regarded as capable of passing on allowance costs in the sales prices of its products and within a sector well known to be incapable of so doing, that contradiction is only apparent. The classification of a sector or subsector amongst those exposed to a significant risk of carbon leakage means that such an inability is demonstrated in the light of an overall assessment of all the activities carried out by those installations falling within it. ( 51 ) That classification does not require each of those installations to be incapable of recovering the allowance costs associated with its activities even where it produces electricity intended, at least in part, for sale to third parties.

84.

With that in mind, it is apparent from Article 10a(12) of Directive 2003/87, read in conjunction with Article 10a(1) and (3), that the inclusion of a sector or subsector in the annex to Decision 2010/2 does not exempt the installations falling within it from the application of the principle that, pursuant to the third subparagraph of Article 10a(1), no free allocation is to be made in respect of any electricity production (with some exceptions) – irrespective of whether those installations are classified as electricity generators. Nor does such inclusion exempt installations classified as electricity generators from the associated consequences under Article 10a(3). ( 52 )

85.

Thus, in accordance with Article 10a(12) of Directive 2003/87, the fact that an installation belongs to a sector or subsector exposed to a significant risk of carbon leakage has the sole consequence, from the point of view of allocation under that article, that the ‘leakage risk factor’ is applied to historical activity data to be taken into account when calculating the preliminary free allocation of allowances, thus allowing a more generous preliminary allocation. ( 53 ) The fact of belonging to such a sector or subsector does not require that account be taken, amongst those data, of data relating to electricity production which have to be excluded pursuant to the third subparagraph of Article 10a(1) of that directive. ( 54 ) Nor, so far as concerns electricity generators, does it have the effect of requiring the inclusion, in their historical activity data, of information relating to their heat production beyond what is provided for by Article 10a(3) of that directive. ( 55 )

86.

In the fourth place, the origin of Article 3(u) of Directive 2003/87 supports the literal interpretation. The preparatory documents preceding the adoption of Directive 2009/29 show that the legislature opted for wording conferring a broad scope on the concept of ‘electricity generator’ despite the more restrictive wording proposed during the legislative process by the European Parliament Committee on Industry, Research and Energy. The latter had tabled an amendment, referred to by the German Government, aimed at conferring the status of electricity generator only on installations ‘which predominantly deliver … to the public electricity grids’. ( 56 ) The fact that the proposed amendment remained a dead letter provides, in my view, a further indication that the position adopted by ExxonMobil conflicts with the intention of the legislature.

87.

In the light of all the foregoing, I conclude that the concept of ‘electricity generator’, within the meaning of Article 3(u) of Directive 2003/87, covers an installation, such as that at issue in the main proceedings, which, after 1 January 2005, has sold to the public electricity network small amounts of the electricity which it has produced – in the context of its activity of combustion of fuels – principally to meet the needs relating to its activity of producing a product, which activity is not listed in Annex I to that directive.

88.

The second question is referred to the Court in the event that it adopts, as I am advocating, an interpretation of Article 3(u) of Directive 2003/87 under which an installation such as that at issue in the main proceedings is an electricity generator. The referring court asks whether, pursuant to Article 3(c) of Decision 2011/278, such an installation would nevertheless be eligible for the free allocation of emission allowances in respect of the heat which it produces and uses for purposes other than the production of electricity, even outside the cases, irrelevant in the present instance, envisaged in the third subparagraph of Article 10a(1) and Article 10a(4) of Directive 2003/87.

89.

The referring court’s doubts are due to the fact that Article 3(c) of Decision 2011/278 makes the status of ‘heat benchmark sub-installation’ conditional upon the heat produced not being used for the production of electricity, without generally excluding a heat benchmark sub-installation from being established within an installation that produces electricity. In other words, while that provision precludes the free allocation of emission allowances for heat generated for the purposes of electricity production, it does not state to what extent the heat generated for other purposes by electricity generators is excluded from such allocation.

90.

It is apparent, in my view, from a literal, systematic and teleological interpretation of Article 10a of Directive 2003/87 and Article 3(c) of Decision 2011/278 that the second question should be answered in the negative.

91.

First, the third subparagraph of Article 10a(1) of Directive 2003/87 precludes any free allocation of emission allowances for electricity production, except where it is obtained from waste gases. ExxonMobil does not claim, in the present instance, to be entitled to the free allocation of emission allowances for the installation’s electricity production.

92.

Second, moreover, Article 10a(3) of that directive establishes the rule that no free allocation is to be given to electricity generators outside the cases set out in Article 10a(4) and (8). ( 57 ) Article 10a(4) concerns the production of heating and cooling intended for district heating services or obtained by high efficiency cogeneration. ( 58 )

93.

As the Court has already held, Article 10a(4) of Directive 2003/87 thus derogates from the rule of principle, set out in Article 10a(3), according to which electricity generators are not eligible for the free allocation of allowances. ( 59 ) Electricity generators are, therefore, in principle, denied the free allocation of allowances for their emissions resulting not only from their production of electricity but also, as the case may be, contrary to the contentions of ExxonMobil and the German Government, from their heat production activities. Only the cases provided for in Article 10a(4) and (8) of that directive can justify the free allocation of allowances for heat produced by electricity generators.

94.

An interpretation to the contrary would render Article 10a(3) of Directive 2003/87 redundant, since the free allocation of allowances for the production of electricity – whether or not the installation producing it can be classified as an electricity generator – is already excluded by the third subparagraph of Article 10a(1) of that directive.

95.

The approach that I am advocating is also in line with the objective, set out in Article 10a(3), of establishing the principle of the full auctioning of allowances for electricity generators from 2013. As set out above, since that principle is to be gradually extended to other installations, a broad interpretation of the provisions limiting the possibilities of free allocation of allowances is, in my view, justified. ( 60 )

96.

Moreover, I would point out that the legislature had a broad discretion in the drawing up of the emissions trading scheme. ( 61 ) I take the view that it did not exceed the limits of that discretion in deciding to apply that principle, initially, only to electricity generators, classified as such on the basis of objective criteria appropriate to the aim pursued. In the exercise of its discretion, the legislature ensured that, in order to prevent distortions of competition in relation to other heat producers, ( 62 ) electricity generators are eligible for the free allocation of allowances, in respect of the heat produced, under certain conditions aimed at ensuring greater energy efficiency. ( 63 )

97.

That reading of Article 10a(3) of Directive 2003/87 cannot be called into question on the basis of Article 3(c) of Decision 2011/278. As the Commission has argued, given the normative hierarchy between the implementing measure which that decision represents and the enabling provisions set out in Article 10a of that directive, ( 64 ) Article 3(c) of that decision must be interpreted, where possible, in accordance with Article 10a(3) of that directive. ( 65 )

98.

Such an interpretation in accordance with the directive means that Article 3(c) of Decision 2011/278 permits the allocation of allowances to a heat benchmark installation and the corresponding free allocation of allowances within an installation classified as an electricity generator only where Article 10a(3) of Directive 2003/87 authorises such an allocation – that is to say only in the cases envisaged in Article 10a(4) and (8) of the directive. ( 66 )

99.

In the light of my proposed answers to the first and second questions, there is no need to answer the third and fourth questions, which the referring court has asked only in the event that the Court’s answers to the first and second questions mean that the installation is eligible for the free allocation of allowances in respect of the heat that it has produced.

100.

In the event that the Court gives to the second question the answer that I propose, ExxonMobil asks the Court to limit in time the effects of the judgment to be delivered.

101.

According to settled case-law, limitation of the temporal effects of a judgment in which the Court gives a preliminary ruling interpreting a provision of EU law constitutes an exceptional measure which requires two essential criteria to be fulfilled, namely that those concerned should have acted in good faith and that there should be a risk of serious difficulties. ( 67 ) The Court has taken that step ‘only in quite specific circumstances, notably where there was a risk of serious economic repercussions owing in particular to the large number of legal relationships entered into in good faith on the basis of rules considered to be validly in force and where it appeared that individuals and national authorities had been led to adopt practices which did not comply with EU law by reason of objective, significant uncertainty regarding the implications of European Union provisions, to which the conduct of other Member States or the Commission may even have contributed’. ( 68 )

102.

In the present case, ExxonMobil has put forward no specific matter capable of establishing that those criteria have been met.

103.

As regards, first, the presence of a risk of serious economic difficulties, ExxonMobil has merely submitted that the German authorities have, since 2013, allocated emission allowances free of charge to a large number of electricity- generating installations in respect of their production of heat. It has not provided any details of those installations or the harmful consequences that they would suffer if the interpretation of Article 10a(3) of Directive 2003/87 suggested above were adopted.

104.

Second, that interpretation is, in my view, sufficiently clear from the wording of that provision and of Article 3(c) of Decision 2011/278, read in conjunction with that provision. Moreover, ExxonMobil relies only on a divergent interpretation adopted by the German authorities, without indicating in what way the conduct of the Commission or other Member States contributed to objective and significant uncertainty surrounding the scope of Article 10a(3) of Directive 2003/87. In those circumstances, no such uncertainty could have led to the adoption in good faith of conduct contrary to EU law.

105.

Consequently, I propose that the Court should reject the application seeking limitation of the temporal effects of the judgment to be delivered.

106.

In the light of all the foregoing considerations, I propose that the Court should answer the first and second questions referred for a preliminary ruling by the Verwaltungsgericht Berlin (Administrative Court, Berlin, Germany) as follows: