Case T‑269/21

Arctic Paper Grycksbo AB

v

European Commission

Judgment of the General Court (Second Chamber), 26 July 2023

(Environment – Directive 2003/87/EC – Scheme for greenhouse gas emission allowance trading – National implementing measures – Transitional free allocation of greenhouse gas emission allowances – Decision to exclude an installation exclusively using biomass – Duty of diligence – Right to be heard – Obligation to state reasons – Manifest error of assessment – Equal treatment – Legitimate expectations – Plea of illegality – Paragraph 1 of Annex I to Directive 2003/87)

1. Environment – Atmospheric pollution – Directive 2003/87 – Scheme for greenhouse gas emission allowance trading – Regulation 2018/2066 – Monitoring and reporting of those emissions – Rounding of data – Scope – Report of emissions of an installation using biomass – Obligation to round to zero its emissions of fossil carbon dioxide amounting to less than 0.5 tonnes – Taking into account by the Commission of rounded emissions in order to conclude that there had been an exclusive use of biomass by that installation – Whether permissible

   (Commission Regulation 2018/2066, Arts 1, 2 and Art. 72(1), first subpara.; European Parliament and Council Directive 2003/87, as amended by Directive 2009/29, Annex I, paragraph 1)

   (see paragraphs 51, 57-60)

2. Environment – Atmospheric pollution – Directive 2003/87 – Scheme for greenhouse gas emission allowance trading – Transitional regime for free allocation of allowances – List of installations eligible for allowances free of charge established by the national authorities – Supervision by the Commission – Exclusion from the list of an installation exclusively using biomass – Refusal by the Commission to take into account any new information submitted by the national authorities following its supervision – No mandatory time limit clearly given to those national authorities – Infringement of the duty of care – No effect on the lawfulness of the exclusion of the installation in question from the list

   (European Parliament and Council Directive 2003/87, as amended by Directive 2009/29, Art. 11(1), second subpara.)

   (see paragraphs 69-73, 76-81)

3. Environment – Atmospheric pollution – Directive 2003/87 – Scheme for greenhouse gas emission allowance trading – Transitional regime for the free allocation of quotas – List of installations eligible for allowances free of charge established by the national authorities – Supervision by the Commission – Exclusion from the list of an installation exclusively using biomass – No possibility for its operator to make representations before the Commission – Infringement of the right to be heard – No infringement

   (Charter of Fundamental Rights of the European Union, Art. 41(2)(a); European Parliament and Council Directive 2003/87, as amended by Regulation No 2009/29, Art. 11(3))

   (see paragraphs 87-90)

4. Environment – Atmospheric pollution – Directive 2003/87 – Scheme for greenhouse gas emission allowance trading – Transitional regime for free allocation of quotas – List of installations eligible for allowances free of charge established by the national authorities – Supervision by the Commission – Exclusion from the list of an installation exclusively using biomass – Obligation to state reasons – Scope

   (Art. 296 TFEU; European Parliament and Council Directive 2003/87, as amended by Directive 2009/29, Art. 11(3))

   (see paragraphs 94-98)

5. Environment – Atmospheric pollution – Directive 2003/87 – Scheme for greenhouse gas emission allowance trading – Transitional regime for free allocation of quotas – List of installations eligible for allowances free of charge established by the national authorities – Supervision by the Commission – Exclusion from the list of an installation exclusively using biomass – Taking into account of historical fossil carbon dioxide emissions generated by that installation – Whether permissible

   (European Parliament and Council Directive 2003/87, as amended by Directive 2009/29, Arts 2(1) and 11(1); Commission Regulation 2019/331, Art. 2, paragraph 14)

   (see paragraphs 105-110)

6. Environment – Atmospheric pollution – Directive 2003/87 – Scheme for greenhouse gas emission allowance trading – Scope – Installations exclusively using biomass – Excluded – Obligation to take into account the environmental performance of installations not covered by the trading scheme for the calculation of product benchmarks – No obligation

   (European Parliament and Council Directive 2003/87, as amended by Directive 2009/29, Art. 11 and Annex I, paragraph 1)

   (see paragraphs 117-119)

7. Environment – Atmospheric pollution – Directive 2003/87 – Scheme for greenhouse gas emission allowance trading – Transitional regime for free allocation of quotas – List of installations eligible for allowances free of charge established by the national authorities – Supervision by the Commission – Exclusion from the list of an installation exclusively using biomass – Discretion of the Commission – Judicial review – Limits – Manifest error of assessment – None

   (European Parliament and Council Directive 2003/87, as amended by Directive 2009/29, Art. 11 and Annex I, paragraph 1)

   (see paragraphs 130-135)

8. Environment – Atmospheric pollution – Directive 2003/87 – Scheme for greenhouse gas emission allowance trading – Scope – Installations exclusively using biomass – Excluded – Manifest infringement of the principles of proportionality and equal treatment – None

   (European Parliament and Council Directive 2003/87, as amended by Directive 2009/29, Annex I, paragraph 1)

   (see paragraphs 165-171)

Résumé

The applicant, Arctic Paper Grycksbo AB, is a Swedish company that operates an installation for the production of paper and has, since 2005, come under the European Union’s scheme for greenhouse gas emission allowance trading (‘the ETS’), as established by Directive 2003/87. ( 1 )

In 2019, the applicant submitted an application to the Naturvårdsverket (Environmental Protection Agency, Sweden) for the free allocation of emissions allowances for the fourth trading period (2021-2025). Since its actual fossil carbon dioxide emissions for the baseline period (2014-2018) were less than 0.5 tonnes, it rounded its reported emissions to zero, pursuant to the rounding rules applicable during emissions reporting. ( 2 )

The same year, in the context of the adoption of national implementation measures for the allocation of greenhouse gas emission allowances, the Kingdom of Sweden submitted to the European Commission ( 3 ) the list of Swedish installations to be covered by the ETS for the fourth trading period, on which the applicant’s installation appeared.

By decision of 25 February 2021 (‘the contested decision’), ( 4 ) the Commission considered that the installations using exclusively biomass ( 5 ) during the baseline period, in relation to which that operated by the applicant was treated in the same way, had to be excluded from the ETS, which had, in particular, the effect of depriving that latter installation of all free allocations of greenhouse gas allowances for the fourth trading period.

By its judgment, the Court dismisses the action brought by the applicant and rules on the lawfulness of the exclusion of the installations exclusively using biomass from the scope of application of the ETS (‘the biomass exception’).

Findings of the Court

As a preliminary point, the Court recalls that the ETS concerns installations meeting the criteria set out in Annex I to Directive 2003/87 and emitting one or more of the greenhouse gases mentioned in Annex II thereto. However, the installations exclusively using biomass are not covered by paragraph 1 of Annex I to that directive. Furthermore, the installations whose inscription on the list of national implementation measures has been refused by the Commission are not eligible for the free allocation of allowances. ( 6 )

In the first place, with regard to the regularity of the procedure for adoption of the contested decision, the Court stresses the mandatory nature of the rounding rule which applies to all emissions reports linked to the activities referred to in Annex I to the directive. This is an objective method for determining whether or not an installation exclusively using biomass comes within the scope of application of the ETS. As a result, the applicant was required to round to zero the fossil carbon dioxide emissions report in question. The applicant is not, therefore, justified in complaining that the Commission took account of the report sent to it, which indicated the absence of fossil carbon dioxide emissions and, consequently, the exclusive use of biomass.

Next, the Court draws attention to the Commission’s duty of diligence when assessing emissions reports which have been sent to it, and points out that the obligation to examine carefully and impartially all the relevant aspects of the individual case is of fundamental importance, particularly when the Commission has a power of discretion. By refusing in principle, in the present case, to take into account all new information likely to have an impact on the list of installations included in the ETS, the Commission infringed that duty. However, that infringement has no effect on the lawfulness of the exclusion of the applicant’s installation from the ETS, which results from Annex I to Directive 2003/87. ( 7 )

In the second place, so far as concerns the merits of the contested decision, the Court confirms, first of all, that the interpretation of the biomass exception upheld by the Commission is compliant with Directive 2003/87.

Accordingly, contrary to what the applicant submits, no distinction should be drawn between the baseline period, in respect of which the historical data of each installation must be taken into account in calculating the number of free allowances that may be allocated to it, and the period which must be taken into account for the application of the exclusion of installations exclusively using biomass. The allocation of allowances requires that the installations concerned be included on the list covered by the directive. That is not, however, the case for installations exclusively using biomass. It follows that taking into account an operator’s future intentions to appear on that list and benefit from the free allowances would be contrary to the directive.

Furthermore, the exclusion from the scope of application of the directive of installations exclusively using biomass is not secondary or contrary to Article 10a of that directive, since the ex ante product benchmarks which are defined therein for the calculation of the free allocation of allowances apply only to installations included in the ETS.

The Court then goes on to set out its view that the Commission did not commit a manifest error of assessment in finding that the applicant’s installation exclusively used biomass. In that regard, although judicial review is limited when the competent EU authorities proceed to assess highly complex scientific and technical facts, as in the present case, it is for the EU Courts to take into consideration all the relevant information. In the present case, even if the actual fossil carbon dioxide emissions emitted by the applicant’s installation had been communicated to the Commission in good time, their inclusion would have infringed the rounding rules which are general and mandatory in nature.

Lastly, the Court rejects the plea of illegality raised by the applicant against the exclusion from the ETS of installations exclusively using biomass, provided for in paragraph 1 of Annex I to Directive 2003/87, in so far as it infringes the principles of equal treatment and proportionality.

In an area in which the EU legislature has a broad discretion, only a manifest infringement of those principles could establish the illegality of the contested exclusion. Although it is true that the current system leads to the applicant being penalised for having reduced almost to zero its fossil carbon dioxide emissions, negative effects are inherent in any system providing for inclusion and exclusion thresholds. Therefore, the exclusion from the ETS of installations exclusively using biomass as well as the treatment of those installations in the same way as those which emit less than 0.5 tonnes of fossil carbon dioxide are not capable of showing that there has been an infringement of those principles.

( 1 ) Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC (OJ 2003 L 275, p. 32), as amended by Directive (EU) 2018/410 of the European Parliament and of the Council of 14 March 2018 amending Directive 2003/87/EC to enhance cost-effective emission reductions and low-carbon investments, and Decision (EU) 2015/1814 (OJ 2018 L 76, p. 3).

( 2 ) Article 72(1) of Commission Implementing Regulation (EU) 2018/2066 of 19 December 2018 on the monitoring and reporting of greenhouse gas emissions pursuant to Directive 2003/87/EC of the European Parliament and of the Council and amending Commission Regulation (EU) No 601/2012 (OJ 2018 L 334, p. 1).

( 3 ) In accordance with Article 11 of Directive 2003/87.

( 4 ) Commission Decision (EU) 2021/355 of 25 February 2021 concerning national implementation measures for the transitional free allocation of greenhouse gas emission allowances in accordance with Article 11(3) of Directive 2003/87/EC of the European Parliament and of the Council (OJ 2021 L 68, p. 221).

( 5 ) Directive (EU) 2018/2001 of the European Parliament and of the Council of 11 December 2018 on the promotion of the use of energy from renewable sources (OJ 2018 L 328, p. 82) includes biomass among renewable energy sources. Point 24 of the second paragraph of Article 2 of that directive defines biomass as ‘the biodegradable fraction of products, waste and residues from biological origin from agriculture, … from forestry and related industries, … as well as the biodegradable fraction of waste …’.

( 6 ) Article 11(1) of Directive 2003/87.

( 7 ) Paragraph 1 of Annex I to Directive 2003/87.