State Aid and Selectivity in the Context of Emissions Trading: An Examination of the ECJ’S 2011 NOx Case (C-279/08)

Abstract

In this recent case the highest EU Court examines the dynamic cap (or PSR) system for NOx emissions trading introduced by the Netherlands from a state aid perspective and notably the selectivity criterion. In this appeal from a judgment by the General Court, the ECJ finds for the Commission on the ground that the measure was selective because only the largest polluters had been granted (tradable, and hence valuable) emission rights free of charge. However the largest polluters were also the only ones caught by the scheme and it would have been impossible to determine the value of the rights up-front in a dynamic cap scheme because it is based on a maximum emission per output (which may tighten over time) but does not constrain the increase in outputs as such. The approach chosen by the Court casts doubt on the ability of Member States to design national schemes that avoid the state aid rules even if they are in line with EU environmental policy. The comments also concern the wider implications of this interpretation of selectivity in the light of recent case law (British Aggregates Association, Gibraltar Tax Reform).

Keywords: state aid, emissions trading, emission rights, dynamic cap, cap-and-trade

JEL Classification: H23, K21, K32, Q53