What Will Happen to Polish Renewable Energy on the Current Course?

Perhaps the best way to view the consequences of  the Polish Government and European Commission actions is to refer to the doctrine of unintended consequences. "The law of unintended consequences, often cited but rarely defined, is that actions of people—and especially of government—always have effects that are unanticipated or unintended. Economists and other social scientists have heeded its power for centuries; for just as long, politicians and popular opinion have largely ignored it." Norton, Library of Economics and Liberty. 

I believe that the Polish Government has been deeply divided on the promotion of renewable energy development. Many of the "hands on" bureaucrats have tried to find a way through the problems (including the former head of UOKiK). The Prime Minister's office took over the legislative process in the summer of 2013 as the earlier draft that was prepared to meet UOKiK and the Commission's concerns  was being finalized with correction coefficients. This draft would have ended support for old hydro and co-firing once approved by the Commission.  It also would have forced the issue in front of the Commission over the failure to notify earlier and the incompatibility of the existing aid with the guidelines and prior decisions of the Commission. Thus, the dire consequences warned of by UOKiK as early as June 2012 could have arisen before the 2015 election. This also would have tolled the statute of limitations (ending the period for which the aid would have to be recovered). [1] 

To try to avert this disaster,  the Prime Minister's office  started the process of delaying the new law and at the same time, delaying notification and the opening of Pandora's Box in Brussels.  By changing the whole approach and continuing the oversupply of certificates, opponents in the sector would be squeezed and the way laid for the huge state-owned companies to emerge after the elections in a position to dominate the new energy sector as they have the old one.

This has been a very complex and high stakes game. Superficially it has worked to delay matters and starve or deter most potential  competitors.  But here we have to look at the doctrine of unintended consequences.

The strategy used by the Polish Government does not change the law or the fundamental problems presented by unnotified, non-levelized aid. In merely pushed them forward into a time frame where all of the bills become due at once.  The plan was to make this mess occur after the elections and after the state enterprises had sucked every zloty out of the support system that they could. 

However, as we often learn, the best laid plans of mice and men are usually about equal.  Blair's Observatio. 

First, the donnybrook will not occur after the elections, but in the middle of the campaign. At some point in 2015,  the complaints before the Commission will have been pending for two years, time enough to also expect action. However, the notification sent to the Polish Government in early 2014 has been ruled by the European Court of Justice in other cases to be sufficient action to toll the limitation period. See Scott SA v. Commission, Case C-276/03 P,  October 6, 2005. See Marc Hansen, "Recent Developments in EC State Aid Law," IBC Advanced EC Competition Law, London, 29-30 April 2004.

Second, efforts to silence opposition (such as the firing of Margaret Krasnodębska-Tomkiel) and the attempt to bury the incriminating documents only have the consequence of making the Government look more guilty and only increase the credibility of the criticism.

Third, the new law that includes auctions will be drawn into the pending investigation and  be delayed long enough for the  procedures to have little relevance to the renewable energy mix on the ground in Poland in 2020. It is impossible to give the existing sources that produce over 6000 MW of renewable energy the choice of going into the auction or accepting Green Certificates for the balance of their operations without also resolving the issues on the Green Certificates. See The Consequence of Going to Auctions Without Notification. The entire mechanism for setting different reference prices by technology also raises major competition issues that cannot be resolved without Commission involvement and approval. 

Fourth, the most likely early action by the Commission will be the suspension of the incompatible aid. "It is obvious that in certain circumstances there may be a need to adopt interim protective measures when the practice of certain undertakings in competition matters has the effect of injuring the interests of some Member States, causing damage to other undertakings, or of unacceptably jeopardizing the Community’s competition policy". Article 3, Regulation 17/62 as amended. See Uria and Menendez. Given the complexity of the remedial measures that must be undertaken and  the clear violation of the competition provisions of the European Treaty, there will be a great likelihood of some early Commission action in this regard.

This fourth development will mean that the value of Green Certificates will dramatically increase as about 70% of the current supply is withdrawn from the market and the surplus being held is ruled null and void. This will occur before levelized values are agreed to and approved by Brussels.

Fifth, the law requires recovery of the aid from the recipients,[2] as noted by UOKiK in the documents. This will be a massive undertaking supervised by the Commission and will likely involve one or more major lawsuits in Poland. Note that Polish courts will have very little discretion in implementing state aid decisions and cost recovery. Any action to enforce  a ruling on the incompatibility of this aid will toll the limitation period. See above.

Sixth, injured parties have a European cause of action for damages against the Polish Government and a national cause of action against the competitors who used the aid to unfair advantage. This could be a major development, since the normal issue of proving damages is generally obviated by the simple measure of known Green Certificate values:

 It seems impossible with the Commission already on the case, the NGOs complaining, and the Government having completely alienated the RES sector, that 2015 can go by without this issue coming to a major head. Exactly when the Polish Government wanted it buried.

The unintended consequence most note-worthy to me is that the Green Certificate program will undoubtedly continue longer and stronger than the Government intended and at values much closer to or even higher than the historical values before the oversupply caused by illegal aid. 

___________________________________

[1] Article 15 of Regulation No 659/1999 provides: "1. The powers of the Commission to recover aid shall be subject to a limitation period of 10 years. 2. The limitation period shall begin on the day on which the unlawful aid is awarded to the beneficiary either as individual aid or as aid under an aid scheme. Any action taken by the Commission or by a Member State, acting at the request of the Commission, with regard to the unlawful aid shall interrupt the limitation period. Each interruption shall start time running afresh. The limitation period shall be suspended for as long as the decision of the Commission is the subject of proceedings pending before the Court of Justice of the European Communities."

[2] Notice From The Commission, Towards An Effective Implementation Of Commission Decisions Ordering Member States To Recover Unlawful And Incompatible State Aid, (2007/C 272/05).  “It is essential for the integrity of the State aid regime that these Commission decisions ordering Member States to recover unlawful State aid (hereafter ‘recovery decisions’) are enforced in an effective and immediate manner.”  Id. par. 3.  Article 14(3) of the Procedural Regulation states, that “recovery shall be effected without delay and in accordance with the procedures under the national law of the Member State concerned, provided that they allow for the immediate an effective execution of the Commission decision.” Id. par. 11, citing Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the EC Treaty (OJ L 83, 27.3.1999, p. 1).