In Defense of the Unlawful State Aid: Superficial Gibberish

The law firm of K & L Gates recently published an analysis attempting to defend why the Polish Green Certificates were not state aid. Although both the learned former head of UOKiK and the European Commission DG Competition have signaled that they are state aid, and every single certificate program[1] to promote renewable energy has been found by the Commission to constitute state aid, this law firm provides not even a fig leaf of law to support the opposite conclusion.

Their memorandum neglects to mention the very important Dutch NOx decision by the European Court of Justice as well as numerous Commission decisions that undermine their premise (that only systems that guaranteed the certificate value with state money are state aid - a fanciful notion that is completely at odds with the case law).[2]

 This legal pandering is worst than useless because it encourages the Polish Government to run the gantlet on this issue.[3] The inevitable result of such a gamble will be a total disaster for the energy sector in Poland, particularly the companies most dependent upon Green Certificates being lawful, i.e. the state-owned electric utilities. The sooner we confront the beast, the sooner it can be slain. We need a levelized Green Certificate law retroactively effective to 2005 immediately to avoid dire consequences. Any qualified lawyer can read what I have written here, on the blog and the references and read the K&L Gates memo and draw their                                                                                  conclusions about the law.

I will simply close with the conclusions of  Margaret Anna KrasnodÄ™bska-Tomkiel, the former head of the Office of Competition and Consumer Protection (UOKiK in Polish)  on June 5, 2012:

"... the Commission clearly shows that countries using in combined heat and RES support instruments constituted state aid, despite the fact that their implementation was required by the RES Directive. 

"...  the Commission emphasized that the certificate system offers free to certain entities intangible assets having a market value. Certificates not only provide evidence produce a given quantity of energy in the RES or CHP, but also allowing the marketing certificates and setting up of such a trading market (forming on them demand) - the state gives them a specific financial value. In addition, according to the Commission, assets in the form of certificates come from the state where it may sell them, thus obtaining a certain income." 

"[With certificates], the state grants for certain entities with the opportunity to acquire certificates in order to avoid payment of fees and penalties. In addition, the consequence of the introduction of the system was to create a certificate - without any consideration to the state - which, because of its negotiable character has an economic value. [The State] could sell these certificates, if system gave a different structure. Meanwhile, the state, giving character certificates transferable non-property assets and distributing them free of charge at the disposal of beneficiaries, rather than to sell them, waives, in fact, public resources." [citing several Commission decisions].(emphasis added).

On November 28, 2013, Ms. Tomkiel wrote an even more revealing statement ignored by both the Polish Government and this law firm:

           "According to the OCCP, the certificate system constitutes state aid. Detailed clarification in this regard has been presented in previous correspondence [citing June 5, 2012 and August 10, 2012 correspondence from UKOK to MG]'. Moreover, similar conclusions have been  expressed by the European Commission ...."

[1] In earlier years, the Commission relied upon the distribution of substitution fees and penalties by the state for failure to have the requisite number of certificates to be selective state aid (whether they were used to guaranteed certificate prices - as in Sweden- or for aid to the industry as in the UK). See references in Note 2.   This caused them to consider the entire scheme as state aid to be analyzed for compatibility with the competition rules. Later, after the Dutch NOx case, the Commission stepped upon the analysis to face the very real value of the certificates as a way to defer penalties and fines and to directly provide deferred state revenue to selective businesses. European Commission v Kingdom of the Netherlands (C-279/08 P) September 8, 2011 (NOx). The tradability of nitrogen oxides emission allowances constitutes an advantage granted by the national legislature to certain undertakings which could entail an additional burden for the public authorities in the form of an exemption from the obligation to pay fines or other pecuniary penalties.” Supra, par. 5. The Commission's decision in State aid SA. 33134 2011/N – Romanian Green Certificates, C (2011) 4938, July 13, 2011,  did not hinge on the use of the fees to guarantee the certificate price (as alleged by K&L Gates). “[T]he Commission also observes that by giving green certificates for free to producers of electricity from renewable sources, the State is actually providing them, for free, intangible assets. In fact, the green certificates can be traded on a specific market and by selling them the producers of electricity from renewable resources obtain revenues. The Commission has already found this to constitute aid in the case of emission permits.”  Id.  p. 13, para. 53 (emphasis added). “Finally, the Commission notes in this context that if the obligated parties do not demonstrate that they have acquired the required number of green certificates, they must pay a penalty.”  Id.  p. 13, para. 52.      Thus, the Commission concluded that “the State provides certain undertakings with an asset, which has a monetary value, and that asset originates with the State which has created it.” Id. p. 13, para. 53 

[2] The UK certificates did not have a guaranteed value and the substitution fees and penalties were used to help other renewable energy private projects. The Commission ruled: “The Commission considers that State resources are involved and also all other criteria of State aid in the meaning of Article 87(1) are fulfilled. The measure would insofar constitute State aid within the meaning of Article 87(1) of the EC Treaty.” Case N 504/2000 — United Kingdom — Renewables Obligation and Capital Grants for Renewable Technologies, p. 13. In the Belgian certificates case, the Commission has considered the fines and substitution fees to be subsequently implemented in Belgium to be state aid. See Hancher, EU STATE AIDS (4th ed.) 2012, p. 860. Nothing is surprising about the Commission's reasoning here. “The constant practice of the Commission is to consider that the proceeds of such levies are state resources .... This practice is line with the Court’s case law, according to which the proceeds of levies imposed by the State, transferred to funds designated by the State and used for the purpose of advantaging certain companies, are deemed to be state resources. Commission Decision, of 24 April 2007, on the State aid scheme implemented by Slovenia in the framework of its legislation on qualified energy producers Case No C 7/2005, par 69, (emphasis added) citing Case N 161/04 — Portugal (OJ C 250, 8.10.2005,p. 9);  Judgment of July 2,1974 in case C 173/73, Italy v Commission;  Judgment of March 22,1997 in case C-78/79, Steinike v Federal Republic of Germany. After the Dutch NOx case, additional factors have been considered to support the Commission's position that certificates are state aid.

[3[ Many of us want investors to come to Poland to put their money into renewable energy. The sooner the Government faces this problem and fixes it - as was done in France earlier this year - the better off investors will be. Leaving the system hanging out there as unlawful aid with a pending Commission enforcement action that has no doubt as to its outcome is not helping clients.


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