EU New Green Resources

Quo vadis, EU (Law)? 3rd edition: The Green Transition 4/4

The last panel was chaired by Rosalba Famà (Bocconi University), with the participation of Christian Neumeier (Humboldt University of Berlin), Alessandro Monti (University of Copenaghen) and Caterina Holze (University of Eastern Finland).  

Political Own Resources and the Green Transition  

The first speech was entrusted to Christian Neumeier and delved into the link between financial incentives and the Green Transition, especially focusing on one of the components of the EU’s funding: the Political Own Resources. In particular, the presentation focused on the system as a whole, the problems that could possibly arise, the current legal framework, and ended up with some final assessments. 

This source of financing can be considered the most controversial and led the EU to adopt some incentive mechanisms. Basically, if member states advance a policy, they can pay less to the budget. For instance, to increase plastic recycling, it has been set that the contribution to the budget will be directly proportional to the amount of unrecycled plastic produced. A clarification is also mandatory: The adjective "political" refers to the policy aspect (not politics), so it’s policy-based and concerns the revenue side of the budget (not the expenditure one). 

Moving on to the system, the first relevant aspect is that it’s not financed by recourse to taxation but instead by member states’ contributions. The reason behind this is ensuring the latter’s political control over the actions of the Union, avoiding the free availability of money. According to the treaties, this control of member states was supposed to end, leaving space for EU discretion, but this plan has never become a reality. The legal basis can be traced in Article 311 TFEU. This decision was a peculiar legal act requiring adoption in the Council, unanimity, and ratification by member state parliaments. 

Going on with the potential problems of this procedure, firstly, the irrelevant role of the European Parliament should be noted. Moreover, there could be the risk of normative frictions with existing EU law in case of contradictions or modifications and, lastly, the least relevant one is attributable to the long timeframe (usually 7 years). 

The speaker then retraced the components of the legal framework, above all decreeing the policy element as the legal basis and then moving on to the principle of institutional balance that delivers the binding effect of existing secondary law. Finally, it’s important to take into account the role of subsidiarity and proportionality. 

 At this point, there seems to be a paradox: the more member states adopt policies, the less they contribute to the EU budget. To conclude, this instrument appears to fit into a broader brench of EU law in force in the last 10/20 years: using financial incentives to achieve policy goals (connecting the functioning rule of law to funding). In some way, it’s reversing this previous mechanism of conditionality, establishing that the failure to comply with these policies will lead to a higher contribution to the EU budget. In other words, financial incentives are linked to some policy objectives. 

EU CBAM as an EU Budget Own Resource: Implications under trade and climate law 

The second conference was presented by Kateryna Holzer, a senior researcher in the field of climate change, energy, and environmental law, leading a project on Regulatory Cooperation. The topic of this speech was climate change in the context of the EU budget, with a focus on the implications of revenue use and the role of CBAM in fiscal strategies.  

The discussion began with an evaluation of the various components of the current EU budget: NextGenerationEU, the Recovery and Resilience Facility, NextGenerationEU contributions to other programs, and, for the larger part, the Multiannual Financial Framework. 

A necessary premise is that the EU needed to repay the funds from the Covid-19 recovery instrument. Since its traditional resources (mainly Member States' direct contributions, customs duties, value-added taxes, and others) were insufficient, the EU created its own resources. In this category, revenues from ETS, revenues from CBAM, and revenues from corporate taxes can be included. 

The CBAM, acronym for Carbon Border Adjustment Mechanism, is a tool to put a fair price on the carbon emitted during the production of carbon intensive goods that are entering the EU, and to encourage cleaner industrial production in non-EU countries. So the aim is to ensure the carbon price of imports is equivalent to the carbon price of domestic production, and that the EU's climate objectives are not undermined. 

Professor Holzer started analyzing the possible uses of Eu revenues from the Eu CBAM: the period going from 2023 to 2025 will be a transitional period, with no payments foreseen. 2026 will be the first year in which CBAM payments are due, while the following year, 2027, the CBAM payments will go to the EU Member States. Finally, in 2028, part of the CBAM revenues (the equivalent of 75%) will go to the Eu budget.  These measures however raise issues both on climate law and trade law.Specifically, with reference to the former, there are claims of protectionism and discrimination and tensions with the general exceptions clause, warranted by article XX of the GATT. With respect to climate law, the use of CBAM revenues  may be conceived as a coercive unilateral measure contradicting the Paris Agreement bottom-up approach and CBDR-RC principle.

The guest subsequently analyzed the possible options for the use of CBAM revenues. The firstpossible scenario considered is the employment of the revenues in a tax reform, aimed at decreasing other taxes. In this way, there would be taxes on so called ‘environmental bads’ instead of taxes on environmental goods. In this sense, the WTO would be neutral.

A second option explored would be using the revenues for compensation purposes, therefore redistributing them to vulnerable Eu household  and firms or foreign producers. This however, is considered a difficult option as it raises issues on the possible WTO compliance: in fact, if the revenues are redistributed to EU firms or households, they would be compliant but ineffective; on the other hand, the redistribution to foreign firms would result in compliance but infectivity as foreign producers would not be stimulated in using greener technologies. The last option is using the revenues for earmarking, financing arious climate change mitigations and adaptation programs in the EU or developing countries, through payments in private funds. This way, the WTO would be compliant, and it would help justify the CBAM as an environmental principle under article XX of the GATT.

The implementation of the Carbon Border Adjustment Mechanism (CBAM) poses a challenge within the framework of climate law, as it appears to diverge from the bottom-up approach advocated by the Paris Agreement (PA). Not explicitly authorized by climate agreements and potentially conflicting with the Common But Differentiated Responsibility (CBDR) principle, CBAM demands a careful examination of its compatibility with the PA. Despite recognizing climate change as a shared concern of humanity, the PA preamble underscores the importance of respecting the right to development in the pursuit of climate action. In order to align with the Paris Agreement, it is imperative for the European Union's CBAM to effectively address the potential adverse impacts on developing countries. This necessitates the provision of financial support to mitigate risks and uphold the principles of fairness and equity in the global effort to combat climate change. Providing financial assistance within the framework of World Trade Organization (WTO) law is not only consistent with the special and differential treatment provisions outlined in GATT part IV but also aligns with the overarching objectives articulated in the Preamble to the WTO Agreement. The commitment to both protect and preserve the environment while accommodating diverse economic development levels reflects a cooperative approach to addressing global challenges. 

In the context of the European Union's CBAM, such financial support serves a dual purpose: it enhances the justification of CBAM as a legitimate environmental measure under GATT Article XX, reducing the likelihood of trade disputes and retaliations. 

So far however the Eu has not taken commitment with the CBAM of developed countries, although it has stated its intention in doing so in paragraph 74 of the EU CBAM Regulation. 

In conclusion, the anticipated use of CBAM revenues raises significant legal implications, including tensions with both World Trade Organization (WTO) law and climate law principles. The potential hindrance in justifying CBAM as an environmental measure under GATT Article XX, the conflicts with the bottom-up approach of NDCs and the CBDR-RC principle, calls for strategic recommendations. To address these challenges, according to Professor Holzier, it is advisable for the European Union to allocate CBAM revenues to international climate funds. By incorporating them into financial assistance for less developed countries, particularly to aid in their compliance with CBAM, the EU can mitigate the risks of trade disputes and retaliations while concurrently advancing climate diplomacy objectives. This approach aligns economic incentives with environmental goals and fosters a cooperative, globally inclusive approach to tackling the challenges of climate change.

Offshore Wind in the EU Legal Framework: Key Challenges and New Developments

The last last speech was held by Alessandro Monti, assistant professor of climate law at the Faculty of Law of the University of Copenhagen. His speech focused on the use of offshore wind in the Eu legal framework.

Professor Monti started by analyzing the strategic role of offshore wind and its potential for the green transition.  In 2022, the global landscape of offshore wind installations witnessed a substantial shift, with China leading the charge at 48.9%, followed by the United Kingdom at 21.6% and Germany at 12.5%. Noteworthy contributions also came from the Netherlands at 4.4% and Denmark at 3.6%. According to WindEurope, Europe saw the emergence of new offshore wind farms in key countries. Notably, within Europe, Denmark, the Netherlands, and Germany stand out as the largest producers, underscoring their crucial role in driving the expansion of offshore wind energy on a global scale. This diversification and growth in offshore wind installations signify a collective effort to advance sustainable energy solutions and reduce reliance on conventional sources.

Offshore wind power’s strategic role emerges  in respect to energy security, the REPower EU initiative underscores offshore wind as a key driver for achieving energy independence within the region. Simultaneously, in the pursuit of combating climate change, the EU's Climate Law outlines a commitment to achieving climate neutrality by 2050. Moreover, the European Wind Power Action Plan not only aligns with climate goals but also envisions substantial economic benefits, with the potential creation of 100,000 additional jobs in the wind sector by 2030. 

The challenges facing the implementation of EU offshore wind policies, as outlined in the EU Offshore Renewable Energy Strategy (2020) and the European Wind Power Action Plan (2023), are multifaceted. They include  maritime spatial planning, Grid infrastructure, and Concerns related to offshore bidding zones and State aid demand careful consideration to maintain fair competition. The European Wind Power Action Plan proposes solutions, emphasizing the acceleration of permitting processes, improved auction design, enhanced access to finance, and the establishment of the EU wind charter to foster collaboration among stakeholders, aiming to overcome these challenges and expedite the growth of offshore wind in the EU.

The European Union is ambitiously pursuing its offshore wind targets through key legislative frameworks. The Renewable Energy Directive (RED III), the EU Offshore Renewable Energy Strategy and the TEN-E Regulation. Together, these directives signify the EU's strategic approach to advancing offshore wind energy as a cornerstone in its energy future.

The Renewable Energy Directive (RED III) introduces measures aimed at simplifying permitting procedures for renewable energy (RE) projects. The concept of "Go-to areas" involves the ex ante identification of suitable land and sea locations for RE projects, accompanied by a presumption of no significant environmental impact, exempting them from project-specific environmental impact assessments. Member States are tasked with strategic planning within a two-year deadline to pinpoint these go-to areas. The directive also emphasizes the overriding public interest in constructing renewable energy plants and grid connections, with a presumption that such projects serve public health and safety. These measures collectively aim to facilitate the efficient development of renewable energy projects within the EU.

Professor Monti then analyzed the system of auction design. It aims to enhance the effectiveness of renewable energy auctions by improving simplicity and consistency. It focuses on clarifying non-price award criteria related to sustainability, innovation, energy system integration, product quality, and supply chain resilience. The design also introduces incentives such as penalty clauses for non-execution and price indexation to inflation to ensure the complete and timely execution of projects. To institutionalize these improvements, specific provisions are proposed to be included in the Net-Zero Industry Act by March 2024.

In conclusion, the guest outlined the intitiatives for access to finance and internal market production, which underscore a concerted effort to propel clean technology manufacturing projects forward. The Innovation Fund's doubled budget of EUR 1.4 billion demonstrates a commitment to financing these projects, while the European Investment Bank's instruments aim to counter guarantee credit exposure for crucial wind industry suppliers. Together, these measures position the EU to navigate the evolving landscape of clean technology manufacturing with financial resilience and a commitment to sustainability.