Environmental Law Service

Climate Law Database

ETS Directive

It may be concluded that the existence of the ETS Directive does not, in general, prevent Member States to adopt their own, stricter, legal regulation in the form of Climate Change Act which may include also emission sources falling within the ETS. This conclusion can be supported by the following arguments: (i) Regulation of environmental protection on the EU level falls within the area of shared competence of the EU and Member States, therefore Member States may adopt their own environmental legislation in a scope exceeding the existing EU legislation in the field; (ii) In relation to that, the ETS Directive does not use as a method “total harmonization” of Member States’ law in the area of GHG emission reduction and thus Member States have relatively extensive options for their own legal regulations; (iii) Finally, the ETS Directive is legally based on Article 192 of the Treaty on the Functioning of the European Union (TFEU) explicitly allowing Member States to adopt stricter measures as well as even to diverge from a very provision stipulated in the ETS Directive towards its stricter implementation.

Legal basis of the ETS Directive

The legal basis of the ETS Directive, as stipulated in its Preamble, is Article 192 TFEU. Article 192 TFEU establishes the EU’s competence in environmental policy matters. The reference to Article 192 TFEU is of crucial significance. Under conditions stipulated therein (and in particular in the following Article 193 TFEU) Member States may diverge when transposing the ETS Directive from a provision stipulated therein, regardless of whether the ETS Directive itself states such an option or not. In particular, Article 193 TFEU enables Member States to introduce stricter protection measures than those adopted on the EU level. The wording of Article 193 TFEU implies that a Member State may not divert from a directive in an opposing direction; to establish a less strict legal regulation than required by a directive. The notification to the Commission is required concerning stricter legal regulation adopted by Member States on the basis of Article 193 TFEU. However, a failure to notify the Commission does not result in disallowing the application of such regulation. Naturally, the choice of legal basis is not random or arbitrary. It must be based on the purpose and contents of a directive. Should the directive cover multiple purposes, its primary purpose is the indicative one, not the secondary. The primary purpose of the ETS Directive is environmental protection, not economic policy. Therefore, Member States are not prevented from issuing internal state legal regulations (such as national Climate Change Acts) that would include greenhouse gas emissions sources falling within the scope of ETS and they may even divert from certain provisions of ETS Directive when implementing it (under the notification duty to the Commission).

Method of harmonization in relation to CCA and ETS Directive

If a directive regulates the subject of the legal regulation completely, it does not leave space for a different legal regulation at the level of the Member State. The Member State must then simply amend the subject of the legal regulation as stipulated by the directive.
Nevertheless, the ETS Directive does not fall into this category. On one hand the ETS Directive in a number of provisions discusses the need for harmonization, the necessity to unify the legal regulations within the entire EU and does not give Member States much space for their own solutions (for example in case of the limits for utilization of ERU and CER credits by the ETS participants – see hereafter).
On the other hand it is obvious that the ETS Directive does not treat the subject (which in brief is the regulation of GHG emission from sources across the EU) completely, and rather purposefully provides space for possible additional regulations at the level of Member States, giving them options to do so their own way.
According to the Preamble of the ETS Directive the EU strategy for climate change mitigation should be built on a “… balance between the Community scheme and other types of Community, domestic and international action” (paragraph 26). It is further stated that: “Emission allowance trading should form part of a comprehensive and coherent package of policies and measures implemented at Member State and Community levels … [and] Member States may consider the implications of regulatory, fiscal or other policies that pursue the same objectives.” (paragraph 23) The ETS Directive explicitly encourages the Member States to introduce a stricter regime, in particular the option to regulate greenhouse gas emissions also from sources not obligatory included, stating that: “Policies and measures should be implemented at Member State and Community level across all sectors of the European Union economy, and not only within the industry and energy sectors, in order to generate substantial emission reductions.” (paragraph 25) etc.
Therefore it can be concluded that the ETS Directive is not based on a method of „total harmonization” of Member States’ climate policies (according to which the Member State completely loses its autonomous legislative authority for the regulated area), but rather leaves to the Member States relatively extensive options for their own legal regulations.
This conclusion is supported by another fact. The ETS Directive itself contains derogatory clauses, according to which Member States may diverge from its provisions. This would be for example the case of the option for unilateral inclusion of aviation (Article 24 of the ETS Directive) or the option of differing legal regulation for small emission sources up to 25,000 tons annually (Article 27 of the ETS Directive). These derogatory clauses are used when the method of minimal harmonization is applied; that is, where Member States may accept more rigorous legal regulations, as in its many provisions the ETS Directive’s text simply represents the “minimal shared base”, the result of multifaceted compromises, achieved on the level of the Community as a whole.
And finally, the restrictive interpretation of the Community authority in favor of Member States in the case of a minimal harmonization method is also confirmed by Protocol No. 25, annexed to the Treaty of Lisbon.