Summary:

I.

Since 2005, greenhouse gas emission allowances can be traded in Europe, based on the Emissions Trading Directive adopted by the European Community. According to the Directive, participating states must issue emission allowances to resident companies, permitting the emission of a certain quantity of greenhouse gases. If emissions are below the thresholds in the allowances, the companies concerned may sell the [unused] allowances to other companies whose greenhouse gas emissions exceed the quota allocated to them. The purpose of the trading scheme is to bring about a reduction in greenhouse gas emissions in a cost-effective and an economically efficient way.

In order to implement Community law, the German legislature adopted, inter alia, the Allocation Act 2007 (hereinafter the “Act”), which entered into force on 31 August 2004. This Act lays down the total quantity of allowances for carbon dioxide emissions in Germany for the 2005 to 2007 allocation period as well as the rules for the allocation of emission allowances. It distinguishes between existing installations and new installations. New installations are in principle accorded preferential treatment in the allocation of allowances over existing installations on the basis of different allocation rules. Section 12 of the Act contains a special allocation rule, which provides for the recognition of early reductions in emissions. Under the section, installations whose emissions have been reduced due to modernisation measures taken between 1 January 1994 and 31 December 2002 are accorded preferential treatment in the allocation of allowances over existing installations that have not been modernised; the preferential treatment is granted for a period of twelve calendar years following the conclusion of the modernisation measures. This provision is intended to ensure that significant early action in relation to the modernisation and restructruring of industry and the energy sector, in particular in the former East German Länder (federal states), is at least partially taken into account in the allocation.

The present proceedings for judicial review concern Section 12 of the Act. The government of the Land Saxony-Anhalt is of the opinion that the section is not compatible with the principle of equality before the law since it does not sufficiently acknowledge early modernisation measures. It claims that this results in competitive disadvantages for many East German companies in particular. In its view, companies which made their contributions to the reduction of greenhouse emissions early through the adoption of modernisation measures in the 1990s are disadvantaged. The government of Saxony-Anhalt alleges that their early action was either not recognised at all (in the case of modernisation occurring up until 1994) or – in comparison with new installations – not adequately recognised (in the case of modernisation occurring up to and including 2002). It contends that in comparison with companies which had not brought about a reduction in emissions in the past, the companies which had contributed most and for the longest amount of time to a reduction in carbon dioxide emissions are seriously disadvantaged.

II. 

The application for judicial review of a statute was unsuccessful. The First Senate of the Federal Constitutional Court held that Section 12 of the Act was compatible with the Basic Law. In particular, the provision does not violate the requirement of equal treatment. Preferential treatment of new installations, or to be more precise, installations that were modernised after 2005, over installations that were modernised early, is objectively justified. The legislature may provide special investment incentives for additional new installations and future modernisations in the interests of active climate protection. This is precisely the purpose of the trade in emissions.

In essence, the decision is based on the following considerations:

The Federal Constitutional Court is entitled to undertake a complete review of Section 12 of the Act. It is true that the Federal Constitutional Court and the competent courts will not review the national implementation of European Community directives containing mandatory provisions by the standard of the fundamental rights contained in the Basic Law as long as the [case-law of the Court of Justice of the] European Communities generally ensures protection of fundamental rights as against the sovereign powers of the Communities which is to be regarded as substantially similar to the protection of fundamental rights required unconditionally by the Basic Law (“Solange II” case-law). The recognition of early reductions in emissions, as provided for in Section 12 of the Act, is, however, made expressly a matter for the discretion of the Member States and thus is not of an obligatory nature.

Section 12 of the Act does not violate the equal treatment requirement contained in Article 3.1 of the Basic Law.

There is no objectively unjustified unequal treatment of installations which underwent early emissions reductions (Section 12 of the Act) vis-à-vis installations which were replaced by new installations in 2005 or later (Section 10 of the Act). The preferential treatment of new installations in comparison with installations with early reductions in emissions in the issuance of allowances is objectively justified. Section 10 of the Act aims in particular to achieve by 2012 a 21% reduction in the level of greenhouse gas emissions compared to the emission level in 1990. The provision creates innovation incentives for new installations and thus serves to promote active climate protection. In contrast, measures that were taken prior to the emissions trading scheme entering into effect do not have any further effects on climate protection. Section 12 of the Act is concerned only with appropriate compensation for past action.

Nor is it possible to find unequal treatment not justified under constitutional law if one compares the allocation of allowances for modernisations of old installations after 1 January 2005 with the allocation of allowances for early emissions reductions pursuant to Section 12. The legislature may provide special incentives for future modernisations, particularly where the reduction in carbon dioxide is of a considerable degree. This is precisely the purpose of the trade in emissions.

Similarly, there is no constitutionally unjustified unequal treatment of the installations falling within the scope of Section 12 of the Act in comparison with the installations which were modernised before 1994. It is true that an operator who modernised its installation by the end of 1993, and thus contributed to the reduction in greenhouse gases, will not receive any preferential treatment. Such operators will be treated in the same way as operators of installations that have not been modernised. This unequal treatment is, however, justified. The Federal Government’s choice of 31 December 1993 as the cut-off date was objectively justified by the fact that reliable data required for ascertaining any relevant early reduction in emissions would not otherwise have been available. Furthermore, the legislature’s consideration that, based on current technical knowledge, it no longer considers measures undertaken at least eleven years before the time the emissions trading scheme took effect and which today no longer serve to further reduce greenhouse gas emissions to be particularly worth rewarding from a climate change perspective is not constitutionally objectionable.