Germany v. Nordzucker AG

Nordzucker AG (“Nordzucker”), a sugar refinery operator in Germany, produced an emissions report for 2005 pursuant to Directive 2003/87/EC, part of the European Union’s greenhouse gas emissions trading scheme. Nordzucker’s emissions report excluded emissions resulting from steam generation necessary to operate the refinery’s drying facility on the basis of a letter from a German Ministry stating that such facilities were exempted from compulsory emissions trading schemes. An expert verified the report, and Nordzucker surrendered emissions allowances equal to the emissions stated in the report. Subsequently, the German Emissions Trading Authority examined Nordzucker’s emissions report and found that it should have included emissions attributable to the refinery’s drying facility. Nordzucker revised its emissions report and surrendered additional allowances. German authorities found Nordzucker liable for failing to timely surrender emissions allowances and levied a penalty as provided in Article 16(3) of Directive 2003/87. After a series of appeals, the German Federal Administrative Court referred to the European Court of Justice the question whether excess emissions penalties apply where an operator surrenders allowances equal to emissions stated in a verified report, but where the report is later found to understate the operator’s emissions and additional allowances are surrendered. The European Court of Justice found that such penalties should not apply and that, in such cases, national authorities should establish proportionate penalties taking into account relevant factual circumstances.