On March 10, 2016, ExxonMobil filed a challenge against Germany in the Verwaltungsgericht Berlin (Administrative Court, Berlin, Germany), concerning an application to the German Emissions Trading Authority (DEHSt) for the allocation of greenhouse gas emission allowances (“ghg allowances”) free of charge to a Exxon-owned natural gas processing installation in Germany which, among other activities, engages in sulphur recovery that by the combustion of fuels generates electricity and heat and releases carbon dioxide (CO2) into the atmosphere. The Administrative Court referred the case to the European Union’s Court of Justice for a preliminary ruling interpreting the laws which establish a greenhouse gas emission allowance trading system with the European Union to determine whether this facility was entitled to ghg allowances free of charge.

On June 20, 2019, the Court of Justice ruled that part of Exxon’s natural gas processing plant in Germany should be classified as an electricity generator. The Court of Justice interpreted Article 3(u) and Article 10a of, and Annex I to, Directive 2003/87/EC of the European Parliament and of the Council (which established a scheme for greenhouse gas emission allowance trading within the EU) and as amended by Directive 2009/29/EC (“Directive 2003/87”). It additionally interpreted Article 3(c) and (h) of Commission Decision 2011/278/EU concerning rules for the temporary free allocation of emission allowances pursuant to Article 10a of Directive 2003/87. The court concluded that Article 3(u) of Directive 2003/87/EC must be interpreted to mean that an installation, such as that at issue in the proceedings, (which produces electricity through the “combustion of fuels in installations with a total rated thermal input exceeding 20 [megawatts (MW)]”), must be understood as an ‘electricity generator’ when even a small portion of that electricity is continuously fed into the public electricity network (unless the product of the installation meets an exempted category in the annex). The installation in question could not be exempted even if its purpose was to produce electricity for the natural gas processing facility. The Court of Justice further determined that Article 3(c) of Commission Decision 2011/278/EU must be interpreted to mean that an installation such as that at issue in the main proceedings is not entitled to be allocated free emission allowances for the heat produced “where that heat is used for purposes other than the production of electricity, since such an installation does not fulfill the conditions laid down in Article 10a(4) and (8) of the directive.” The activities of natural gas desulphurisation and sulphur recovery did not meet the criteria of those articles.

An analyst reviewing the decision noted that if it is followed by EU governments, it could result in thousands of facilities no longer qualifying for free allocation of ghg emission permits and drive up the cost of carbon in the market.

ExxonMobil v. Germany

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ExxonMobil v. Germany - judgment

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An aim to achieve a quantifiable outcome within a given time-frame, set by an institution such as a national government.

Policy instruments are techniques or tools used by governing authorities to promote certain policies in order to achieve predetermined goals. Put simply, instruments are how a government tries to achieve its goals, with this taxonomy being focused on national policy instruments.

Risk is the potential for adverse consequences resulting from the dynamic interplay between (climate-related) hazards, exposure, and vulnerability of affected human or ecological systems.

Groups  of people who are adversely affected by climate change or the response to it

A set of principles, processes, and practices that build economic and political power to shift from an extractive economy to a regenerative economy.

Justice is the ethical and political framework that addresses fairness, including issues of responsibility, rights, and structural inequity.

Renewable energy means all forms of energy produced from renewable sources in a sustainable manner.

Fossil fuel is a generic term for non-renewable energy sources such as coal, fossil gas, and oil (including crude oil, and petroleum products), that can be used for electricity and heat generation. Fossil fuels are hydrocarbons formed from pressurised and heated organic material buried over millions of years.

Molecules in the atmosphere that play a key role in the greenhouse effect by trapping heat radiating from Earth’s surface.

Area of the economy in which actors engage in identical or related activities.

In human systems, the process of adjustment to actual or expected climate change and its effects, in order to moderate harm, increase resilience or exploit beneficial opportunities. In natural systems, the process of adjustment to actual climate change and its effects; human intervention may facilitate adjustment to expected climate change and its effects.

The management and allocation of funds, assets and investments to meet various objectives

Tradable permits are market-based tools that grant permission for specific activities, frequently used to regulate emissions. These permits can be issued within a trading system to manage environmental impacts.

A company that is owned wholly or partially by the state, typically operating in key sectors.

A target to reduce the prevalence of a greenhouse gas over a specific time frame

Either money or something of monetary value is transferred between two or more organisations, people or countries.

The release of heat-trapping gases, primarily from human activities such as burning fossil fuels, agriculture and industry.

A long-lived, colourless gas, chiefly emitted from fossil fuel combustion, deforestation and cement production.

A potent, short-lived greehouse gas, largely released from livestock, fossil fuel extraction and waste management.

Fossil gas, commonly known as natural gas, is a fossil fuel consisting chiefly of methane with smaller amounts of other hydrocarbons and trace gases, found in underground deposits.

Activities of industries that extract natural resources, such as mining, oil, and gas, for commercial use.

The activities of industries that transforms raw materials into finished goods through industrial processes.

The activities of industries involved in the production, distribution, and sale of energy, including electricity, gas, and renewables.

Activities that involve planning, designing and building infrastructure, residential, and commercial structures.

This sector involves the wholesale and retail selling of goods.

Climate change can have a range of impacts on technological system. Extreme weather events can cause infrastructure failures like power outages or damage to roads and bridges, as well as the impacts from waste following natural disasters. Human activities also cause technological impacts, such as the risks posed by oil spillage and leaks.

ExxonMobil v. Germany - judgment

Target

Policy instrument

Risk

Renewable energy

Fossil fuel

Greenhouse gas

Economic sector

Finance