decision

RWE and Uniper v. the Netherlands (Ministry of Climate and Energy) - decision

Litigation

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On November 30, 2022, the District Court of The Hague decided that energy companies RWE and Uniper could not claim financial compensation for mandatory phase-out of coal-fired electricity production. In 2019, the Dutch government had adopted the Prohibition of Coal in Electricity Production Act to help implement its obligations under international climate law. The law provides that coal-fired power stations may no longer use coal as a fuel to generate electricity in the long term (by 2030 at the latest). The law aims to reduce CO₂ emissions from power plants. 

The case was brought by German energy companies owning three major coal-fired power plants in the Netherlands, stating that the law infringes on their property rights because it was  introduced without offering a financial compensation scheme. The energy companies had filed claims of EUR 1.4 billion and EUR 1 billion respectively against the Dutch state, claiming the ban on coal-fired power generation by 2030 was a form of expropriation in violation of their right to property in Article 1 of Protocol 1 of the European Convention on Human Rights, and the right to property in Article 17 of the EU Charter of Fundamental Rights. According to European human rights law, these provisions protect the right to property of both natural and legal persons.

The District Court ruled that whilst the law indeed infringes the right to property of the energy companies, this infringement is not unlawful. In light of the established case-law of the European Court of Human Rights, the District Court determines whether the Prohibition of Coal in Electricity Act follows the criteria for a lawful interference with the right to property. These criteria include the so-called ‘fair balance’ test, encompassing consideration of the nature and scale of the interference –  including whether the measure entails a ‘de facto expropriation’ which would normally be eligible for compensation – and its proportionality, necessity. and foreseeability.  In terms of expropriation, the Court applied a strict test following from ECHR case-law and a previous Dutch Supreme Court ruling. Notably: de facto expropriation does not exist in situations where, even ‘if a measure leads to the termination of the company, the entitled party retains any economic interest or a meaningful possibility to use (assets of) the company’. The Court decided that there are evidently several financial interests in continued use of the power plants, including as they may be reconverted to using other fuels, such as biomass. The measure did not amount to expropriation, instead, it fell with the sphere of lawful regulation of companies, which does not necessitate compensation per se.

The District Court further decided that the measures taken by Dutch State to reduce CO₂ emissions are proportional and that the interests of the owners have been sufficiently taken into account when adopting the law. According to the Court, the ban on use of coal was also foreseeable for the owners, especially if GHG emissions from power stations had not been reduced very significantly before 2020, for example by switching to biomass or by capturing CO₂. Such measures were not undertaken by the companies at their MPP3 power station and the Eemshaven power station. On the other hand, the Amer power plant already runs almost entirely on biomass. The owner of the latter station could have foreseen that this power station would not be allowed to be revert back to coal once a subsidy for use of (woody) biomass terminates at the end of 2027.

The Court also attached importance to the fact that there had been significant  international and national societal debate on these issues, signaling that curbs on coal fired electricity were to be expected in the near future. Specifically, companies could not have expected new coal-fired electricity plants that were planned from 2009 onwards to operate without any limitations until 2040. In addition, the prohibition on use of coal would not take effect immediately after the entry into force of the law. Owners are given a transition period during which they can still realize revenues from coal-fired power and limit their damage. In addition, they can use this period to investigate other uses for the power plants, and invest in conversion to biomass. Overall, a ‘fair balance’ was struck between the property rights of these energy companies, as associated with their coal-fired electricity plants, and the general public interest. The Prohibition on Coal in Electricity Production Act, demanding that companies phase out coal use by 2030, does not place an ‘individual and excessive burden’ on the energy companies.