Cost Benefit Analysis obligations for Ireland's Renewable Action Plan - Part Four

Abuse of your right to a ‘highly competitive social market economy’

By Pat Swords BE CEng FIChemE CEnv MIEMA

Article 3(3) of the Lisbon Treaty (TEU) made it very clear what the objectives of the European Union were:

• The Union shall establish an internal market. It shall work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment. It shall promote scientific and technological advance.

This direct reference to a ‘social market economy’ is absolutely fundamental. While there is no strict definition of this term, it essentially evolved in post-war Western Germany and is generally defined as:

• An economic system based on a free market operated in conjunction with state provision for those unable to work, such as elderly or unemployed people.

Principally one can see it, as what differentiated the highly successful Western Germany from the State planned economies on the other side of the Iron Curtain. At its core is your freedom of choice as a consumer, to purchase your products and services where you see fit and achieve the value and quality you desire. Distorting the ‘social market economy’, such as by the provision of State Aid is a serious issue, as there is no longer a level playing field and the rights of the consumer are being infringed. As such then Article 107 of the Lisbon Treaty (TFEU) applies:

1. Save as otherwise provided in the Treaties, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.

2. The following shall be compatible with the internal market:

(a) aid having a social character, granted to individual consumers, provided that such aid is granted without discrimination related to the origin of the products concerned;

(b) aid to make good the damage caused by natural disasters or exceptional occurrences;

(c) aid granted to the economy of certain areas of the Federal Republic of Germany affected by the division of Germany, in so far as such aid is required in order to compensate for the economic disadvantages caused by that division. Five years after the entry into force of the Treaty of Lisbon, the Council, acting on a proposal from the Commission, may adopt a decision repealing this point.

3. The following may be considered to be compatible with the internal market:

(a) aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment, and of the regions referred to in Article 349, in view of their structural, economic and social situation;

(b) aid to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State;

(c) aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest;

(d) aid to promote culture and heritage conservation where such aid does not affect trading conditions and competition in the Union to an extent that is contrary to the common interest;

(e) such other categories of aid as may be specified by decision of the Council on a proposal from the Commission.

As has been documented previously, nobody knows what the renewable programme is actually to deliver in terms of quantified carbon savings, while there is a complete lack of knowledge, as to what the environmental damage cost of carbon actually is. So instead everything is based on ‘spin’, such as highlighted previously the wildly inaccurate claims of carbon dioxide savings made in the REFIT I application for State Aid for Environmental Protection.

Even worse in February 2012, when the EU approved under REFIT II, a further 4,000 MW of wind energy representing a capital investment of some €8 billion, they did so on the back of a ‘one pager’ from the Irish authorities. This simply stated that by 2009 14.4% of Ireland’s electricity was from renewable sources and this new State Aid would contribute to achieving the target of 40% of electricity from renewable sources. So nobody has a ‘barney’ as to what the alleged positive environmental protection actually is.

Of course if proper due process was followed, the reality would expose the adverse impacts, both environmental and financial, to completely outweigh any claimed for environmental benefits. Indeed, the Principle of Proportionality, a key aspect in the case law of the European Court of Justice, requires each decision and measure to be based on a fair assessment and balancing of interests, as well as on a reasonable choice of means. Simply put, the extent of the action must be in keeping with the aim pursued.

As a result, State Aid for Environmental Protection, such as priority access to the grid and preferential tariff arrangements, has to be based on proportionality. As the 20% renewable energy Directive 2009/28/EC further clarifies:

• Rules governing authorisation, certification and licensing are objective, transparent, proportionate, do not discriminate between applicants and take fully into account the particularities of individual renewable energy technologies.

Furthermore, the 2008 EU Commission’s guidelines on State Aid for Environmental Protection are clear in that:

• Aid is considered to be proportional only if the same result could not be achieved with less aid.

• In particular, the aid amount must be limited to the minimum needed to achieve the environmental protection sought.

These State Aid rules are specific, there has to be a balancing test completed between positive impacts of the aid and its potentially negative side effects. So how could these procedures have been followed and legal compliance ensured, when we have no data on this alleged environmental protection or ‘comparative costs’ to achieve it? Indeed, as the EU could only write to UNECE during the investigation by the Compliance Committee on Communication ACCC/C/2010/54; “it is generally recognised that renewable energy, and wind energy in particular, is preferable from the environmental point of view to non-renewable energy”. No actual quantified information ever existed, which could be referred to.

However, it is after all only common sense to question the sense of pouring billions into wind generation, which at best results in a cost of about €160 per tonne of carbon emissions savings achieved, when even within the eleven different sources of renewables defined in the 20% renewable energy Directive, there were a multitude of others which could have been used to achieve the same savings at a fraction of the cost and environmental impact. Indeed, the current carbon trading price of less than €5 per tonne clearly demonstrates that there is a huge range of viable carbon reduction projects available, such as in energy efficiency, at a fraction of the cost of wind energy.

However, it is not as if this wasn’t known in advance. In 2004, the engineering report published by Eirgrid, on the impact of wind energy and its intermittency on the economics of operation of conventional plant, highlighted not only the practical limitations, but also the very high cost associated with wind energy, given other far more cost effective alternatives available for carbon abatement. It was completely ignored.

So in conclusion, the fact that the consumer no longer has free choice with regards to the selection of the most cost effective electricity generation available, and instead  has to fund ever more expensive renewables, is solely because a complete abuse of the State Aid procedures for Environmental Protection occurred.