Weekend Edition Nº73 by eulawlive

Nº73

OCTOBER 2

2021

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MARIJN VAN DER SLUIS

THE ECB SHOULD COMBAT CLIMATE CHANGE, BECAUSE IT CAN

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The ECB should combat climate change, because it can Marijn van der Sluis

ge threatens price stability, or at least the ability of the ECB to maintain price stability. is is outlined in speeches and blogs amongst others by the recently appointed ECB Executive Board Members Isabel Schnabel (6) and Frank Elderson (7). When we look at the scale of the possible impacts of climate change and at the measures to mitigate climate change it is indeed clear that price stability and monetary policy may be affected. e Intergovernmental Panel on Climate Change (IPCC) released another report last month that sets out different scenarios of climate change (8). In extreme (and hopefully unlikely) scenarios of climate change, parts of the globe that are currently inhabited may become uninhabitable. Maintaining stable prices will indeed be challenging under several of these scenarios. At the same time, a successful transition to a sustainable economy will reduce our reliance on carbonbased energy-production and require a circular economy. is implies changes to business- and nancial-models and perhaps also to how governments intervene in or shape markets. Our consumption, and therefore our exposure to different sets of pri-

A few weeks ago, the European Central Bank (ECB) published the results of its (largely underwhelming) (2) strategic review. One aspect of the review that was eagerly awaited was a possible climate policy of the ECB. e ECB delivered a roadmap on how it would proceed, (3) as explained by Chiara Zilioli in a previous Issue of this Weekend Edition (4). Whilst the change is slow compared to other central banks, such as the Bank of England (5), its scope is quite broad. It takes on several diﬀerent aspects of the ECB’s policies. I welcome the green turn, but argue that climate change mitigation is not part of the monetary policy mandate of the ECB. As part of the EU, which is commi ed to constitutionalism, the ECB should do it anyway. is requires that we include sustainability as a core pillar of constitutionalism.

Price stability in a changing climate e main legal argument employed to show that the ECB should incorporate considerations on climate change in its monetary policies is that climate chan-

1. Assistant Professor of Constitutional Law at Maastricht University. 2. Adam Tooze, ‘Climate crisis oﬀers way out of monetary orthodoxy’, Socialeurope.eu, 12 July 2021. 3. ECB, ‘ECB presents action plan to include climate change considerations in its monetary policy strategy’, press release of 8 July 2021. 4. Chiara Zilioli, ‘ e new ECB monetary policy strategy and the ECB’s roadmap of climate change-related actions – some legal considerations’, EU Law Live Weekend Edition, no. 67, 17 July 2021, pp. 2-6. 5. Reuters, ‘Capital Calls: Bank of England goes green’, 3 March 2021. 6. Isabel Schnabel, ‘From green neglect to green dominance?’, speech delivered at the ‘Greening Monetary Policy – Central Banking and Climate Change’ online seminar, organised as part of the ‘Cleveland Fed Conversations on Central Banking’, 3 March 2021. 7. Frank Elderson, ‘Greening monetary policy’, ECB Blog, 13 February 2021. 8. IPCC, Sixth Assessment Report ‘AR6 Climate Change 2021: e Physical Science Basis’, 7 August 2021.

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In central banking circles, the distinction between adaptation and mitigation is not a key point of the analysis. In general, the debate is presented as to whether monetary policy makers should ‘take climate change into account’, without specifying what strategy that entails, or switching between them. A recent report by the Network for Greening the Financial System (NGFS), for example, is titled ‘Adapting central bank operations to a ho er world ’(9), but a crucial metric in assessing measures is whether they help in mitigating climate change. Also René Smits recently discussed the possibilities of climate-change friendly monetary policies under the mandate of the ECB without distinguishing between mitigation and adaptation (10). It then remains unclear why exactly the ECB should act; what the goal of its green actions should be: to adapt or to mitigate.

ces, will also change. Hence, monetary policy will be aﬀected by climate change itself and/or by the societal changes necessary to mitigate climate change.

Adaptation over mitigation e fact that monetary policy will be aﬀected does however not automatically mean that climate change mitigation is the appropriate response from a monetary policy perspective. Monetary policy in the eurozone has the primary objective of maintaining price stability, and adaptation by central banks might be more suitable to reach that objective. e distinction between mitigation and adaptation is central to many discussions about climate change. Where mitigation aims at reducing CO2 and other greenhouse gasses, adaptation seeks to prepare society to a changing climate. ey represent two strategies to manage climate change that can be adopted at diﬀerent levels of government. We want government action to reduce CO2 emissions and to reduce the risk of ooding.

In part, this lack of clarity can be explained by the fact that some monetary policies aimed at adaptation may also be expected to help in mitigation. is

9. NGFS, Adapting central bank operations to a ho er world: Reviewing some options, 24 March 2021. 10. René Smits, Elaborating a climate change- iendly legal perspective for the ECB, 29 August 2021.

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ready has on its balance sheet. Reducing the ECB’s exposure to these risks would also reduce the favorable nancing conditions for those oil companies. Currently, the Belgian Central Bank is being sued before a national court, with the hope of a preliminary reference to the Court of Justice, on the point of greening the CSPP (12).

e focus in central banking seems to be on the low hanging fruit where adaptation goes hand in hand with mitigation is especially the case for integrating climate- and transition risks in the risk-assessments that are central to various monetary policies. Properly accounting for risks is important to protect the ECB against large losses and currently the risks emanating from climate change and the economic transitions are not fully considered. Insofar the ECB merely aims to have the risks of climate change properly integrated into its policies, this is a case of adaptation. Integrating climate and transition risks in the monetary policies of the ECB however also leads to higher nancing costs for companies with high CO2emissions. It would then become more pro table to invest in other (greener) companies, thereby also boosting mitigation. e focus in central banking seems to be on the low hanging fruit where adaptation goes hand in hand with mitigation, and the distinction between the two therefore does not immediately appear relevant.

Adaptation might undermine mitigation e issue that remains underexplored is what the ECB should do when the goals of mitigation and adaptation begin to con ict. What might be best for monetary policy, for maintaining price stability, might not always be best for the climate. For example, adaptation might harm mitigation when it comes to the purchasing of sovereign bonds, through programs like the Public Sector Purchase Programme (PSPP) and the Pandemic Emergency Purchase Programme (PEPP). e majority of the climaterelated risks on the balance sheets of the ECB and the national central banks are likely not the corporate bonds, but the sovereign bonds. Some Member States of the EU will be hit harder than others by climate change. Some Member States are be er positioned to make use of the opportunities of the eco-

An example where adaptation and mitigation could go hand in hand is the Corporate Sector Purchases Programme (CSPP). Currently the ECB has a signicant amount of bonds of oil companies on its balance sheet as a result of CSPP (11). e ECB can reduce its exposure to climate or transition risks by reducing its purchases of corporate bonds of oil companies under CSPP, or by selling the bonds it al-

What should the ECB do when the goals of mitigation and adaptation begin to con ict?

11. Jens van’t Klooster and Clément Fontan, ‘ e Myth of Market Neutrality: A Comparative Study of the European Central Bank’s and the Swiss National Bank’s Corporate Security Purchases’, New Political Economy 25(6), 2020, 865-879. 12. ClientEarth: ‘ClientEarth sues over climate impact of ECB policy’, press release of 13 April 2021.

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tries are forced to adjust. e monetary policies of the ECB may become diametrically opposed to other EU policies.

nomic transition. In any case, there will likely be a climate-related divergence among Member States in their ability to service their debts. Integrating these risks into government bond purchasing programs might lead the ECB to reduce the purchases of bonds of some Member States, harming the ability (or willingness) of those Member States to nance economic transitions.

e distinction between adaptation and mitigation might also be helpful in understanding the recent ‘shi ’ of Jens Weidmann, the Governor of the German Bundesbank. In speeches in 2019 and 2020, he spoke critically of central bank involvement in ghting climate change (14). e fact that he agreed with the roadmap to greening monetary policy convinced at least the Financial Times (15) that Weidmann had ‘moved with the times’. A careful reading of the latest speech on climate change shows that Weidmann is only concerned with monetary policy adaptation: a focus on integrating climate risks in monetary policies (16). However, he still seems to oppose any policy that goes beyond adaptation. Mitigation is allowed as by-product, but not as the primary goal of a monetary policy. is might be good news for the ‘low-hanging-fruit-measures’ mentioned above, but suggests that a diﬀerent con ict is on the horizon.

Also when it comes to the issue of stranded assets, it is not immediate clear what the monetary policy response should be. Stranded assets are assets that (suddenly) lose value because of changing circumstances. A beach-side resort may lose value due to rapid sea level rise; an oil- eld loses value when an oil company is prohibited from pumping up the oil. Schnabel has argued that stranded assets may endanger the monetary policy transmission mechanism, meaning the way in which for example the interest rates set by the ECB aﬀect the ‘real economy’(13). However, where stranded assets are the result of tightening regulation, the best response by the ECB might then be to try to slow down economic transitions, reducing the speed with which companies or indus-

e monetary policies of the ECB may become diametrically opposed to other EU policies

13. Isabel Schnabel, ‘From green neglect to green dominance?’, cit. 14. Jens Weidmann, ‘Climate change and central banks’, welcome address at the Deutsche Bundesbank’s second Financial Markets Conference, 29 October 2019; Ibid., ‘Combating climate change – What central banks can and cannot do’, speech at the European Banking Congress, 20 November 2020. 15. Martin Arnold, ‘From Mr No to Mr Yes, but…’, e Financial Times, 22 July 2021. 16. Jens Weidmann, ‘Climate risks, nancial markets and central banks’ risk management’, speech at the Green Swan 2021 Global Virtual Conference, 2 June 2021.

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Weidmann’s view of the role of monetary policy is supported by a particular legal argument: proportionality

So, whereas it can indeed be shown that strategies of adaptation can be part of the monetary policy mandate of the ECB, that argument is a lot more diﬃcult for policies aimed at mitigation. Other arguments that are being used to show that the ECB should aim at mitigation are equally unconvincing in their current form (18). e ECB does have a secondary objective under Article 127 TFEU, but supporting the general economic policies in the EU may not distract it from achieving price stability. It is therefore captured by the same problem as described above. Article 11 TFEU requires the integration of environmental objectives in all EU policies, but it is unclear how this relates to the objective of monetary policy found in Article 127 TFEU as lex specialis. If the provisions having general application all fully apply to the ECB, monetary policy should also aim

Weidmann’s view of the role of monetary policy is supported by a particular legal argument: proportionality. is legal principle of EU law requires that a policy does not go beyond what is necessary to achieve the goals of the EU Treaties. As readers of EU Law Live will know, proportionality was at the heart of the dispute between the German Constitutional Court and the Court of Justice regarding the actions of the ECB in the euro-crisis (17). Where mitigation through the monetary policies of the ECB will only have a small eﬀect on the global processes of climate change (and therefore hardly contribute to maintaining price stability), a policy of adaptation can be targeted at the speci c challenges facing the ECB. Under the principle of proportionality, monetary policy adaptation is preferred over mitigation.

17. Heiko Sauer, ‘Substantive EU law review beyond the veil of democracy: the German Federal Constitutional Court ultimately acts as Supreme Court of the EU’, EU Law Live Weekend Edition no. 16, 9 May 2020, pp. 2-8; Daniel Sarmiento, ‘Requiem for Judicial Dialogue – e German Federal Constitutional Court’s Judgment in the Weiss case and its European Implications’, EU Law Live Weekend Edition no. 16, 9 May 2020, pp. 9-20. 18. See for example the arguments used by Rens van Tilburg and Aleksandar Simić, ‘Legally green: climate change and the ECB mandate’, Sustainable Finance Lab Policy Papers, July 2021.

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where it neglects the environmental underpinnings of society. Climate change mitigation and related challenges such as preventing the loss of biodiversity then become the new raison d'être of European integration, part of the Grundnorm of EU constitutional law (19). All parts of EU law must be seen in light of this new pillar of constitutionalism. In Hinkley Point C (C-594/18) the Court of Justice last year already made a small step in this direction, by nding that the approval of state aid required the Commission to actively check the conformity with EU environmental law, whereas that requirement does not extend to other parts of EU law.

to strengthen consumer protection (Article 12 TFEU), combat religious discrimination (Article 10 TFEU) and promote the equality between men and women (Article 8 TFEU). In other words, as one of the many priorities of the EU, Article 11 appears to lack the legal strength to distract the ECB from its primary objective.

Climate change mitigation as supreme constitutional objective Nevertheless, the ECB should design its monetary policies with the aim of mitigating climate change, but this requires a radical legal argument: namely that climate change mitigation is at the heart of EU constitutional law. Mitigating climate change is a pre-condition for the ful llment of all other objectives of the EU, and thus a re-thinking of the legal foundations of the EU is required. Where the EU is founded on the ideals of constitutionalism, environmental sustainability should be recognized as a fourth pillar, alongside the rule of law, democracy and human rights. Constitutionalism is incomplete

19. Klaus Bosselmann, ‘ tember 2013.

Central bankers should aim at mitigating climate change, but not because it might be good monetary policy. Relying on the argument of ‘good monetary policy’ to justify aiming at mitigation ignores the principle of proportionality and may prove counterproductive when adaptation and mitigation no longer go hand in hand. e ECB should combat climate change, because it can.

e Rule of Law Grounded in the Earth:Ecological integrity as a grundnorm’, Planetary Boundaries Initiative Symposium, 19 and 20 Sep-

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News Highlights Week 27 Sept to 1 Oct 2021

Ryanair and Malta Air bring actions for annulment against Commission’s Decisions authorizing aid to their competitors Monday 27 September

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Actions for annulment brought by Ryanair and Malta Air against two Commission Decisions authorizing State aid measures to competitors’ airlines in response to coronavirus outbreak were published.

Aquind’s challenge to ACER’s Board of Appeal over inadmissibility of appeal: action published Monday 27 September

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Oﬃcial publication was made of an action for annulment (T492/21) by Aquind, a British company building an interconnector linking the French and British power grids, against a decision of the Board of Appeal of the EU Agency for the Cooperation.

EDPS supports proposed AML package but calls for minimal intrusion into individuals’ privacy Tuesday 28 September

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e European Data Protection Supervisor welcomed the Anti-Money Laundering legislative package adopted by the European Commission in July this year, while calling the Commission to de ne more clearly the roles of all stakeholders involved in the supervision and to minimise intrusion into individuals’ privacy.

ECA: EU support in Ukraine is ineﬀective at ghting corruption Monday 27 September

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In its latest Report, the European Court of Auditors found that the support and measures to reduce corruption opportunities in Ukraine put in place by the EU have not delivered the expected results and grand corruption and state capture are still widespread.

XXIX FIDE Congress to be held in person on 3-6 November Tuesday 28 September

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A er two forced delays due to the COVID-19 pandemic, the XXIX FIDE Congress is now set to be held in person in e Hague on 3-6 November and will welcome 450 specialists in EU law hosted by the Netherlands Association for European Law.

Irish Supreme Court’s request for a preliminary ruling on systemic de ciencies of the rule of law in Poland published Tuesday 28 September

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Oﬃcial publication was made of a request for a preliminary ruling by the Irish Supreme Court in W O, J L v Minister for Justice and Equality (C-480/21), concerning the rule of law situation in Poland for the purposes of European Arrest Warrants.

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ECtHR condemns Spain for judicial error leading to inadmissibility of cassation appeal Tuesday 28 September

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e European Court of Human Rights delivered a judgment in Doménech Figueroa v Spain, nding that there had been a violation of the right to a fair trial under Article 6(1) ECHR on account of a judicial error made by domestic courts which eventually led to the inadmissibility of an appeal on cassation before the Spanish Supreme Court.

General Court dismisses actions for annulment brought by Ryanair and TUI y against Decision ordering recovery of incompatible State aid Wednesday 29 September

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General Court dismisses action for compensation against Europol for disclosure of personal data and inclusion in ‘ma a list’ Wednesday 29 September

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e General Court issued a judgment in Kočner v Europol (T528/20), dismissing an action for compensation lodged against the EU Agency for Law Enforcement Cooperation for alleged unlawful processing of the defendant’s personal data, and inclusion of the applicant in a so-called ‘ma a list’.

General Court annuls EU-Morocco Agreements on sheries and agriculture over Western Sahara Wednesday 29 September

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In Ryanair and Others v Commission (T-448/18), TUI y v Commission (T-447/18), and TUI y v Commission (T619/18), the General Court dismissed all actions for annulment against the Commission’s Decisions in State aid case SA.24221, nding that certain agreements concluded between Klagenfurt airport in Austria and airlines constituted in-

In Front Polisario v Council (joined cases T-344/19 and T356/19) and Front Polisario v Council (T-279/19), the General Court annulled two Council decisions on the amendments to the EU-Morocco Sustainable Fisheries Partnership Agreement and to Protocols to the Euro-Mediterranean Agreement, challenged by the Polisario Front, a national liberation movement from Western Sahara.

New Pact on Migration and Asylum: Commission presents its Report and issues proposals to tackle migrant smuggling and exploitation

Commission proposes to partially suspend EU–Belarus Visa Facilitation Agreement for oﬃcials linked to Belarus regime

Wednesday 29 September

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e Commission presented a Report on Migration and Asylum covering key developments and achievements in migration and asylum policy and set out a set of proposals to tackle the main challenges identi ed.

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e European Commission proposed to suspend partially the EU’s Visa Facilitation Agreement with Belarus, which establishes reciprocal issuance of visas to citizens for an intended stay of no more than 90 days, for speci c categories of oﬃcials linked to the regime.

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Council adopts position on Public Countr y-by- Countr y Reporting (CBCR) Directive

General Court upholds Commission’s nes in aluminium and tantalum electrolytic capacitors cartel

Wednesday 29 September

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e Council of the EU adopted its position on the proposed Public Country-by-Country Reporting Directive, establishing a new set of tax transparency rules, and paved the way for its nal adoption.

e General Court delivered ve judgments dismissing the actions for annulment brought by various manufacturers of electrolytic capacitors against the Commission’s Decision in Case AT.40136 – Capacitors, ning companies for the exchange of commercially sensitive information.

AG Pikamäe: Member States cannot declare applications for refugee status as inadmissible if status already granted in another Member State

Updated Code of Conduct for Members and former Members of the Court of Justice published

ursday 30 September

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Advocate General Pikamäe issued his Opinion in Commissaire général aux réfugiés and aux apatrides (C-483/20), nding that EU law precludes Member States from declaring an application for international protection automatically inadmissible when the applicant already has refugee status granted in another Member State.

Human rights and environment: PACE proposes dra new protocol to ECHR ursday 30 September

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e Parliamentary Assembly of the Council of Europe approved a resolution calling on the adoption of a new additional protocol to the European Convention on Human Rights enshrining an enforceable right to ‘a safe, clean, healthy and sustainable environment’.

ursday 30 September

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An updated version, with a focus on impartiality, of the Code of Conduct for members and former members of the Court of Justice was published.

Court of Justice: former ECA member Mr Pinxten breached the obligations arising from his oﬃce and shall be deprived of two thirds of his pension rights ursday 30 September

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e Court of Justice delivered its judgment in Court of Auditors v Karel Pinxten (C-130/19), ruling that Mr Pinxten, a former member of the European Court of Auditors, breached the obligations arising from his oﬃce and depriving him of two thirds of his pension rights.

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First-ever opinion under problemsolving mechanism of Mutual Recognition Regulation issued by Commission ursday 30 September

Commission brings infringement proceedings for non compliance with EU rules on open data and reuse of public sector information

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Friday 1 October

e Commission issued its rst Opinion under the problemsolving procedure that was introduced by the Mutual Recognition Regulation to facilitate the sale of products, not subject to EU harmonisation legislation but lawfully marketed in one Member State, in the market of another Member State.

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e Commission sent a le er of notice, the rst formal step in infringement proceedings, against 19 Member States for not having provided information on the transposition of Directive 2019/1024, on open data and the re-use of public sector information.

Insights, Analyses & Op-Eds AG Pikamäe interprets the legal obligations of air carriers under Regulation 261/2004 when postponing a ight and when notifying air passengers of a ight cancellation

Combusting exceptions? AG Rantos’ Opinion on the permissibility of so ware features adjusting the emissions control system of cars to ambient conditions (C-128/20 et al.)

by Sara Drake

by Felix Beck

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Analysis of Advocate General’s Pikamäe Opinions on the interpretation of the EU’s leading instrument on air passenger rights, Regulation 261/2004, concerning novel issues of interpretation in scenarios where claims for compensation made by air passengers had been rejected by the airlines.

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Analysis of Advocate General’s Rantos Opinion in GSMB Invest (C-128/20), Volkswagen (C-134/20) and Porsche Inter Auto and Volkswagen (C-145/20), which refer to a so ware feature that adjusts the rate of exhaust gas recirculation in relation to a vehicle’s ambient conditions.

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e principle of proportionality of penalties and the inextricable knot between primacy, direct eﬀect and disapplication

e Belgian excess pro t exemption system as an aid scheme: Comments on the EJC’s judgment of 16 September 2021 (C-337/19 P)

by Daniele Gallo and Lorenzo Cecche i

by Saturnina Moreno González

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Op-Ed on the Court of Justice judgment in Commission v Belgium and Magnetrol International (C-337/19 P), which overruled the General Court’s judgment, which declared that Commission decision 2016/1699 on the ‘excess pro t exemption’ regime (SA.37667) implemented by Belgium had wrongly considered this ‘excess pro t’ system as an ‘aid scheme’.

Op-Ed on the recent Opinion in NE v Bezirkshauptmannscha Hartberg-Fürstenfeld II (C-205/20), where Advocate General Bobek concluded that the requirement of proportionality of penalties laid down in Directive 2014/67 is directly eﬀective and that national courts must disapply any national provision that would result in a breach of EU law.

Library - Book Review

By Darya Budova

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Massimo Fabio

Customs Law of the European Union Review of a book on customs rules, which is ‘a great guide into the ins and outs of the European Union customs law’.

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Library - Book Review

Leandro Mancano

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Carole Billet and Araceli Turmo

Coopération opérationnelle en droit pénal de l’Union européenne Review of a book, which provides ‘an important contribution to the debate about operational cooperation in the EU’.