Countering Abuse in EU Environmental Markets: The Case for Integrated Operational Safeguards

• DOI: http://doi.org/10.1111/reel.12195
• Published date: 01 April 2017
• Author: Thoko Kaime
• Date: 01 April 2017

Countering Abuse in EU Environmental Markets:

The Case for Integrated Operational Safeguards

Thoko Kaime*

Various European Union (EU) regulatory bodies

have championed the use of environmental markets

as a key policy tool to achieve environmental protec-

tion either in lieu of, or in addition to, more trad-

itional regulatory programmes. When these markets

work properly, they have the capacity to provide

enhanced levels of environmental quality and can

operate as more efficient mechanisms for protecting

natural resources that provide vital services to peo-

ple. However, if regulatory safeguards are absent

from the legal frameworks creating such markets, it

is unlikely that the theoretical benefits of these

arrangements will be realized. This article assesses

whether a number of EU environmental markets

meet design standards that guard against these

risks. It concludes that despite recognition of the

danger of market manipulation and outright fraud,

to date regulators in the EU have largely responded

to these risks in an ad hoc and incomplete fashion,

rather than embedding the mechanisms for oper-

ational accountability into the regulatory frame-

works that govern green trading arrangements.

Finally, this article identifies and prescribes five

essential pillars for market-based programmes for

the environment that are necessary to provide oper-

ational safeguards. These include informational safe-

guards, transparency standards, rule of law

safeguards, verifiable performance standards and

financial fidelity rules.

BACKGROUND

On 3 March 2016, the European Biodiesel Board (EBB)

alerted European Union (EU) regulators about possible

trade distortions and fraud in the biodiesel market per-

petrated by Polish diesel traders

1

in contravention of the

Renewable Energy Directive (RED)

2

and the Fuel

Quality Directive (FQD).

3

Key to the EU’s climate

change and energy strategy, the RED and FQD put

in place regulations that mandate an increasing

amount of fuel from renewable sources, such as

rapeseed, cooking oil and other waste products. In

order to reduce carbon emissions from cars and

lorries, one element of the RED requires that domes-

tic traders blend diesel fuel with biofuel sourced

from local renewable sources.

4

Instead of blending

rapeseed oil or other renewable sources with regular

diesel to produce a biofuel, the EBB found that some

Polish suppliers were attempting to meet the obliga-

tion to provide green fuel at home by simply adding

extra diesel to the mix and reserving the fuel made

from crops. It is believed that they then passed off

regular diesel as the blended variety in the domestic

market as well as for export, thereby gaining pay-

ments for blended diesel where none had taken

place.

5

The regulatory failure of the Polish biodiesel market

is yet another example of systematic manipulation

and fraud in a line of cases in the EU involving

schemes designed to utilize markets for the provision

of environmental services. More importantly, the case

demonstrates the pressing need for comprehensive

regulatory safeguards and accountability mechanisms

in environmental markets because without these, it is

likely that strategies for market-based interventions

in favour of environmental protection will fall prey to

fraud and manipulation. This is particularly import-

ant because since the 1970s, market-based interven-

tions have formed a key part of EU regulatory

programmes for the protection of the environment

and natural resources.

6

Whilst many of these

*Corresponding author.

Email: tkaime@essex.ac.uk

1

European Biodiesel Board (EBB), ‘Polish Low-Priced Biodiesel

Exports Threaten the Level Playing Field in the EU Market’ (3 March

2016), found at: <http://www.ebb-eu.org/EBBpressreleases/EBB_

PR_Polish_low_priced_exports_3March2016_Final.pdf>.

2

Directive 2009/28/EC of 23 April 2009 on the Promotion of the Use

of Energy from Renewable Sources, [2009] OJ L140/16 (‘RED’).

3

Directive 2009/30/EC of 23 April 2009 Amending Directive 98/70/EC

as Regards the Specification of Petrol, Diesel and Gas-Oil and Intro-

ducing a Mechanism to Monitor and Reduce Greenhouse Gas Emis-

sions and Amending Council Directive 1999/32/EC as Regards the

Specification of Fuel Used by Inland Waterway Vessels and Repealing

Directive 93/12/EEC, [2009] OJ L140/88.

4

RED, n. 2 above, Annex II.

5

EBB, n. 1 above. See also Biofuels International, ‘Industry Group

Calls for EU Scrutiny on Polish Diesel Exports’ (4 March 2016), found

at: <http://biofuels-news.com/display_news/10258/industry_group_ca

lls_for_eu_scrutiny_on_polish_biodiesel_exports/>.

6

T. Kaime and R. Glicksman, ‘A Comparative Analysis of Account-

ability Mechanisms for Ecosystem Services Markets in the United

States and the European Union’, 2:2 Transnational Environmental

Law (2013), 259.

ª2017 John Wiley & Sons Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.

69

RECIEL 26 (1) 2017. ISSN 2050-0386 DOI: 10.1111/reel.12195

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