The cascading use of biomass – (how) does RED III ensure the efficient use of wood?

Significance of the highest economic and environmental added value

A potential relativisation of the cascade requirement for woody biomass arises from Art. 3(3) subpara. 2 RED III, which links the cascading use of wood to the ‘highest economic and environmental added value’. Two interpretations seem possible here.

Under a first interpretation, each decision on the use of woody biomass would have to be assessed case by case against a combined ‘economic and environmental added value’ benchmark. According to a study on the use of renewable energy from biomass based on RED III by Energieinstitut, this requirement is not meant to achieve material use at any price (pp. 27, 28). The study states that the reference to the highest economic and environmental added value aims at prioritising material use of wood exclusively in those cases where such economic and environmental added value can actually be achieved (pp. 27, 35). The ecological and economic benefits are seen as a prerequisite for the obligation of applying the stated order of priorities for the use of woody biomass. But it must be considered that support schemes themselves affect the economic attractiveness of energy use. A meaningful comparison would therefore have to leave out any subsidies and internalise relevant climate effects (e.g. emissions from combustion, continued carbon storage in harvested wood products as reflected in national inventories, and potentially biogenic CO₂ capture and storage), which is not stated clearly in the cited study. It can be assumed that the directive does not allow for an open-ended individual assessment without further premises.

A systematic and teleologic analysis should focus on the legislative purpose of Art. 3 RED III. Art. 3(3) RED III aims to limit state intervention in the use of biomass in such a way that the energy recovery of wood is not favoured over higher-value material uses through support measures. To this end, Art. 3(3c) contains specific binding prohibitions on direct financial support for certain types of wood for energy production; Art. 3(3d) supplements this with a ban on new or renewed support (financial and non-financial) for electricity generation from forestry biomass, subject to narrowly defined exceptions.

The criterion of the highest economic and environmental added value, as laid down in the cascade principle, logically presupposes that the various options for the use of wood are compared with one another under undistorted market conditions. As long as state support schemes favour energy use over material use and thereby distort market signals, this criterion cannot be meaningfully applied. It therefore only comes into effect once Member States’ support schemes have been brought into line with the requirements of Art. 3(3), (3c) and (3d) RED III—or if existing distortions through support schemes are disregarded in the normative analysis so as not to undermine the regulatory purpose of the cascade.

In this context, attention should be drawn to the prohibition on direct financial support for the use of certain types of wood for energy purposes, as set out in Article 3(3c) RED III. This raises questions of interpretation regarding the definition of ‘industrial grade roundwood’ in Article 2(1a) RED III. The definition reads:

Article 3(3c) RED III prohibits direct financial support for:

The question may arise as to whether the exception in Art. 2(1a) RED III (‘excluding roundwood […]’) refers to all the aforementioned types of wood and could therefore also apply to all types of wood mentioned in Art. 3(3c) RED III. As a result, the energy recovery of saw logs or veneer logs, which Member States consider to fall under this exception, would then be eligible for direct financial support.

Grammatically, the German version of Article 2(1a) RED III could allow for such a broad interpretation of the exception. The English version—as well as the Spanish and French versions—on the other hand, separates the category ‘all other roundwood that is suitable for industrial purposes’ syntactically more clearly from the preceding list by means of the phrase ‘as well as’ preceded by a comma; the exception follows directly on from this catch-all provision and, according to the grammatical analysis of these versions, refers only to it.

According to the case-law of the Court of Justice of the European Union, the various language versions of EU law are equally binding; no single version may be applied in isolation (ECJ, 1982, para. 18). Where there are discrepancies between the language versions, the provision in question must therefore be interpreted in the light of its general scheme and purpose (ECJ, 2020, para. 43). Accordingly, the narrow interpretation is to be preferred. Two systematic and teleological arguments support this:

Firstly, according to the relevant Eurostat/FAO definition (Eurostat, 2011), sawlogs and veneer logs are timber specifically intended for industrial purposes and are therefore generally suitable for such use. Whilst the application of the exception to these categories is not conceptually excluded, it is systematically remote, as the exception would typically have no practical effect in this context.

Secondly—and more importantly—it does not appear convincing from a systematic or teleological perspective if Member States were able to determine and justify, by invoking ‘relevant market conditions’ within the meaning of Art. 2(1a) RED III, which sawlogs or veneer logs are not suitable for industrial use and thus do not fall under the prohibition on direct financial support in Art. 3(3c) RED III. For Art. 3(3c) RED III is specifically aimed at abolishing market-distorting state interventions in favour of the use of high-quality timber for energy purposes. A broad interpretation of the exception would enable Member States to undermine this objective through corresponding national provisions—and thus to use precisely the instrument of market influence that the standard is intended to prohibit.

Consequently, the exception in Art. 2(1a) RED III must be restricted to the category ‘all other roundwood that is suitable for industrial purposes’. Sawlogs and veneer logs fall under the subsidy ban in Art. 3(3c) RED III without exception. This conclusion is further supported by the fact that Art. 3(3c) RED III lists sawlogs and veneer logs separately and without further qualification alongside industrial grade roundwood.

Significance of national specificities

Art. 3(3) RED III requires Member States to ensure cascading use ‘with due regard to national specificities’. This clause is sometimes interpreted as allowing exceptions to or to deviate from the cascade, as can be deduced from the study of Energieinstitut (pp. 23–28, 35). The cited study seems to support this view by referring to Recital (10) RED III, which seems to be blurring the line between taking national specificities into account when designing support schemes and derogating from the cascade principle. However, a systematic reading of Art. 3 RED III does not support this interpretation. Rather, this clause concerns the design and calibration of national support schemes and does not itself constitute an opening clause for deviations from the cascade principle. Also, recitals serve an interpretative function and cannot extend or modify the scope of the binding provisions. Possible derogations and the systematics of Art. 3(3)–(3b) RED III will be further analysed below.

This raises the question of the regulatory meaning of taking into account national specificities in Art. 3(3) RED III and whether it allows any weakening of the principle of the cascading use of biomass. The wording of Art. 3(3) subpara. 2 RED III suggests otherwise: Member States must ensure the application of the cascade principle. The term ‘ensure’ indicates a binding obligation. Recital (10) RED III uses similar language. On this reading, the reference to national specificities merely reflects the general fact that EU directives are implemented within national contexts (see also below). It does not permit any additional derogation from the cascade principle compared to Art. 3(3a) RED III or any other deviation or any weakening in the implementation of the cascade.

An alternative interpretation would treat national specificities as an opening clause allowing adjustments of—or even deviations from—the cascading use of biomass (e.g. Energieinstitut, p. 23). The cited study assumes that the requirement to ensure the application of the cascade principle is relativised by the reference to national specificities and by Art. 288(3) TFEU, which states that a directive is binding for the Member States as to the result to be achieved, but leaves the choice of form and methods for the implication, and therefore the wording of Art. 3(3) RED III would not require unconditional implementation of the cascade. It also assumes that, for example, aspects of energy supply security could be understood as national specificities and be incorporated into a modified version of the cascade. However, such an approach is difficult to reconcile with the structure of Art. 3(3)–(3b) RED III, which clearly distinguishes between ensuring the cascade within support-scheme design (Art. 3(3) RED III) and derogating from it under narrowly defined conditions (Art. 3(3a) and (3b) RED III).

The directive does not define national specificities, leaving Member States with a degree of interpretative flexibility. Potential examples sometimes cited include national temperature conditions, heating demand, the number of heating degree days, the availability of sustainable biomass, or broader aspects of energy supply security (Energieinstitut, p. 26). Nevertheless, these factors may only form the design of support schemes under Art. 3(3) RED III. They do not trigger the notification procedure under Art. 3(3b) RED III and cannot justify departures from cascading. The scope of implementation design therefore reaches its limit where a measure would effectively amount to a derogation from the cascade principle.

Definition of derogation from the cascade pursuant to Art. 3(3a) RED III

Derogations are governed exclusively by Art. 3(3a) RED III, which permits departures from cascading only in the enumerated cases:

The structure of Art. 3 RED III distinguishes clearly between taking national specificities into account when designing support schemes to ensure cascading use (Art. 3(3) RED III) on the one hand and narrowly defined derogations from the cascade principle (Art. 3(3a) RED III) on the other hand. When read systematically, derogations are permitted only under Art. 3(3a) RED III and only on the grounds exhaustively set out therein. Art. 3(3a) RED III also does not establish a general discretion to deviate from cascading whenever local processing capacity is insufficient. At the same time, Member States may further specify the undefined legal terms within these derogation criteria in national law to operationalise their application.

Where a Member State relies on a derogation, it must determine its applicability and notify the Commission pursuant to Art. 3(3b) RED III. The Commission may then issue an opinion on whether it considers the derogation justified.

Derogation needed to ensure security of energy supply

Art. 3(3a) RED III permits derogations from the cascading-use principle where necessary to ensure security of energy supply. RED III does not define ‘security of energy supply’. In general, it is understood to mean maintaining a reliable, continuous supply of energy in the present and over time. Arguments invoked under this heading include heating needs driven by climatic conditions, dependence on imported fossil fuels, reliance of district heating networks on woody biomass, widespread use of individual wood stoves, and the system value of bioenergy as a storable and dispatchable source for renewable energy (Energieinstitut, pp. 28–31).

However, invoking the structural importance of woody biomass in a Member State’s energy mix as a basis for derogation is problematic: the cascading requirement is intended precisely to curb dependence on woody biomass for energy generation and to enhance sustainable use and resource efficiency of biomass, see Recital (10) RED III. An exception should therefore not be applied in a way that leads to an expansion, rather than a reduction of such dependencies. Whether a particular constellation of factors is sufficient to justify a derogation ultimately depends on the legal and factual assessment in the specific case and would, if contested, fall to be reviewed by the ECJ (e.g. in infringement proceedings).

Recital (10) RED III provides interpretative guidance by citing ‘particularly severe cold conditions’ as an example for the need to secure energy supply. This suggests a high threshold: not merely comparatively colder-than-average conditions, but exceptional situations significantly exceeding typical EU conditions, whether measured via average temperatures or indicators such as heating degree days. It should be noted that the study of Energieinstitut (p. 26) also uses these arguments to justify the existence of national specificities. It has already been analysed here that ‘national specificities’ in the design of the implementation of the cascade should be strictly separated from derogations.

At the same time, implementing Art. 3(3) RED III through the redesign of support schemes may increase costs for biomass plants and biomass fuels (e.g. if preferential tax treatment for wood energy were reduced). Such reforms could also lower supply and raise prices. This distributional dimension may matter: low-income households relying on wood-based heating could face affordability-driven risks to their ‘secure’ energy supply, especially where switching to alternative heating systems is financially out of reach. This might allow for limited derogations from the cascading use of biomass.

ECJ requirements for the implementation of EU directives

Under EU law, directives are binding as to the result to be achieved but leave it to Member States to choose form and methods (Article 288(3) TFEU). At the same time, the principle of sincere cooperation (Article 4(3) TEU) requires Member States to take all appropriate measures to ensure the effective fulfilment of their obligations (ECJ 2022, para. 26; ECJ 1984, para. 26; ECJ 1976, para. 69, 73). According to the case law of the ECJ, this obligation extends to all public authorities and requires measures that ensure the full and effective application of a directive through specific legislation or general principles of constitutional or administrative law (ECJ 1985, para. 23).

The ECJ has consistently held that the mere practical achievement of a directive’s objectives is insufficient (ECJ 1991a, para. 8; ECJ 1991b, para. 24). Instead, implementation must be ensured through a clear and reliable legal framework (ECJ 1991a, para. 13; ECJ 1991b, para. 28; ECJ 1990, para. 25) but also be enacted in practice (ECJ 2022, para. 27). While directives do not necessarily require word-for-word transposition into national law, the applicable rules must guarantee transparency, clarity and legal certainty (ECJ 1985, para. 21, 23, 28; ECJ 1997a, para. 15; ECJ 1997b, para. 35; ECJ 1991b, para. 18 et seq., 28). In particular, purely administrative practices or non-binding instruments are generally not considered sufficient, as they lack the necessary stability, legal force and publishing (ECJ 1997a, para. 14, 15; ECJ 1991a, para. 61/72; ECJ 1991b, para. 20; Ruffert, para. 33, 38).

In summary:

• EU directives must be implemented legally and in practice.

• Member States must establish a binding legal framework for the implementation of EU directives; administrative practice or fulfilment through simple conditions alone are insufficient.

• Implementation measures must meet high standards of clarity, specificity and legal certainty, especially if the EU directive intends to grant subjective rights or impose individual obligations.

Implementation of the cascading use of biomass by means of financial support

The question might arise whether it could be sufficient to set up financial support measures based on internal non-binding administrative support guidelines to steer the use of biomass within support schemes according to the cascade, or whether it might be sufficient for the cascade to be fulfilled in practice only. The criteria set out by the ECJ regarding the binding nature of measures to implement an EU directive must be taken into account on the one hand. On the other hand, it must be noted that RED III does not seek to grant subjective rights on individuals. Rather, it aims to create an overarching policy objective and addresses the achievement of this objective within the design of support schemes in Art. 3(3) RED III itself.

As far as can be seen, no ECJ case law has been issued specifically on such a constellation. However, it is clear from the case law that the ECJ tends to require a binding legal framework for the implementation of directives into national law in all cases. Internal administrative regulations such as funding guidelines may supplement such binding legal implementation.

Further specifications for the implementation can be found in the wording of RED III: Art. 3(3) subpara. 1 and 2 RED III states (highlighted by the authors of this paper):

The use of the imperative suggests—in addition to the general obligation of Member States to implement EU directives—that Member States are obliged to create a binding legal framework for ensuring the cascade when setting up support schemes for the production of energy from biomass. The wording does not allow for Member States to leave the fulfilment of the cascade solely to the market without including it in the support schemes.