EU Court ruling threatens Emissions Trading Scheme

Brussels - The European Commission exceeded its powers by forcing Poland and Estonia to cap trading allowances for greenhouse gas emissions under the Emissions Trading Scheme (ETS), the European Court of Justice has ruled. The decision issued 23 Sept could open the door for other Member States to challenge the way the Commission is interpreting and regulating the scheme.

The ETS is governed by the EU's 2003 Directive, which establishes a regime for trading greenhouse gas emission allowanceS within the Community. This provides that, for each five-year period, each Member State is to develop a national allocation plan (NAP) stating the total quantity of allowances that it intends to allocate and how it proposes to allocate them.

In 2006, Poland and Estonia notified the EC of their NAPs for the period from 2008 to 2012. However, the Commission ruled that the NAPs were incompatible with the Directive and that the total annual quantities of emission allowances should be reduced, respectively to 26.7%2 and 47.8% less than those proposed by those two Member States.

In response, Poland, supported by Hungary, Lithuania and Slovakia, and Estonia, supported by Lithuania and Slovakia, brought actions for annulment of the Commission decisions -  the Commission for its part being supported by the UK.

The European Court of First Instance has now ruled that  the EC misused its powers by imposing a ceiling on emission allowances to be allocated by Estonia and Poland and that Member States should have a margin for manoeuvre in how they draw up their NAP for allowances.

The ruling stated that: "A Member State alone has the power, first, to draw up the NAP which it notifies to the Commission and whereby it proposes to achieve the aims of the Directive ... and, second, to take final decisions fixing the total quantity of allowances which it will allocate for each five-year period and the distribution of that quantity amongst economic operators."

EU commissioner Stavros Dimas, acknowleded that the Court rulings imply that the Commission must now "take new NAP decisions in respect of Poland and Estonia," but added that the Commission is considering whether to appeal.

"The originally notified national allocation plans cannot therefore be deemed to be accepted as a result of today's judgements. Consequentially and ahead of these decisions, those countries are not allowed to issue any additional allowances beyond those created in the EU ETS registry system," said Dimas.

The Commissioner, however, signalled that in preparing new decisions the Commission would base itself on the best available data, including verified emission figures for 2005 to 2008.

"In the light of these data, it would appear unlikely that there would be any material difference concerning the total number of allowances consistent with the terms of the Directive," said Dimas. "The actual 2008 emissions in Estonia and Poland correspond closely to those anticipated in the Commission Decisions on the Estonian and Polish NAPs and are therefore consistent with the assessments made by the Commission."