The Directive 2003/87/EC established a scheme for greenhouse gas emission allowance trading within the Community. The National Action Plans (NAPs) set up the total quantity of CO2 emissions that Member States grant to their industries, which can then be sold or bought among the companies. Hence, each Member State must decide in advance how many allowances they will allocate in total for a trading period and how many each plant covered by the Emissions Trading Scheme will receive. However, the Commission may reject an NAP or any aspect of it if it is incompatible with the criteria listed in the directive. Where the Commission decides to reject an NAP, in whole or in part, Member States must not allocate those allowances to the operator of each installation, until proposed amendments are accepted by the Commission.
In 2006, Poland and Estonia notified the Commission of their NAPs for the period from 2008 to 2012. In 2007, the Commission adopted its decisions on those NAPs. According to the Commission the plans were incompatible with the criteria listed in the Directive. Moreover, the Commission decided that the total annual quantities of emission allowances should be reduced, respectively to 26.7% (Poland ) and 47.8% (Estonia). Those Member States are concerned that a big cut on their emissions will hamper their industries.
Poland and Estonia have pursued legal action against the European Commission decision to cut their carbon dioxide emissions quotas. They brought actions for annulment of the Commission decisions concerning their national allocation plan for the allocation of greenhouse gas emission allowances.
On 23 September, the Court of Fist Instance delivered its judgments in Case T-183/07 Poland v European Commission and Case T-263/07 Estonia v Commission and annulled the Commission Decisions rejecting the National Allocation Plans (NAPS) of Poland and Estonia for greenhouse gas emission allowances.
Poland and Estonia accused the European Commission of setting aside the method of economic analysis which they had used and data included in the NAP, ‘without a relevant statement of reasons’. Moreover, Poland and Estonia have claimed that the Commission is not entitled to impose a ceiling for the total quantity of allowances to be allocated, by reviewing the NAP.
The European Commission, supported by the UK, has claimed that it is not obliged by the Directive to use the method of analysis used by the Member State concerned. Moreover, it has stressed that under the principle of equal treatment between the Member States, it must use a single method of economic analysis for all.
The Court of First Instance held that Member States have the power to draw up their NAPs and to decide the total quantity of allowances which they will allocate for each five-year period and the distribution of that quantity amongst economic operators. The Court has stated that Member States “have a certain margin for manoeuvre in transposing the Directive (…).” Moreover, the Court has stressed that the Commission’s powers to review and reject NAPs are “severely limited.” The Commission has the power to verify the conformity of the Member States’s measures in accordance with the Directive and to give its reasons if it decides to reject an NAP. The Commission may also formulate proposals or recommendations so that Member States are able to amend their NAPs in order to be compatible with the review criteria laid down by the Directive.
The CFI held that the Commission erred in law by rejecting the NAPs on the basis of a reasoning that consists of raising doubts as to the reliability of the data used by Estonia and Poland.
The Commission is entitled to compare data in the NAP with those which it had obtained from its own assessment method, in order to assess the compatibility of NAPs with the criteria established in the Directive. However, the Court has pointed out that the Commission has disregarded its tasks. The Court has stressed that the Commission cannot, by virtue of the principle of equal treatment between Member States, apply a single method for assessing the NAPs of all the Member States. The Court stated “To allow the Commission to use a single method of assessing NAPs for all the Member States would amount to acknowledging it as having not only a veritable power of uniformisation in the context of implementing the allowance trading system, but also a central role in the drawing up of NAPs.” Moreover, the Court stressed “Neither such a power of uniformisation nor such a central role were conferred on the Commission by the legislature in the Directive, in the context of its power of reviewing NAPs.”
The Court has pointed that the Commission has discretion for drawing up its own method of assessing NAPs. Nevertheless, according to the Court, the Commission cannot replace the data included in the NAP with its own data, acquired on the basis of a single method of assessment applied to all the Member States. The Commission has therefore “exceeded the margin for manoeuvre conferred upon it by the Directive.”
The Court recalled that the Commission does have the power to review or reject NAPs drawn up by Member States, having regard to the criteria laid down in the Directive. However, the Court stressed that the Commission may not set up a maximum level for the total quantity of allowances to be allocated. According to the Court, the Commission by imposing in its decisions ceilings for allowances above which the NAP would be considered as incompatible with the Directive, the Commission “substituted itself” for Poland and Estonia. Consequently, the Court held that the Commission “exceeded the limits of its review power under Article 9(3) of the Directive.”
According to the CFI, Commission adopted the decisions breaching the distribution of powers between the Member States and the Commission. The Court concluded that the Commission’s decisions encroach on the exclusive competence that the Directive confers on the Member States in determining the total quantity of allowances which they will allocate in respect of each trading period.
The Commission has the duty to explain in what way the Member States’s choice of the method of economic analysis and data used are incompatible with the Directive’s criteria. However, according to the Court the Commission has failed to explain in what way Poland’s method as well as the data included in the NAP were not reliable. Thus, the Commission has infringed its obligation to state reasons for the contested decision.
Moreover, Estonia claimed that the Commission was wrong to hold, in the contested decision, that its NAP for allowances was incompatible with the Directive for failure to include, in the total quantity of allowances to be allocated, a ‘reserve’ of allowances. Estonia argued that the Commission has infringed the principle of sound administration as it did not take account of all the facts and information which were supplied to it.
The Court agreed with Estonia and concluded that the Commission had failed to properly examine the Estonian NAP in order to see if it contained, in the total quantity of allowances to be allocated, a ‘reserve’ of allowances. Consequently, the Court held that the Commission has infringed the principle of sound administration.
The Court of First Instance annulled, therefore, in their entirety, the Commission Decisions concerning the national allocation plans for the allocation of greenhouse gas emission allowances notified by Poland and Estonia for the period from 2008 to 2012. The Commission has two months to bring an appeal before the ECJ against a decision of the CFI.
Nevertheless, the CFI’s rulings do not imply that Member States are allowed to choose their own quotas but that the Commission has to take new NAP Decisions concerning Poland and Estonia. The Commissioner Stavros Dimas has said “(…) ahead of these decisions, those countries are not allowed to issue any additional allowances beyond those created in the EU ETS registry system.”
Moreover, it is important to note that the Court rulings relate to the second phase of the system under the present 2003 legal framework. Last April, the Council adopted the revised Directive on the EU ETS under which, from 2012, national allocation plans would be replaced by auctioning or free allocation through single EU-wide rules.
