The EU ETS Before the European Court of Justice

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Abstract

The EU’s key legislative initiative in the climate change realm has been the Emissions Trading Scheme Directive 2003/87 EC (the ‘Directive’). Establishing an EU-wide market for CO2 emissions, and operating as a key driver of the global carbon market, the Directive is arguable the most important legal instrument to have issued from the Kyoto Protocol. The legal challenges faced by the Directive are thus of significance if we are to understand the operation of the EU ETS, its future iterations and architecture. Further, analysis of the litigation will reveal the leverage that different sorts of arguments (competence, competition/state aid, violation of fundamental rights) have had before the Courts as well as the differing aspects of the Scheme that has attracted contestation. The 40 proceedings (applications, orders, judgments) that have arisen in respect of the EU ETS before the CFI/ECJ can be categorised as below: 1. Challenging DIR 2003/87 EC 2 actions 2. Art 226 EC Infringement proceedings (for incomplete/non-transposition) 2 actions 3. Challenges to Commission Decisions on NAPs 3.1. Phase I 9 actions 3.2. Phase II 23 actions 4. Non-CO2 emission trading schemes pursuant to DIR 2001/81 EC 1 action 5. Other cases 3 actions Quality follows quantity in this narrative. Whilst the litigation under headings 1,2,4, and 5 requires consideration, the challenges to the Commission’s decisions on National Allocation Plans are most revealing. Phase I caselaw is substantially concerned with the respective roles of the Commission and the Member States, with the CFI defending the right of Member States’ to develop NAPs (under Art 9) and adopt a definite position (under Art 11(1)) against attempts by the Commission to assume a more dominant role for itself. The Court has further observed that the Directive does not prohibit ‘bilateral negotiations’ between Member States and the Commission over the content of a NAP in the period after its submission and prior to a Commission Decision – this then appears to be the Commission exerting pressure on individual Member States to reduce their total allowance, even where this is within the prescribed limits, so as to generate scarcity of tradable emission rights. Phase II challenges to Commission Decisions on NAPs are dominated by applicants arguing that the Commission has exceeded its authority under Art 9(3) by unilaterally determining the total allocation for the relevant Member States (in Poland’s case a reduction of almost 27%). Again, the Commission’s attempts appear to be driven by a desire to bolster the market by achieving a scarcity of tradable rights. Member States have also argued that the Commission’s approach affect their energy security and encroaches on their right to determine their domestic energy policy. The caselaw (much of which is pending decisions) thus appears to support criticisms made against ET schemes in general and the EU ETS in particular, that: - trading processes do not, in and of themselves, benefit the environment, but purport to provide a means for targets to be achieved cost effectively. The Commission’s review power (Art 9(3)) have been used to reduce MS’s total allowances and so set targets – a response to the well known failings of Phase I. - The manner of implementation has been such that key issues have been deferred into the allocation process, leading to a battle between the Commission and MS as to effective caps, with industry seeking to dilute the scheme’s impact. Not an ideal mode of regulatory control.
Original languageEnglish
Publication statusUnpublished - 2008

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