Poland/Estonia win court challenge 08-12 EUAs (with Comment)

Estonia and Poland won legal challenges on Wednesday which could allow them more generous national caps on industrial carbon emissions under the European Union's emissions trading scheme (see here and click on Case T‑183/07 for the decision). The EU executive Commission, which administers the carbon market, has two months to appeal. "The Commission is extremely disappointed by the judgment of the court in these two cases," a Commission spokeswoman told a regular news conference. "The Commission is studying the judgment carefully with a view to a possible appeal," she added (Source: Reuters).

Comment: adjusting the these allocation plans might lead to an extra surplus to the current of maximum 75 Mt for Poland and 10Mt for Estonia and more of the other appeals are decided upon (Bulgaria, Czech Rep., Hongary, Latvia, Lithuaniua en Romenia. But maybe not. Hence, the European just needs to draft new allocation decisions and the definitive numbers can even be more reasonable, looking at the changed perspective due to the crisis. The EC will just have to agree with these member states on definitive allocation for 2008-2012, rather than apply the ECs numbers. Also, the Polish governement wants to restrict selling of surplus by Polish companies (see press release European Commission). So, the long term impact on the market remains unknown; todays price fall appears with 13,20/t 4%, compared to the price before the decision, 13,75/t (Jos Cozijnsen).

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(Continuing from Reuters:) An appeal process could take more than a year. If the ruling were upheld the European Commission would have to review limits on carbon emissions by heavy industry under Europe's flagship scheme to fight climate change.
Under the scheme countries get a certain allowance of carbon emissions rights which they apply to industry such as power plants and steel mills.
"The Commission exceeded its powers," by imposing a ceiling on carbon emissions, said the EU Court of First Instance, Europe's second highest court, in its statement.
Poland, Estonia and other east European countries argued that the Commission had unfairly trimmed their quotas, or national allocation plans (NAPs), under the second trading phase of the scheme from 2008-12.
"It is a surprisingly strong decision in favour of the member states," said Stig Schjolset, senior analyst at Point Carbon, who added that if upheld the ruling didn't give Poland and Estonia the power to choose their quotas.
"The court does not say NAPs should be as the member states proposed. It decided that the Commission assessment should be annulled and re-done with different data. It doesn't mean member states can do whatever they want."

CONCERN
A concern among EU carbon market participants is that the ruling, if upheld, could cause an unravelling of the carbon market, which depends on a tight cap on emissions.
If their cap is raised, as Poland and Estonia want, the price of EU allowances (EUAs) could tumble. In addition, several more countries have objected to their quotas, including Czech, Hungary, Bulgaria, Latvia, Lithuania and Romania.
"It is certainly a big issue as far as other outstanding national allocation plan decisions are concerned," said Graham Stuart, partner at the law firm Baker & McKenzie.
Prices for EUAs were down 3.9 percent at 13.20 euros ($19.54) a tonne at 10.20 GMT. -- "It's bearish news. It sets a precedent for other countries," said one trader.
The European Commission had cut by 27 percent Poland's original request for 284.6 million tonnes of EUAs annually from 2008-12, and had cut Estonia's requested quota by 48 percent.
EU member states alone had the power to take final decisions fixing the quota, the court said on Wednesday. The Commission only had powers to review the quotas, and was wrong to dismiss these solely on the grounds of unreliable data, it added.
"I think the Commission is likely to appeal just to drag out time," said Point Carbon's Schjolset.
"The Commission will take all possible action to protect the integrity of the market ... and minimise the legal uncertainty created by these rulings," said the Commission spokeswoman.