EU ETS seen recovering from NAP ruling

Fears are receding of a flood of EU allowances (EUAs) swamping the EU Emissions Trading Scheme (ETS), following a surprise court judgement against the European Commission (see here). Last month, the European Court of First Instance found in favour of Poland and Estonia, who had challenged the European Commission over how it set their EU ETS caps for Phase II of the scheme (2008–12) (Source: Carbon Finance)

The court ruled the Commission had gone beyond its remit in rejecting Poland’s national allocation plan (NAP), which had proposed capping the country’s emissions at 285 million tonnes of carbon dioxide equivalent (Mt CO2e) per year. The Commission tightened the cap to 209 Mt on the basis that it did not trust the Polish emissions data.

The Court also said the Commission had failed to properly examine the NAP submitted by Estonia and “infringed the principle of sound administration”. Estonia had proposed a cap of 24 Mt/year, which the Commission slashed to 13 Mt.

The Commission said six other countries have launched appeals against NAP decisions: Hungary, Czech Republic, Bulgaria, Romania, Latvia and Lithuania.

If the precedent set in the Polish and Estonian cases is followed in these cases, it could raise the EU cap by a total of 242 Mt CO2e/year, according to Alessandro Vitelli, director of strategy and information at analyst IDEAcarbon in London. “That’s a king-sized ex-post adjustment,” he said.

Commission spokeswoman Barbara Helfferich said: “We are very disappointed by the judgment in the two cases. We are studying the judgements carefully with a view to a possible appeal.

“The Commission will take all possible actions to protect the European market for allowances and minimise the legal uncertainty caused by these challenges.” It has two months to bring an appeal before the Court of Justice of the European Communities.

However, environment commissioner Stavros Dimas said that emissions data from 2005 to 2008 support the Commission’s original calculations. Any new decisions on the Polish and Estonian NAPs would be based on this data, making it “unlikely that there would be any material difference concerning the total number of allowances”.

This was a position supported by analysts. Norway-based Point Carbon argued that any reassessment of the NAPs would take into account the economic downturn, so would be unlikely to lead to more EUAs being issued.

Applying the methodology used by the Commission in originally assessing the NAPs, and observed GDP figures for 2006-08 and current forecasts for growth over 2009-10, would actually decrease the Phase II cap for these eight countries by 45 Mt/year, or 10%, Point Carbon found.