EU: Greenhouse gas emissions; CJEU judgment on annual free allowances

EU: Greenhouse gas emissions; CJEU judgment

The Court of Justice of the European Union (CJEU) today issued a judgment finding that the maximum annual amount of free allowances for greenhouse gas emissions, as determined by the European Commission for the period 2013-2020, is invalid. The CJEU’s judgment allows the EC more time—10 months—in which to establish a new amount.

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As explained in today’s release [PDF 168 KB] from the CJEU, businesses and operations that emit greenhouse gases brought actions before courts in Italy, the Netherlands, and Austria against the national authorities that were entrusted with the allocation of greenhouse gas emission allowances. The entities challenged the validity of the national allocation decisions for the period 2013-2020 and, indirectly, the maximum annual amount of allowances (and the correction factor) as determined by the EC in two decisions in 2011 and 2013. The national courts then referred certain questions to the CJEU concerning the validity of the EC decisions. 

CJEU findings

In today’s judgment the CJEU found:

  • The EC decision in 2011 that precluded from taking into account emissions from electricity generators, in the determination of the maximum annual amount of allowances, was valid. 
  • The EC decision in 2013 concerned the determination of the correction factor, the scope of which was broadened beginning from 1 January 2013 so as to include emissions from the production of aluminium and from certain sectors of the chemicals industry. The CJEU determined that the EC, in calculating the maximum annual amount of allowances, was to have referred only to the emissions of the installations included in the Community system from 2013 onwards—and not to all of the emissions included from that point forward. While the EU Member States were to have communicated the relevant data to the EC, the EC took account of data of certain EU Member States that, unlike others, communicated to it data concerning emissions generated by new activities carried out in installations already subject to the allowance trading regime before 2013. The CJEU found that the EC’s action in this respect was invalid.

As the CJEU concluded, depending on the information to be provided by the EU Member States, the maximum annual amount of allowances could be higher or lower than that determined to date by the EC. To avoid “serious repercussions” concerning legal relations or agreements entered into in good faith, the CJEU stated that annulment of the correction factor was not to affect definitive allocations that have already taken place in the EU Member States on the basis of the rules being deemed to be valid. However, concerning subsequent periods, the CJEU’s judgment of an “invalidity” would give rise to a “temporary legal vacuum” that might interrupt the implementation of the allowance trading program and, consequently, the attainment of the objectives pursued by the directive. The CJEU therefore held that today’s judgment generally would not be effective for 10 months so as to give the EC time in which to adopt the necessary measures. 

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