Emissions trading: Suits filed against application of proportionate adjustments largely fruitless

The Federal Administrative Court in Leipzig passed judgment on a total of eight suits filed by corporate entities on 16 October. These operators had filed suit against the German Emissions Trading Authority (DEHSt) at the Federal Environment Agency (UBA) to secure allocation of additional emission certificates. These lawsuits have been largely unsuccessful. In an effort not to exceed the total volume of yearly allocations amounting to 495 million tonnes of carbon dioxide, DEHSt had made proportionate adjustments in allocations to existing installations in accordance with the regulations set out in the German Allocation Law (Zuteilungsgesetz 2007 - ZuG 2007)—and justly so, in the eyes of the court. Existing installations whose operators opted for allocation according to the regulations applicable for new installations are not subject to proportionate cuts. In another verdict, the court decreed that carbon dioxide (CO2) emissions from the organic components in clay and porosity enhancers which are caused by firing during ceramics manufacture cannot be acknowledged as process-related. These operators are therefore not eligible for preferential treatment as concerns allocation. The Federal Administrative Court has hereby reinforced the rulings made by the administrative appeals tribunal of Berlin-Brandenburg.

Two energy suppliers lost their suits filed to protest application of proportionate adjustments which DEHSt had implemented to comply with the CO2 emissions budget. In an appeal the Federal Administrative Court decreed that the proportionate cuts are consistent with European community law and constitutional law. The Court deemed it lawful that DEHSt had calculated proportionate adjustments based on a volume of certificates for which operators were eligible within the established short timeframe prior to the allocation period. The law does not provide for a calculation of adjustments upon legal review of each notice of allocation-- a procedure which, after recourse were taken to all legal means, would only be completed after the end of the allocation period. Even if incorrect allocations were made in isolated cases, this does not mean that any allocated volume and calculated adjustment based on it are unlawful.

On the other hand two power plant operators, an installation in the glass, and another in the cement indusry won their claims. They had made use of the so-called option rule in the Allocation Law, according to which operators may also seek allocations made to their existing installations in accordance with the significantly more restrictive criteria applicable to new installations. After losing their suit in the lower court the plaintiffs were successful in the administrative appeals tribunal of Berlin-Brandenburg. At the time, DEHSt was ordered to grant allocations without making proportionate adjustments. The Federal Administrative Court also ruled in favour of the operators, namely that proportionate reductions of allocations to keep within budget may not affect option installations, as per Article 7 Para. 12 ZuG 2007.

In another suit, two brickworks which manufacture ceramics also sought additional allocation of emission certificates as per Zuteilungsgesetz 2007 in the belief that the CO2 emissions produced in brickmaking which stem from fossil organic carbon in clay and porosity enhancers can be classified as so-called process-related emissions. Process-related emissions are distinguishable in that a reduction through efficiency measures in the production process is rather limited. ZuG 2007 defines process-related emissions as the “product of a chemical reaction which does not include firing”. The Court did not agree with the brickworks operators’ argument, ruling that the release of CO2 from the carbon contained in clay and from porosity enhancers does not constitute process-related emissions on the grounds that, according to the scientific definition of firing, the production process in brickworks is a firing process.

The Federal Administrative Court is the highest administrative court in Germany.

Glossary

Proportionate adjustment:

Adjustment of allocation by DEHSt (as per Article 4 Para 4 ZuG 2007), made to comply with CO2 emissions budget

Existing installations:

installations already in operation before First Allocation Period

New installations:

Installations commissioned during the First Allocation Period

Option rule/’Opters’:

Opters resorted to legal possibility to have allocations awarded according to significantly more restrictive criteria applicable to new installations.

Porosity enhancers:

flammable materials such as sawdust and polystyrene pellets that are added in the process of brickmaking; gas produced during firing causes small pores to form, thereby improving insulation properies of the bricks.

Process-related emissions:

Release of CO2 into the atmosphere as the direct product of any chemical reaction which does not include firing (revised definition based on EU Monitoring Guidelines of 24.11.2003). Special treatment was granted in the 2005-2007 Allocation Period as per the EU Directive which provides for the possibility of these emissions to be recognised.