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Emissions trading: retroactive adjustments in number of certificates deemed permissible by European law
European Court of First Instance concedes to Germany’s ex post adjustments
Year of issue
Date 07/11/2007
Date 07/11/2007
Certain operators who participate in emissions trading are subject to having adjustments in the volume of the certificates awarded them made retroactively. This concerns some 700 installations owed some five million certificates per year in Germany, including those which were awarded certificates based on production forecasts. If actual production volume is lower than forecast, German law dictates that these operators must return any surplus allowances granted. This regulation contained in the German Allocation Law (Zuteilungsgesetz 2007) was affirmed by the European Court of First Instance. For the 2005-2007 allocation period operators of these installations submit annual reports of their actual production volume to the German Emissions Trading Authority (DEHSt) at the Federal Environment Agency (UBA). DEHSt then reviews the production and emissions forecasts submitted made in 2004. Virtually every operator subject to the duty to report has already submitted its accounting, which now enables DEHSt to make retroactive adjustments and consider how to proceed.
Up to now, DEHSt had not made any adjustments to allocation volumes on account of the current case being heard by the European Court of First Instance. Affected operators must continue to meet their duty to report in January and March 2008 or otherwise face penalty charges.
The EU Commission had stated that the ex post rulings in the German Allocation Law violated European law in that they interfered with the market and disrupted enterprises’ planning safety. As a result, the Commission had ruled out the ex post adjustments provided for in Germany and twelve other countries’ National Allocation Plans of the first allocation period of 2004-2007.
In September 2004 the Federal Republic of Germany filed an appeal with the European Court of First Instance against this Commission ruling, and it has now won its case. The Court of First Instance determined that the Emission Trading Scheme Directive does not prohibit member states from responding to ex post “over-allocation” adjustments; that is, awarding installation operators a surplus of emission certificates. The Directive even requires revocation of allocation decisions that are based on faulty data. Moreover, the Commission may not hinder member states’ withdrawal of emission certificates when their they are not meeting their intended purpose, since the member states are thereby doing something to protect the climate.