The European emissions trading scheme case law

Review of European Community and International Environmental Law

Volumn 18, Issue 2, 2009, Pages 119-128

  van Zeben, Josephine A W ^a  

^a UNIVERSITY OF AMSTERDAM   (Netherlands)

Author keywords

[No Author keywords available]

Indexed keywords

CLIMATE CHANGE; ECONOMIC DEVELOPMENT; EMISSIONS TRADING; ENERGY POLICY; ENVIRONMENTAL ECONOMICS; EUROPEAN UNION; POLICY MAKING;

EURASIA; EUROPE;

EID: 70350755562     PISSN: 09628797     EISSN: 14679388     Source Type: Journal    
DOI: 10.1111/j.1467-9388.2009.00634.x     Document Type: Article

References (93)

1. The fifteenth session of the Conference of the Parties (COP) of the United Nations Framework Convention on Climate Change is set to take place from 7 December to 18 December 2009 in Copenhagen. The EU's negotiation positions can be found in the Communication 'Towards a comprehensive climate change agreement in Copenhagen' COM (2009) 39 final (28 January 2009), available at 〈http://eur-lex.europa.eu/ LexUriServ/LexUriServ.do?uri=CELEX:52009DC0039:EN:NOT〉.
2. These targets are in line with the ambitions set out in '20 20 by 2020 - Europe's climate change opportunity'COM (2008) 30, available at: 〈http://ec.europa.eu/commission_barroso/president/pdf/ COM2008_030_en.pdf〉.
3. Environmental interest groups have expressed scepticism as to the environmental effectiveness of the European goals and have argued that the environmental package, as it stands, is not ambitious enough. See, for instance: Greenpeace, AU Climate Package: a Good Start -But Ambitions still do not Match the Challenge (Greenpeace, 23 January 2008), available at 〈http://www.greenpeace.org/eu-unit/ press-centre/press-releases2/eu-climate-energy-package〉.
4. In this case, the EU will raise its 20% reduction target to 30% by 2020. See, for instance, Directive 2009/29/EC of 23 April 2009 amending Directive 2003/87/EC, [2009]OJ L140/63, Preamble 3.
5. For non-academic coverage, see P. Luttikhuis, 'Of 't kan, is nog de vraag -Europa verliest zijn voortrekkersrol op milieugebied' (NRC-Next, 18 June 2009); and 'EU, US criticized for low profile in Bonn climate talks' (EurActiv, 15 June 2009), available at 〈http://www.euractiv.com/en/climate-change/ eu-us-criticised-low-profile-bonn-climate-talks/article-183163〉. The difficult relationship between the low and high Gross Domestic Product per capita countries within the European Community with regard to climate change had already been acknowledged in the 2008 Impact Assessment; see Commission Staff Working Document of 27 February 2008, Annex to the Impact Assessment, SEC(2008) 85, at 41-46.
6. The EU hopes to see the creation of an international carbon market as one of the elements of a post-2012 climate agreement. The EU is convinced of the cost-effectiveness of market-based emissions trading and believes this will create a large number of economic opportunities for European and international businesses. See European Commission, EU Action against Climate Change: EU Emission Trading Scheme-An Open Scheme Promoting Global Innovation, The EU Brochure (September 2005), available at 〈http://ec.europa.eu/environment/climat/pdf/ emission_trading3_en.pdf〉.
7. CFI 7 November 2007, Case T-374/04, Germany v. Commission, [2007]ECR II 4431, at para. 124.
8. Directive 2003/87/EC of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC, [2003] OJ L275/32, Article 1.
9. 2 (ibid., n. 4 above, Annex I).
10. See ibid., n. 4 above.
11. Some key elements are still to be decided upon through comitology (the term used to describe the process whereby the European Commission is aided in its task to implement legislation at the European level (Article 202 EC Treaty) by committees, which consist of national representatives). There have been three Council Decisions on this topic: Council Decision of 13 July 1987 laying down the procedures for the exercise of implementing powers conferred on the Commission, [1987] OJ L197/33, Council Decision of 28 June 1999 laying down the procedures for the exercise of implementing powers conferred on the Commission, [1999] OJ L184/23, and Council Decision of 17 July 2006 amending Decision 1999/ 468/EC laying down the procedures for the exercise of implementing powers conferred on the Commission, [2006] OJ L200/11) which regulate the relations between the Commission and the committees and their procedures. For further information regarding the legislative time-line of these legislative procedures, see J. van Zeben, Law-Making in the Revised EU ETS - A Study in Regulatory Federalism, ACLE Working Paper 2009-09, Annex I, available at 〈http://ssrn.com/abstract= 1415666〉.
12. These numbers are up to date as to 17 June 2009 and include judgments and orders of both the CFI and the ECJ as may be found in the CURIA database when using 'Directive 2003/87/EC'as search key, available at 〈http://www.curia.eu〉.
13. N.S. Ghaleigh, 'Emissions Trading before the European Court of Justice: Market Making in Luxembourg', in D. Freestone and C. Streck (eds), Legal Aspects of Carbon Trading: Kyoto, Copenhagen and Beyond (Oxford, forthcoming 2009), available at 〈http://ssrn.com/abstract= 1371513〉 and N. van Aken, 'The "Emissions Trading Scheme" Case-Law: Some New Paths for a Better European Environmental Protection?', in M. Faure and M. Peeters (eds), Climate Change and European Emissions Trading - Lessons for Theory and Practice (Edward Elgar, 2008), 88.
14. CFI 14 May 2005, Case T-143/05, United Kingdom v. Commission (joined with Case T-178/05, United Kingdom v. Commission), [2005] ECR II-4807.
15. See Case T-374/04, n. 7 above.
16. CFI 9 November 2007, Case T-183/07, Poland v. Commission, [2007] ECR II-152.
17. See Case T-143/05, n. 14 above.
18. See Case T-178/05, n. 14 above., para. 39.
19. Ibid., para. 61.
20. See also N.S. Ghaleigh, n. 13 above, at 17.
21. See N. Van Aken, n. 13 above, at 99.
22. See Case T-178/05, n. 14 above, para. 61.
23. This right to review was interpreted differently by the Court in Case T-373/044, n. 7 above, which will be discussed in more detail below.
24. See ibid.
25. Germany wanted to include an ex-post adjustment mechanism in its NAP, which would allow the German Government to take back allowances from installations under five different scenarios and to place them in the new entrants reserve. For the different scenarios of ex post adjustments, see Case T-374/04, n. 7 above, paras 24-47.
26. In relation to the incompatibility with criterion 5 of Annex III, the CFI held that the arguments of the Commission were neither 'factually substantiated nor legally well founded' (see Case T-374/04, n. 7 above, paras 151-164). Regarding the incompatibility with criterion 10 of Annex III, the Court applied a four-part analysis (previously applied in CFI 20 November 2002, Case T-251/00, Lagardere and Canal+ v. Commission, [2002] ECR II 4825) consisting of a literal interpretation; a historical interpretation; a contextual interpretation; and a teleological interpretation (see Case T-374/04, n. 7 above, paras 92-150).
27. See Case T-374/04, n. 7 above, para. 148 (emphasis added).
28. Within Germany, the ex post adjustment rule has received widespread political support. Moreover, the German legislator explicitly stated that the goal of legislation is not only the reduction of greenhouse gases but also to provide incentives for the renewal of the German power plant fleet, something which has said to have been underdeveloped in the EU ETS in general. See M. Ehrmann and D. Greinacher, 'The Transfer Rule in the German Emissions Trading System', 3:2 JEEPL (2006), 142, at 143.
29. See Case T-374/04, Germany v Commission, n. 7 above, para.124.
30. Ibid.
31. See N.S. Ghaleigh, n. 13 above, at 22.
32. See CFI, Case T-499/07, Bulgaria v. Commission, [2008] OJ C64/50 (pending); CFI, Case T-500/07, Bulgaria v. Commission, [2008] OJ C64/51 (pending); CFI, Case T-483/07, Romania v. Commission, [2008] OJ C51/56 (pending); CFI, Case T-484/07, Romania v. Commission, [2008] OJ C51/57 (pending); CFI, Case T-369/07, Latvia v. Commission, [2007]OJ C269/66 (pending); CFI, Case T-263/07, Estonia v. Commission, [2007] OJ C223/12 (pending); CFI, Case T-32/07, Slovakia v. Commission, [2008] OJ C171/49 (removed from Registry).
33. CFI, Case T-194/07, Czech Republic v. Commission, [2007] OJ C199/38 (pending).
34. CFI, Case T-368/07, Lithuania v. Commission, [2007] OJ C283/35 (pending).
35. See Commission Staff Working Document of 27 February 2008, n. 5 above, at 41-46.
36. See Case T-183/07, n. 16 above.
37. CFI Application 7 July 2007, Case T-183/07, Poland v. Commission, at 41.
38. Under Article 288 EC, the Community can be held liable for both contractual and non-contractual damages caused by its institutions or its servants.
39. This was last checked on 21 June 2009.
40. Actions under Article 227 EC are those brought against one Member State against another for failing to fulfil an obligation under the Treaty. These actions are non-existent as far as environmental matters are concerned. See L. Krämer, 'Environmental Judgments by the Court of Justice and their Duration', 5:3 JEEPL (2008), 263
41. Note that empirical evidence suggests that Member States rely heavily on the Commission to enforce directives though. See ibid., at 278.
42. A similar trend may be observed in the actions brought by private parties, which will be discussed below.
43. ECJ 18 May 2006, Case C-122/05, Commission v. Italy, [2006] ECR I-65.
44. ECJ 12 January 2006, Case C-107/05, Commission v. Finland, [2006] ECR I-10.
45. For an in-depth discussion of the Article 226/229 EC procedure, see P. Craig and G. de Burca (eds), EU Law Text, Cases and Materials, 4th edn (Oxford University Press, 2007), 428-459.
46. For instance, in 2002, there were 1078 open cases and only 47 judgments. This means that the judgments represent around 4% of all cases. See also L. Krämer, 'Data on Environmental Judgments by the EC Court of Justice', 1:2 JEEPL (2004), 127
47. Under Article 230, natural or legal persons may institute proceedings against a decision taken by one of the European institutions (or a combined action) if this decision is of direct and individual concern to the former. See L. Krämer, n. 40 above, at 269; and CFI 2 April 1998, Case T-585/93, Greenpeace v. Commission, [1995] ECR II-2205; and ECJ 9 August 1995, Case C-321/95P, Greenpeace v. Commission, [1998] ECR I-1651.
48. CFI 30 April 2007, Case T-387/04, EnBW Energie Baden-Württemberg v. Commission, [2007] ECR II-1195.
49. Commission Decision of 7 July 2004 concerning the national allocation plan for the allocation of greenhouse gas emissions notified by Germany in accordance with Directive 2003/87. COM (2004) 2515/2 final.
50. See Case T-387/04, n. 48 above, para. 38.
51. Article 9(3) of Directive 2003/87/EC, n. 8 above, states that 'Within three months of notification of a national allocation plan by a Member State under paragraph 1, the Commission may reject that plan, or any aspect thereof, on the basis that it is incompatible with the criteria listed in Annex III or with Article 10. The Member State shall only take a decision under Article 11(1) or (2) if proposed amendments are accepted by the Commission. Reasons shall be given for any rejection decision by the Commission' (emphasis added). This article is the basis on which the Commission may exercise its review of the Member States' Allocation Plans.
52. See Case T-387/04, n. 48 above, para. 115.
53. Ibid., paras 117-118.
54. Ibid., para. 123.
55. The full text of Article 11(1) reads: 'For the three-year period beginning 1 January 2005, each Member State shall decide upon the total quantity of allowances it will allocate for that period and the allocation of those allowances to the operator of each installation. This decision shall be taken at least three months before the beginning of the period and be based on its national allocation plan developed pursuant to Article 9 and in accordance with Article 10, taking due account of comments from the public'. See Directive 2003/87/EC, n. 8 above, Article 11(1).
56. A comparable conclusion was reached in CFI 25 June 2007, Case T-130/06, Drax Power and Others v. Commission, [2007] ECR II-67, where the applicant submitted that the Commission wrongly rejected the British NAP for a second time following the decision in Case T-178/05, n. 14 above, on the grounds of the proposed amendments being notified too late. The UK had decided not to appeal the decision of the Commission for a second time and leave the NAP unchanged, meaning that several British companies received 'less' allowances.
57. CFI 1 October 2007, Case T-489/04, US Steel Košice v. Commission, [2007] ECR II-127.
58. Ibid., paras 46-49.
59. Ibid., para. 47.
60. Confirmed also in CFI 20 October 2008, Case T-208/07, BOT Elektrownia Bełchatów and Others v. Commission, not yet reported; [2008] OJ C327/25 (application pending).
61. CFI 1 October 2007, Case T-27/07, US Steel Košice v. Commission, [2007] ECR II-128.
62. Ibid., paras 20 and 22. The reference to State aid was especially important in light of the production limitations as proposed under the Act of Accession signed by the Slovak Republic.
63. Ibid., para. 72.
64. ECJ 19 June 2008, Case C-6/08P, US Steel Košice v. Commission, [2008] ECR I-96.
65. CFI 6 November 2007, Case T-13/07, Cemex UK Cement v. Commission, [2007] ECR II-146.
66. CFI 11 September 2007, Case T-28/07, Fels-Werke and Others v. Commission, [2007] ECR II-98. In this case, the CFI also clarified the position on banking (the possibility for companies to use their allocations of one period, in this case 2005-2007, for another, 2008-2012). Banking between the 'learning by doing phase' (2005-2007) and the 'Kyoto commitment phase' (2008-2012) was expressly forbidden. The applicants later launched an appeal but in ECJ 8 April 2008, Case C-503/07, Saint-Gobain Glass Deutschland v. Commission, [2008] ECR I-2217, the Commission's plea of inadmissibility was upheld. On the matter of 'banking' in the Fels-Werke case, see also N. Van Aken, n. 13 above, at 100-102.
67. CFI Order of 23 September 2008, Case T-193/07, Gorazdze Cement v. Commission, [2008] OJ C301/36; CFI Order of 23 September 2008, Case T-195/07, Lafarge Cement v. Commission, [2008]OJ C301/36; CFI Order of 23 September 2008, Case T-196/07, Dyckerhoff Polska v. Commission, [2008] OJ C301/37; CFI Order of 28 September 2008, Case T-197/07, Grupa Ozarow v. Commission, [2008]OJ C301/37; CFI Order of 28 September 2008, Case T-198/07, Cementownia 'Warta'v. Commission, [2008] OJ C301/38; CFI Order of 28 September 2008, Case T-199/07, Cementownia 'Odra'v. Commission, [2008]OJ C301/38; CFI Order of 28 September 2008, Case T-203/ 07, Cemex Polska v. Commission, [2008] OJ C301/38; CFI Order of 27 October 2008, Case T-241/07, Buzzi Unicem v. Commission, [2009] OJ C6/ 30, were of similar effect regarding the Italian NAP.
68. Case C-127/07, Reference for a preliminary ruling lodged 5 March 2007, [2007] OJ C177.
69. ECJ 16 December 2008, Case C-127/07, Arcelor Atlantique and Lorraine and Others, [2008] OJ C44/8, paras 22-23. This question had also been raised in Case T-183/07, n. 16 above, but had not been answered since the Polish application had been made against the Commission's decision about the Polish NAP rather than against Directive 2003/87/EC itself.
70. See Case C-127/07, ibid., para. 38.
71. Ibid., para. 43.
72. Ibid., para. 45.
73. Ibid., para. 47.
74. Ibid., paras 64-65.
75. Ibid., paras 70-72. The so-called 'step-by-step approach' refers to the decision taken by the Commission to extend gradually the scope of the EU ETS. See also Proposal of 23 January 2008 for a directive of the European Parliament and the council amending directive 2003/87 so as to improve and extend the greenhouse gas emission allowance trading system of the Community, COM (2008) 16 (final).
76. See also Case C-127/07, n. 69 above.
77. CFI, Case T-16/04, Arcelor v Parliament and Council, [2004] OJ C71/36 (Application).
78. With the exception of Case C-127/07, n. 69 above, which was the subject of a preliminary ruling.
79. These questions will be considered in-depth in the analysis below.
80. The author believes that this may be due to the technical nature of the Commission decisions in the area and the difficulty for non-governmental organizations (NGOs) to gain the sort of information necessary to bring claims based on the former. However, it may also be true that NGOs have, thus far, been more successful at influencing the process at the legislative stage and have focused their resources accordingly. A more effective way for NGOs to influence the EU ETS case law would be through complaints to the Commission, although these Article 226 EC procedures have also been said to take too much time for NGOs, which tend to prefer more direct results. Finally, it is also possible that NGOs prefer to enter the judicial process at the national level rather than at the Community level, since this may render more direct results and can be less costly.
81. See Case T-178/05, n. 14 above and Case T-373/04, n. 7 above. Another important clarification was provided regarding the right to public consultation and its position in the NAP process; see Case T-178/05, n 14 above.
82. See the case law described above in the section entitled 'Actions brought by private parties', especially in Case T-387/04, n. 48 above, and Case T-489/04, n. 57 above, and Case T-27/07, n. 61 above.
83. See also European Parliament legislative resolution of 17 December 2008 on the proposal for a decision of the European Parliament and of the Council on the effort of Member States to reduce their greenhouse gas emissions to meet the Community's greenhouse gas emission reduction commitments up to 2020, COM (2008) 17, Preamble 8.
84. For a full overview of price developments within the EUA market, see Point Carbon reports, available at 〈http://www.pointcarbon.com/〉.
85. See Case T-387/04, n. 48 above, paras 117-118.
86. See N.S. Ghaleigh, n. 13 above, at 32. N. Van Aken, on the other hand, argues that 'the ETS system would probably be better if the subjects of it, the companies, could explain their points of view before a Court that could correctly appreciate their arguments'; see N. Van Aken, n. 13 above, at 116.
87. M.C. Stephenson, 'Legal Realism for Economists', 23:2 Journal of Economic Perspectives (2009), 191
88. See G. Dari Mattiacci, B. Deffains and B. Lovat, The Dynamics of the Legal System, ACLE Working Paper 2009-08 (ACLE, 24 June 2009), available at 〈http://ssrn.com/abstract=1399925〉.
89. R.A. Posner, Economic Analysis of Law (Aspen Publishers, 2003), at 554, as quoted in ibid., at 9.
90. For the mathematical representation of this idea, see G. Dari Mattiacci et al., n. 88 above, at 9-13.
91. CFI, Case T-194/07, Czech Republic v. Commission, [2007] OJ C199/38 (pending).
92. See U. Oberndorfer and K. Rennings, 'Costs and Competitiveness Effects of the EU Emissions Trading Scheme', 17 European Environment (2007), 1.
93. In relation to the wide introduction of auctioning, an increase in claims on the basis of Articles 81(1) and 82 EC is also to be expected. The structure of, especially, the energy market in Europe is conducive to tacit collusion of bidders in the future EU ETS auctions, which could result in abuse of dominance or anti-competitive behaviour. Cleary, the extent to which these concerns materialize will depend also on the final form of the auctions of the different Member States and the Auctioning Regulation which is yet to be adopted. The text of Article 81(1) and Article 82 EC are: 'The following shall be prohibited as incompatible with the common market: All agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market, and, in particular, those which: (a) directly or indirectly fix purchase or selling prices or any other trading conditions; (b) limit or control production, markets, technical development, or investment; (c) share markets or sources of supply; (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts' and 'Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market in so far as it may affect trade between Member States. Such abuse may, in particular, consist in: (a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; (b) limiting production, markets or technical development to the prejudice of consumers; (c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts', respectively.