Introduction

An ex post intervention within an emissions trading scheme is a governmental decision that changes the legal circumstances under which the market and thus the market participants may operate. A specific example of such an ex post intervention, which is the focus of this chapter, is the upwards or downwards adjustment of the amount of tradable rights (also called allowances) to which a company is entitled. From a viewpoint of legal certainty, ex post adjustments concerning allocated tradable allowances need careful attention. Indeed, the withdrawal of issued traditional 'permits', let alone modern trad-able allowances, needs to be balanced between, on the one hand, the specific legal position of the permit-holder, and, on the other hand, the specific policy goal that motivates the administration to withdraw the permits. Secondly, particularly for an emissions trading market, stability of the legal conditions under which trade can occur is seen as an important stimulus for letting the market work. Without confidence in the trading system, participants would be reluctant to trade. Moreover, as with all environmental and other legislation, the administrative tasks for implementing the emissions trading instrument should be transparent and should be kept as feasible and simple as possible. Following these considerations, the governmental competence to conduct ex post adjustments with regard to allocated emissions rights needs meticulous consideration. However, these considerations need to be done in view of the specific emissions trading model. There is a difference between, on the one hand, allocation models where the allowances will be distributed ex ante and, on the other hand, the credit and trade model where at the end of a certain period (like a calendar year) a calculation will be made of the total amount of allowances to which an industry is entitled.1 The choice between ex post adjustments of allocated tradable allowances or ex post allocations of allowances is one of the design options for the legislator that wants to introduce an emissions trading model.

Within the initial European greenhouse emissions trading scheme, the possibility of intervention regarding the allocated amount of tradable rights has been introduced by most of the Member States, specifically with respect to closures of installations. Many Member States also intended to conduct interventions in order to be able to correct allocations in case the predicted production growth, on which the ex ante allocation had been done, did not occur. An ex post adjustment would then bring the allocation in line with the real production. This method, as being introduced by Germany for some specific situations, has been rejected by the European Commission in its decision on the German National Allocation Plan for the period 2005-2007. The Court of First Instance in its ruling of 7 November 2007, however, has emphasized the freedom of Member States to choose form and methods when implementing a directive like the greenhouse gas directive.2 It concludes that the Commission wrongly rejected the choice of ex post adjustments as being proposed by Germany. This means that the German government is allowed to ask around 700 companies to return 15 million EU allowances for the first phase of the Emissions Trading Scheme.3

This chapter discusses some preliminary experiences with ex post adjustments of allocated rights within the initial framework of the EU ETS. As such, it aims to provide an initial start for a systematic analysis of possible ex post interventions within emissions trading schemes. Section 2 first discusses the current legislative framework of the EU Greenhouse Gas Emissions Trading Scheme (EU ETS), and section 3 gives some illustrative examples derived from the implementing legislation of The Netherlands, Germany, and Belgium. Section 4 provides an analysis of the relevant case law, both from national courts and the Court of First instance. In section 5, a conclusion and a look ahead will be presented.

. 1 See for both models chapter 2, and for a more detailed discussion of the credit and trade approach that includes ex post allocations Peeters et al. (2007).

2 CFI November 2007, T-374/04 (which will be discussed in section 4.3).

3 Newsletter New Values http://community.newvalues.net/2007/11/ germanys_ expost_corrections_an.html#more, visited 23 January 2008.

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