The EU has adopted a strong political stance towards climate change. In recent years it has taken a number of important steps in an attempt to develop a comprehensive climate change policy,2 at which core lay the EU burden-sharing agreement established by Council Decision 2002/358/EC3 and the emissions trading scheme (EU ETS) established by Directive 2003/87/EC4 (hereafter Directive 2003/87/EC or the directive). The latter directive covers the key elements of the EU ETS, including the basic rules for the allocation of allowances. However it adopts a highly decentralized approach, affording Member States a significant leeway to make important regulatory choices. This decentralized approach has seemingly brought numerous problems, reducing the capacity of the EU ETS to achieve the main objectives of the directive, namely environmental effectiveness, cost-effectiveness and economic efficiency, and the sound functioning of the internal market by avoiding distortions of competition.5 Article 30 of the directive mandates the

1 Ph.D Researcher, METRO, University of Maastricht.

2 However, EU climate change policy cannot be considered to be comprehensive yet. See Ludwig Kramer, 'Some reflections on the EU mix of instruments on climate change', in Peeters and Deketelaere (2006).

3 Council Decision 2002/358/EC concerning the approval, on behalf of the European Community, of the Kyoto Protocol to the United Nations Framework Convention on Climate Change and the joint fulfilment of commitments thereunder, OJ L 130, 15.5.2002, p.1.

4 Directive 2003/87/EC of the European Parliament and of the Council establishing a scheme for greenhouse gas emission allowance trading within the Community and awaiting Council Directive 96/61/EC, OJL 275, 25.10.2003, p. 32.

5 Article 1, recital 7, recital 18.

Commission to undertake a review of the directive which may lead to amendments in order to improve the functioning of the scheme. Pursuant to this mandate, the Commission has recently issued a proposal to amend the directive. This proposal introduces a highly harmonized scheme in which Member States are left with virtually no choices when implementing its crucial elements.6

Against this background, this article seeks to examine closely the reasons given by the Commission for adopting such a highly harmonized approach, particularly with respect to the allocation methodology, from the perspective of three key legal principles of Community law, subsidiarity, polluter pays principle, and equality. These principles are selected because they are frequently relied upon to request further harmonization of EU (environmental) law.7 The specific question this chapter wants to examine is whether the approach proposed by the Commission can be supported and/or required by those principles, and if so to what extent.

The term 'allocation methodology' or 'allocation process' is used to refer to three closely related elements: (1) the determination of the cap; (2) the allocation to sectors; (3) the allocation to individual installations.8

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