To assist its Member States in complying with their respective targets, the European Union has established the Emissions Trading Scheme (ETS) within the Community.3 The scheme, which started to operate from 1 January 2005, 'is a system under which thousands of CO2-emitting installations in Europe receive a limited amount of allowances in function of their needs'.4 That ETS directive introduced new concepts and mechanisms in European environmental law.5 Concerning the gases covered, the practical application is limited. In fact, the ETS Directive covers only the CO2 emissions. The Directive covers only specific sectors, determined in Annex 1 (representing about 11 500 companies). The emissions taken into account by the Directive represent 40% of all EU-27 greenhouse gases.6 The creation of tradable EU allowances is the core of the ETS Directive. After each year, the company covered by the ETS Directive has to return an exact number of EU allowances in order to 'justify'

1 This article represents the position as at 10 May 2008.

2 The author would like to thank professor Michel Pâques, Professor at the University of Liège and judge at the Belgian Council of State, for his support and his constructive comments.

3 Directive 2003/87/EC of the European Parliament and of the Council of the 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC, OJ 2003, L 275/32.

6 Commission Staff Working Document, Impact Assessment, Document accompanying the package of Implementation measures for the EU's objectives on climate change and renewable energy for 2020, SEC(2008) 85/3, 23 January 2008, p. 4, b).

its annual emissions. Nevertheless, Member States must also ensure that no installation undertakes any activity producing specified emissions unless its operator holds a permit issued by a competent national authority. That exact prior authorization does not prescribe any threshold or limit to CO2 emissions. It is only one way to verify whether the operator is able to manage his ETS obligations. Another is to surrender allowances in due time and in such quantity that all emissions during the preceding year are covered.

For each period, Member States have to communicate their national allocation plans to the Commission. The State must develop a plan stating the total quantity of allowances that it intends to allocate for that period and how it proposes to allocate them.7 The Commission has to control it, but case-law expressly stated that this prior control is not an authorization as such.8 The plan must be based on objective and transparent criteria including those in Annex III of the Directive. These criteria set the framework for the discretion allowed to the Member States with respect to allocation. The attribution of the EU allowances is made according to the grandfathering method under which 'the operators of covered installations received at least 95% of the EU allowances free of charges in the first allocation period from 2005 to 2007, and at least 90% in the second allocation period 2008-2012'.9 In other words, the covered installations freely receive a specific number of EU allowances. They will use it to cover their emissions. But the companies can also freely sell them to other operators of covered installations or eventually to other persons.

Some scholars criticized vigorously the Kyoto Protocol and the ETS Directive.10 In our opinion, regarding the difficulties of finding an agreement in an international range, the Directive and the Kyoto Protocol have the advantage of being a first step against the degradation of the climate. They endeavour to make a compromise between the environmental necessity of bringing

7 Article 9 of the Directive 2003/87/EC.

8 Court of First Instance, 30 April 2007, Case T-387/04 EnBW Energie BadenWürttemberg v. Commission, § 124. to be discussed later in this chapter

9 There are three main options for distributing allowances. Next to the 'grandfathering' method, two other options are available. See Barton (2006). For the moment, the system of the Directive is a mix of the 'grandfathering' and 'auctioning' methods.

10 See Prins and Rayner (2007, pp. 973-75). For the authors, 'the Kyoto Protocol was always the wrong tool for the nature of the job' [...] 'Kyoto has failed in several ways, not just in its lack of success in slowing global warming, but also because it has stifled discussion of alternative policy approaches that could both combat climate change and adapt to its unavoidable consequences'. They criticize the Kyoto Protocol because they believe that the global warming struggle needs 'a radical rethink of climate policy'. See also Victor (2001). For the points of view of some Belgian companies about the EU Climate Action 'Energy for a Changing World', see Le Bussy (2001); Comhaire (2001). See also Verhest (2001).

new solutions and paths to the global warming problem in compliance with the economical needs of today.

In this chapter, we will provide an analysis of the case-law concerning the European greenhouse gas emissions trading scheme. This analysis will be presented in eight sections:

• Amendments to the national allocation plans (section 2).

• Access to justice and the 'individually concerned' case-law (section 3).

• The procedure, the delays and the public participation under Directive 2003/87/EC (section 4).

• The connections between the '1st phase' period and the 'Kyoto' period (section 5).

• The interpretation of the Commission's guidelines (section 6).

• Ex post adjustments and the principle of subsidiarity in the ETS Directive's system (section 7).

• The Directive 2003/87/EC and the 'State-aid' matter; the connections with the Articles 87 and 88 of the EC Treaty (section 8).

• Is the scope of the Directive discriminatory or not? (section 9)

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