The principle of subsidiarity and the allocation rules

As mentioned above, allocation rules can be used to promote a certain conception of fairness. However, the way in which they are designed can violate the polluter pays principle and the principle of equal treatment within the internal market. Hence, the case for harmonization must be analysed mainly under those principles.

From the perspective of subsidiarity, the question which must be asked is which objectives of the ETS related to the allocation rules cannot be sufficiently achieved by Member States and can be better achieved by the Community. One can think of two: avoiding distortions of competition within the internal market and avoiding barriers to the right of free establishment. The former will be analysed under the principle of equal treatment. The second would justify enough harmonization to prevent allocation rules from being designed so as to favor national industries vis-à-vis foreign ones. This is currently the case with closure and transfer rules such as those introduced in the German NAP for the first trading period. According to those rules, operators that close installations in German territory can keep their allowances as long as they open a similar installation in German territory and during a certain period of time. This rule may violate Article 28 EC on the free movement of

goods and Article 43 on the right of establishment protected by Article 43 EC. In Germany v Commission, the CFI mentioned but did not examine this issue since it did not constitute the core of the case.93 Further harmonization must depend on the aim of achieving a 'level playing field', which is a notoriously difficult concept to deal with, and which could therefore cover almost all the reasons that the Commission adduces to push for auctioning, such as the need to increase simplicity and transparency, while reducing distributional effects. If the argument for complete harmonization is that 27 Member States regulating the allocation rules will as a matter of fact yield a less simple and transparent approach than when the Community does so, then this suggests that the principle of subsidiarity is not fully taken seriously. A strong argument can be made that once environmental effectiveness and economic efficiency are ensured, Member States may retain competence to ensure their own understanding of fairness within their own jurisdictions, subject to compliance with the treaties and with general principles of Community law.

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