Exxon Mobil, Dow Chemical, and OMV Likely to Lose Challenge against EU Carbon Allowance Decision

Units of Exxon Mobil Corp., Dow Chemical Co., and OMV AG are likely to lose their challenges against a 2013 European Union decision to reduce the free carbon allowances they receive. In a non-binding opinion, Juliane Kokott, an advocate general at the EU Court of Justice, stated that the European Commission had made errors in correcting the quotas. While a final decision is pending, the court typically follows such advice in the majority of cases. Kokott recommended that the European Commission make a new decision on the allowances within a year, without applying retroactive changes.

Kokott emphasized that any additional allocations of free quotas would be inappropriate, as the previous allocations were too high rather than too low. Companies such as Eni SpA, Royal Dutch Shell Plc, and Tenaris SA had challenged the European Commission’s 2013 decision to apply a correction factor for allocating free carbon permits. If the court decision does not support additional free allowances, it may lead to increased demand in the market, according to Vertis Environmental Finance.

The EU emissions-trading system, covering approximately 12,000 installations owned by manufacturers and utilities, is a key tool in Europe’s efforts to reduce greenhouse gases. The allocation of free permits depends on a company’s carbon efficiency. The European Commission is authorized to apply a correction factor across industries to prevent the total number of free allowances from exceeding the maximum allowed under EU law.

The challenged decision by the European Commission was brought before courts in Austria, the Netherlands, and Italy by the companies involved. These courts sought advice from the EU Court of Justice in 2014. The final decision of the Luxembourg-based tribunal, expected in the next four to six months, will be binding on the local courts. The European Commission has not yet responded to the recent developments.

twitterlinkedin