EU Too Generous Giving Free Carbon Allowances, Court Aide Says

Bloomberg Businessweek
Units of Exxon Mobil Corp., Dow Chemical Co. and OMV AG may lose challenges against a 2013 European Union decision to cut the free carbon allowances they receive after an adviser to the bloc’s highest court said regulators were still too generous.

The European Commission made mistakes in the way it corrected the quotas, Juliane Kokott, an advocate general at the EU Court of Justice, said in a non-binding opinion on Thursday. The Luxembourg-based court follows such advice in a majority of cases. She said that the European Commission should make a new decision on the allowances within a year, but that any changes shouldn’t be applied retroactively.

Following such a decision, “any additional allocations of free quotas would be manifestly inappropriate. In fact, the free allocations were not too low, but too high,” Kokott said.

Companies including units of Eni SpA, Royal Dutch Shell Plc and Tenaris SA challenged the European Commission 2013 decision to apply a so-called correction factor for allocating free carbon permits. A court decision that fails to back additional free allowances may spur new demand in the market, according to Vertis Environmental Finance.

The EU emissions-trading system covers about 12,000 installations owned by manufacturers and utilities and is Europe’s key tool to reduce greenhouse gases, which scientists blame for global warming. The bloc, which has given away the majority of emissions permits since it started its carbon cap-and-trade plan in 2005, will sell the majority of them in the eight-year trading period that started in 2013.

The amount of free permits that companies receive depends on their carbon efficiency. To ensure that the total number of free allowances requested by national governments doesn’t exceed the maximum amount allowed under EU law, the bloc’s executive arm is entitled to apply a correction factor across industries, cutting the handout.

The companies challenged this 2013 commission decision in courts in Austria, the Netherlands and Italy, arguing this system resulted in them getting a smaller allocation of allowances for free than they should have received. The three courts sought the EU top tribunal’s advice in 2014. The Luxembourg-based tribunal’s decision is expected in the next four to six months and will be binding on the local courts.

The commission didn’t immediately respond to a request for comment.

The cases are: C-191/14 Borealis Polyolefine, C-192/14 OMV Refining & Marketing, C-295/14 DOW Benelux, C-389/14 Esso Italiana, C-391/14 Api Raffineria di Ancona, C-392/14 Lucchini in Amministrazione Straordinaria, and C-393/14 Dalmine.