EU Court ruling sparks uncertainty over ETS free allocation

The Court of Justice of the European Union has declared invalid the ETS free allocation for the period 2013-2020, due to discrepancies in the data provided by the bloc’s 28 nations on new industrial installations.

In the verdict released on Thursday (April 28), the Court ordered a recalculation of the Cross Sectoral Correction Factor (CSCF), the coefficient to ensure that total allocation in the EU ETS remains below the maximum amount pursuant to article 10a(5) of the EU ETS Directive. The sentence gave the European Commission 10 months to establish a new amount of emission allowances to be handed out for free to European industry. “Depending on the information to be provided by the Member States on the basis of the criteria set out by the Court, the maximum annual amount of allowances could be higher or lower than that thus far determined by the Commission”, the Court stated.

The case was brought to national courts by a group of EU refiners and chemical companies in Austria, the Netherlands and Italy, claiming that they had been given fewer free allowances than they were entitled to. In 2014 the national courts referred the cases to EU top tribunal.

Thursday’ ruling will not be retroactive and will not affect the overall cap of the EU ETS but could lead instead to a slight cut in future free permits to industry from 2018, Reuters reported.

According to Carbon Pulse, the revision could result in a cut to the future free allocation for all ETS-regulated industry by up to 1.6% of its allocation of 6.6 billion EUAs for Phase 3 (2013-2020), with the allowances in question being put up for auction. Moreover, it is likely to have an impact on how free allocation is determined for Phase 4 (2021-2030).

According to Bloomberg, uncertainty contributed to the biggest intra-day drop in EU carbon prices since Feb. 23 on Thursday.
In the long term, the sentence could also help push EU carbon prices up by some €0.50 over the next two years as industrial companies opt to hoard surplus units they would otherwise have sold, expert told Carbon Pulse.

EU Commission spokesperson said it would work diligently to implement the court’s ruling so as to reduce the uncertainty created by the ruling for market participants, Reuters reported.

 

(Image: European Court of Justice – Luxembourg. Photo credit: Cédric Puisney/Flickr)