EU Court to Rule March 7 on Polish Suit Over Free Carbon Permits

A European Union court is due to rule next month in a lawsuit filed by Poland against the EU’s regulatory arm over the method for allocating free carbon-dioxide permits in the world’s biggest emissions market.

Poland sued the European Commission in July 2011, saying the Brussels-based EU regulator failed to take into account fuel mixes in individual member states when devising the carbon-efficiency benchmarks. The standards, which are used to determine the number of free permits for emitters after 2012, are “more restrictive” than required to meet the climate-protection targets, the Polish Foreign Ministry said last year.

The EU General Court in Luxembourg, the EU’s second-highest tribunal, is scheduled to rule on the case on March 7, according to the institution’s website.

At stake is the design of the 54 billion-euro ($73.3 billion) EU emissions trading system in the current trading period, in which European governments will sell a greater proportion of allowances than in the past eight years. The EU adopted 52 benchmarks to allocate a dwindling supply of free permits in the so-called third phase from 2013 until 2020.

The European emissions trading system, known as the EU ETS, is the cornerstone of the 27-nation bloc’s policy to cut greenhouse gases blamed for climate change by 20 percent in 2020 compared with 1990 levels. It imposes pollution limits on about 12,000 utilities and manufacturers, including Electricite de France SA, Europe’s biggest power generator and Royal Dutch Shell Plc, the continent’s largest oil company. One permit gives the right to discharge one metric ton of carbon dioxide.

European Utilities

In the third phase of the ETS, which starts in 2013, west European utilities will no longer get free allocations, while some east European power plants will have to initially buy 30 percent of their permits at auctions. That amount gradually rises to 100 percent by 2020.

The benchmarks are based on the average performance of the top 10 percent of installations in 2007 and 2008. The most efficient installations in a given industry won’t need to purchase more allowances, while those that emit more than the benchmarks will need to buy permits.

The methodology designed by the commission may “kill off” utilities and manufacturers in Poland, which generates about 95 percent of its energy from coal, according to the Polish government. The so-called benchmarking regulation has also come under fire from steel producers, including ThyssenKrupp Steel Europe AG and Voestalpine Stahl GmbH, who claimed it will result in additional costs to the industry of around 5 billion euros.

The European Court of Justice last year declared inadmissible two lawsuits brought by the steel companies, saying that a complaint on the distribution of allowances should be judged by a national court.

The case is: T-370/11, Poland v Commission.

Before it's here, it's on the Bloomberg Terminal.