(CN) — Europe's highest court ruled Thursday that energy-intensive industries have been given too many free carbon emission permits under the country's emissions trading scheme.
The Emissions Trading Directive — which aims to reduce greenhouse gases to help protect the environment — covers more than 11,000 factories, power stations and other high-energy companies in all 28 European Union member countries.
A maximum cap is set on the total amount of greenhouse gases that can be emitted. A proportion of free allowances is allocated free of charge. The European Commission uses a uniform cross sectional correctional factor to ensure that the allocation of free allowances does not exceed the cap allowed under law.
The European Court of Justice said that the commission has been using incorrect data as the basis of its calculations, resulting in the number of free emissions being too high.
The court gave the commission 10 months to establish a new amount, but stated that this would not affect annual allocations already handed out.
The ruling stems from a challenge brought by a group of refiners and chemical companies who said they received a smaller number of emission allowances than they thought they were entitled to for the period of 2013 through 2020. Their complaint was an indirect challenge to the maximum annual amount of allowances determined by the commission in two decisions in 2011 and 2013.
The courts in which those actions are pending requested that the Court of Justice make a preliminary ruling on the validity of those decisions.
The commission's 2011 decision, which precludes taking into account the emissions from electricity generators when determining the maximum annual amount of allowances, is valid.
"Despite the clear distinction between electricity generators and industrial installations, the latter may receive free allowances for certain emissions which are related to electricity generation. However, those emissions are not taken into account in the maximum annual amount of allowances," the court said.
This treatment is consistent with the objectives of the directive, the court said.
The scope of the directive was broadened on Jan. 1, 2013, to include emissions from the production of aluminum and from certain sectors of the chemical industry.
When establishing the maximum annual amount of allowances in 2013, the commission was required "to take account only of the emissions from the installations included in the community system from 2013 onwards," the high court said.
However, the commission improperly "took account, at least in part, of the emissions of installations covered by the allowance trading scheme before 2013 in determining the maximum annual amount of allowances."
As a result, the amount does not meet the requirements of the directive because it is too high, the court said.
Discrepancies in the data on new industrial installations provided by the 28 nations led to the error, the court said, adding that the commission should have requested that the nations adjust their data to enable correction calculations.
Depending on the information provided by the nations, the maximum annual amount of allowances could be higher or lower than the previous determinations, the court said.
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