The Installation B, in turn, undergoes hypothetic significant capacity extension, which, in principle, is an event initiating procedure for allocation to new entrants.


Article 20 of the Decision:

’Allocation as new entrant following a significant capacity extension

1. Where an installation has had a significant capacity extension after 30 June 2011, Member States shall, upon application by the operator and without prejudice to the allocation to an installation pursuant to Article 10, determine on the basis of the methodology set out in Article 19 the number of free emission allowances to be allocated, in so far as the extension is concerned.

2. Member States shall require the operator to submit together with the application evidence demonstrating that the criteria for a significant capacity extension have been met and to provide the information referred to in Article 17(3) to support any allocation decision. In particular, Member States shall require the operator to submit the added capacity and the installed capacity of the sub-installation after having had a significant capacity extension verified as satisfactory by a verifier, in accordance with the requirements set out in Article 8. Member States shall consider this installed capacity of the sub-installation after having had a significant capacity extension as the sub-installation's initial installed capacity when assessing any subsequent significant capacity change.’


Seemingly everything is OK – Installation A looses its CO2 free emission allocation, and Installation B acquires the respective carbon credits. Not quite so. It should be observed in the first turn that the flow of allowances does not occur directly between the interested parties (Installation A and Installation B making mutual arrangements as regards the  schedules for heat supplier switching). It is not the case where the Installation A passes the free emission allowances (corresponding to the heat supplies that were taken over) on to the Installation B. The civil law agreement regulating this issue will be without subject, since these occurrences are regulated by the public law.

The said problem is, furthermore, practically focused on the risk that the Installation B could eventually get no allowances for the extended capacities, since the reserve for allowances could be, in the meantime, exhausted (for particulars see: ‘First come, first served – is this the best formula for the allocation of free allowances from the 5% reserve?’).


The significant conclusions are:


1. The Installation B has no guarantee that it receives free carbon credits for heat supplies that were taken over from the Installation A and this fact should be accounted for in the mutual arrangements;


2. Considering that the free emission allowances are allocated in advance for a given year (till the end of February) and allocations adjustments take place ex post - as of the year following the year in which the said changes occurred (in the year T + 1 ) - the Installation A retains carbon credits allocated for the year T (‘T’ meaning the year in which Installation A significantly reduces its capacity or ceases its operations partially or entirely), notwithstanding changes in the level of its emissions.


The above points don’t relate to the second trading period, because the Decision’s subject matter is laying down ‘transitional Union-wide rules for the harmonised free allocation of emission allowances under Directive 2003/87/EC from 2013 onwards’ (Article 1). In the second trading period 2008 – 2012 the above-described rules are not harmonised across the Union and are regulated by the national laws.


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