It is a common practice that, in the course of restructuring, the groups of undertakings are closing non-effective installations and transfer the production to the most effective ones. Such an objective lies often at the origin of mergers and acquisitions in the capital market.
Taking into account the legal scheme of the EU ETS there are arguments that the abovementioned practice should be reflected in rules relating to installations that entirely or partially ceased to operate or significantly reduced their capacity, on the one hand, and the new entrant reserve on the other. But the aforementioned mutual legal dependencies unfortunately are not included in the text of the Directive 2003/87/EC.
The problem appeared already in the case law. The issue is now – but only as regards the third trading period - in the hands of the European Commission which is obliged by the Directive to adopt by 31 December 2010 legal measures provided for in the Articles 10a(7) and 10a(20) of the Directive.
In the judgment given on 15 December 2009 in the case T‑16/04 (Arcelor SA v European Parliament and Council of the European Union) the General Court dismissed the action brought by the Arcelor for partial annulment of Directive 2003/87/EC. But the reasons for that judgment are partly not convincing and I afraid that the Court did not carry out in-depth analysis of the problem raised by the applicant as regards the transfer of emission allowances within a group of undertakings.
The applicant in this case submitted that the provisions of the Directive 2003/87/EC affect its right to transfer production from a less efficient installation in one Member State to a more efficient installation in another Member State by not guaranteeing a corresponding transfer of the allowances allocated to the production capacity which is to be closed and transferred. This forces the applicant, without objective justification, to continue to operate less efficient plants solely in order not to lose the corresponding allowances.
Considering these arguments the Court referred to:
1) the Article 12(1) of the Directive, read in conjunction with Article 3(a) and (g), that ‘Member States shall ensure that allowances can be transferred between … [natural and legal] persons within the Community’,
2) the Article 12(2) of the Directive, which requires that ‘Member States … ensure that allowances issued by a competent authority of another Member State are recognised for the purpose of meeting an operator’s obligations [to surrender unused allowances]’.
It follows from the reasons to said judgment that, in the Court opinion, the solution to the applicant problems relating to EUAs’ allocations to the installations that have ceased its activity is the creation of an efficient European market in greenhouse gas emission allowances that has a Community dimension and is founded on the principle of the free cross-border transfer of emission allowances between natural and legal persons
But this parts of the Court’s considerations simply omits the fact that NAP’s are prepared for the entire trading period (three years as regards the first, five and eight years as regards the second and third respectively). Free allocations quotas are transferred into the registry accounts of the operators of installations by 28 February of the each year of the trading period (so to said “in installments”). It is apparent from the said arrangements that the transfer of EUA’s, mentioned in the Court’s considerations, allocated to one installation, following its closure, to another installation established (for instance) in another Member State and belonging to the same group of companies, may relate only to that part of allocations that are already in the registry account of the installation subject to closure. The “installments” of allocations foreseen in the NAP for future years of the trading period for the installation which ceased its operations can not be transferred in that manner, because EUA’s relating to these subsequent years are not in the registry account of the installation (but would be in the future if the installation continued its operations).
So, the Court is right in that part of it’s considerations in which it points out that the above-described problem is related to the area of implementation of the Directive by the Member States and not to the very Directive as such (but it would be useful to recall that this is the case only as regards the second trading period).
The Court stated that, ‘The contested directive, and in particular Articles 9(1) and 11(1) thereof, grants the Member States discretion and, in principle, that discretion is broad enough to enable them to apply the rules of that directive in conformity with the requirements resulting from the protection of the fundamental rights and fundamental freedoms under the EC Treaty’ and ‘It follows from all of the foregoing that the Community legislature cannot be accused of having failed to resolve in an exhaustive and definitive manner, within the framework of a directive, a problem coming within the scope of the freedom of establishment, where that directive grants the Member States a discretion which enables them fully to respect the rules of the EC Treaty and the general principles of Community law.’
The Arcelor’s pleas for partial annulment of the Directive 2003/87/EC in the said case were dismissed mainly because the Directive (as of the text before the amendments made by the Directive 2009/29/EC) did not provide for any specific rule regulating this matter, and in particular, did not provide for any restriction on cross-border transfers of allowances between legal persons within the same group of companies, irrespective of whether their registered office and/or principal place of business were located within the internal market.
Although Article 11(3) of the Directive, in conjunction with criterion 6 of Annex III thereto, requires that the Member States take account of the need to make access to allowances available to new entrants, the contested by the Arcelor directive does not also provide, as such, for the establishment of such a reserve.
Finally, in the Court opinion, it cannot therefore be concluded that that directive contains an unlawful restriction on the fundamental freedoms of the EC Treaty, including the freedom of establishment, or that it encourages the Member States not to respect those freedoms. Thus, the possible inadequacy of that access to offset the loss of allowances as a result of the closure of an installation also cannot be attributed to the Community legislature.