Impact Assessment accompanying the new M&R Regulation underlines that as of 2013 the term “biomass” will mean biomass, bioliquids and biofuels within the meaning of Renewable Energy Directive 2009/28/EC including sustainability criteria for biofuels and bioliquids.

Important to note that the first reference to “biomass” constitutes “EU ETS biomass”, the second reference refers to the Renewable Energy Directive 2009/28/EC definition of biomass, while the reference to sustainability criteria is only intended in connection with biofuels and bioliquids deemed sustainable in accordance with Directive 2009/28/EC; NOT other forms of (solid or gaseous) biomass.


There are the key considerations as pursuant to Annex IV of Directive 2003/87/EC and Article 38(2) of the new M&R Regulation the emission factor of biomass is zero.


The above legal developments mean, however, that comparing the current legal status of the biomass under the EU ETS rules with that in the third trading period (as of 2013) an important change to a definition of zero-rated biomass will follow i.e. requirement for biofuels and bioliquids to meet sustainability criteria contained in Directive 2009/28/EC in order to qualify for zero rating.


The question may be posed, how the Commission intends ‘to provide legal certainty to the Member States, the power generators concerned and the market on the quantity and terms of the transitional free allocation in the situation, where the issue is not decided yet due to required and not made State aid assessments?



Another regulatory switch? Are biomass power plants in jeopardy?



Unlike the previous versions of the Guidelines, in the final text the 40% threshold for the production increases and decreases in the definitions for baseline output and baseline electricity consumption, is not relevant.

In effect of the changes made in that regard, the installations will have greater flexibility in planning production without being restricted with stiff and cut-off 40% threshold.


It is possible that a non-ETS heat consumer becomes an ETS heat consumer and vice versa. The legal effects for such changes are specified in the guidance document.


The question that is today particularly vital for the CO2 trading community: do elaborations of the ITRE Committee included in the Compromise Amendment No 18 have any direct impact on the current trading conditions with respect to CO2 allowances?



With respect to the Emissions Trading System the Draft Report ‘acknowledges that the carbon price is very much lower than was originally envisaged and is failing to provide the necessary investment stimulus’, and proposes to recalibrate the ETS before the commencement of the third phase by setting aside allowances to restore scarcity.

The Draft Report presents also some other quite revolutionary theses, notably the modification of 1.74% annual linear reduction factor, the reserve price for the auction of allowances, reducing greenhouse gas emissions from agriculture, time limits for new sources of electricity generation emitting more than 100g CO2/kWh and border adjustment measures requiring importers of products in carbon leakage sectors to purchase allowances – all of them of potential fundamental impact on European industries.



The emissions trading complicates sometimes things the were quite simple so far.

This contention (burdened, some may say, with obviousness) is, however, properly reflected in a practical situation where one heat producer undergoes the significant capacity reduction, or partially or even entirely ceases its operations and the supplies of the heat to the district heating pipelines are taken over by another heat producer which, in turn, must invest in new capacities (which consequently constitutes significant capacity extension in the meaning of the European Commission’s Decision determining transitional Union-wide rules for the harmonised free allocation of emission allowances pursuant to Article 10a of Directive 2003/87/EC of 27 April 2011).




The free allowances as of 2013 will be allocated on a first come, first served basis – this simple and short assertion produces, however, significant business and legal risks, in particular whether the pool of allowances in the 5% reserve does suffice for all interested in new investments (for instance in high-efficiency cogeneration).



The unknown capacity utilisation factor (differing across Member States), the first come, first served rule as regards allocation from the new entrants reserve and the flexible grounds for the rejection by the European Commission of the preliminary total annual amount of emission allowances submitted by the Member States – all these circumstances cause that the potential investors have no legal certainty how to valuate the relevant factors and have to assess in their projections the risks stemming from this fact.


Article 27 of the Directive 2003/87/EC (as amended by the Directive 2009/29/EC) allows for the exclusion of small installations (subject to equivalent measures) from EUETS.

These small installations will have a chance to avoid administrative burdens and costs (resulting from the participation in the scheme) only, if governments act quickly. 30 September 2011 is a key deadline in that matter.

The Decision does not use the word “predominantly” in the context of the special allocation procedures for private households and does not contain explicit provisions that would enable the differentiation of factual circumstances with 25 apartments and 2 shops from 25 apartments and 3 shops.



Is the heat distributor legally entitled to deliver data on the heat consumer’s carbon leakage status to the heat producer assuming that the agreement between the heat distributor and heat consumer does not regulate the matter?



In the case of installations being non-electricity generators, the final allocation could be determined only once the need and the value of the cross-sectoral correction factor is stipulated.



The thorough assessment of the whole situation must lead to the conclusion that the list of green CERs is actual only at the given moment in time and there are no guarantees that the list will not change in the near future depending on current political fluctuations. The CERs that are “green” now, unnecessarily must remain “green” at the beginning of the third trading period as well as in the course thereof.



The CO2 emission factor corresponds to the CO2 emissions per MWh of electricity generated and the questionnaire prepared by the Commission raises the issue what CO2 factor to use as a basis for calculating the compensation for costs relating to greenhouse gas emissions passed on in electricity prices. The Directive 2003/87/EC didn’t precisely specify this issue and the said question is now at the centre of discussion. The outcome of the debate may impact on the competitiveness of the whole industries.



Designing the legal mechanism to account for the relevant transfers of funds is an ultimate ambush.

What would be the legal form (what kind of agreement, sale, donation, other) of the purported transfers between companies taking part in the operations for the transfer of funds, how these operations would be accounted for, what form of taxation to apply (as regards VAT, CIT), and what would be the effects of these processes on the profits of the company – all these matters require analysis.


If somebody hoped so far that submitting national plan for investments, pursuant to Article 10c(5) of Directive 2003/87/EC, would in any way resolve the question of state aid, he should now, after publication of the guidelines, have no illusions about it.


“Preparatory work” concept casts numerous doubts. Will current legislative efforts at national level manage the situation to be cleared up?