Derogations from a transition - ClientEarth Document Library

Derogations
from a transition
Free EU ETS allowances
for the electricity sector
in Poland
A 2015 ClientEarth Report
ClientEarth Poland is part of the international legal organization with headquarters in London
and offices in Warsaw and Brussels.
Publisher: ClientEarth Poland
ul. Żurawia 45, 00-680 Warszawa
Suggested Citation: Kenig-Witkowska, M, Krämer, L, Ubysz, K, Stoczkiewicz, M. (2015). Derogations
from a transition. Free EU ETS allowances for the electricity sector in Poland. ClientEarth Poland.
The law is stated as 31st December 2015
Edited by:
Marcin Stoczkiewicz, Agnieszka Warso-Buchanan
Authors:
Maria Magdalena Kenig-Witkowska
Ludwig Krämer
Karolina Ubysz
Marcin Stoczkiewicz
Graphic design ANTONOFKA Agnieszka Skurzanko
Printing and binding DOT Barbara Kłoczewska
Picture on the cover iStockphoto
ISBN: 978-83-938296-4-4
Derogations
from a transition
Free EU ETS allowances
for the electricity sector in Poland
Table of contents
I.
Introduction
_________________________________________________________
6
II.
The EU greenhouse gas
2. A transitional allocation of free
greenhouse gas emission allowances
– derogations for the energy sector______ 22
policy of the European Union
3. The implementation of Article 10c
of Directive 2003/87/EC in Poland
– free greenhouse gas emissions
for the energy sector___________________________ 26
– an introduction to the issues _____________ 8
4. Conclusions_________________________________________ 36
allowance trading scheme
in the context of the climate
1. The shaping and development of EU
climate policy_______________________________________ 8
2. The legal basis for EU climate policy
in the Treaty of Lisbon_________________________ 10
3. The greenhouse gas emission allowance trading scheme in the EU in
the context of EU climate policy _________ 12
4. The climate and energy package
as an instrument of EU climate policy___ 13
5. Conclusion__________________________________________ 14
III.
EU environmental and energy
V. Free emission allowances
for the Polish energy sector
in the light of regulations
on State aid_________________________________________________________ 38
1. Introduction_________________________________________ 38
2. Free emission allowances
as State aid_________________________________________ 38
3. Free emission allowances as State
aid compatible
with the internal market_______________________ 39
energy mix_____________________________________________________________ 15
4. Free emission allowances
for the energy sector in Poland
as State aid compatible
with the internal market_______________________ 41
Conclusion__________________________________________ 21
5.Conclusions ________________________________________ 43
IV.
VI.Conclusion
policy and Member States’
Free greenhouse
gas emission allowances
for the energy sector in Poland__________22
and recommendations_______________________________44
Recommendations_______________________________ 46
1. The implementation of the greenhouse gas emission allowance trading scheme (EU ETS) into the Polish
legal order __________________________________________ 22
5
I.Introduction
The EU greenhouse gas allowance trading scheme
(EU ETS) was introduced by Directive 2003/87/
EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for
greenhouse gas emission allowance trading within
the Community and amending Council Directive
96/61/EC.
The EU ETS scheme is the main instrument for
the reduction of greenhouse gas emissions in
the European Union and the most important element of the implementation of the climate policy of the European Union. This scheme covers
more than 11,000 power plants and production
plants in all the Member States of the EU, as well
as those in Liechtenstein, Iceland and Norway.
Thus, the scheme has created the largest carbon
dioxide (CO 2 ) emission allowance trading system
in the world, covering more than three fourths
of the international trading in these allowances.
The EU ETS is based on the concept of saleable
emission allowances and consists in the determination of an allowable emission level in a specific
area and a proportional allocation (according to
a predetermined key) of these emission allowances among the operators of installations which
cause the emissions. Within the allowable level
of greenhouse gas emissions, undertakings can
sell and buy emission allowances among them.
The assumption of this scheme is the setting
of a cap for greenhouse gas emissions corresponding to the international commitments and
objectives of EU climate policy.
The reformed emission allowance trading scheme
is also expected to be the main European instrument to be applied to achieve the greenhouse gas
emission reduction target after 2020. The summit
of the European Council held on 23-24 October
2014 laid down a framework for EU climate and
energy policies in the period until 2030 and approved a binding EU target, assuming a reduction
in domestic greenhouse gas emissions of at least
40% by 2030 relative to their level in 1990. In
6
setting out this framework, the European Council
also provided that the emission allowance trading
scheme would be the main instrument to achieve
this target.
The amendment to Directive 2003/87/EC made
by Directive 2009/29/EC introduced the principle that emission allowances would be bought
by auctioning. At the same time, it introduced
the limited and transitional option of a derogation
from the system of emission allowance sales at
auctions and their free allocation to installation
operators. As a result of this amendment, free
emission allowances to energy undertakings became the subject matter of a political and legal
debate in Poland. Poland used the opportunity
provided for by Article 10c of Directive 2003/87/
EC as amended by Directive 2009/29/EC and
allocated free emission allowances to the operators of installations for electricity production
(so-called derogations or the derogation mechanism). As a result of this, a number of dilemmas
concerning the EU ETS scheme itself and, in particular, the free allocation of emission allowances
appeared in the public debate.
These problems became more topical when
the European Council laid down a framework for
UE climate and energy policies in the period until 2030, which provided that the free allocation
would not expire and that the existing measures
would continue to be effective after 2020. However, the possibility of a free allowance allocation
will be limited. The Member States with GDP per
capita below 60% of the EU average may decide
to continue to allocate free allowances to the energy sector until 2030, with the qualification that
the maximum quota to be allocated for free after
2020 should not exceed 40% of allowances. In
addition, a new reserve will be established. It will
consist of 2% of allowances under the EU ETS
intended to meet high investment needs in lowincome Member States (the modernisation fund).
The present report is a contribution to the public
debate on the EU ETS scheme and its future. The
analysis of the functioning of the system of free
greenhouse gas emission allowances in Poland
was carried out in the light of European Union law.
In this report, we try to highlight the problems
related to the EU ETS scheme which can be expressed by the following questions:
1. What is the place of the EU ETS in EU climate
protection policy?
2. What is the Treaty-based framework for
the adoption of climate protection measures?
3. How has the free allocation of emission allowances to the electricity sector worked
in Poland?
4.
What are the consequences of the fact that
free emission allowances are subject to the EU
regulations on State aid?
We hope that the presentation of the problems indicated here will contribute to answering the question whether the Polish Government should decide
to continue to allocate free emission allowances to
the electricity sector in the timeframe until 2030,
and if so, under what conditions.
Dr. Marcin Stoczkiewicz1
Agnieszka Warso-Buchanan, LL.M.2
1
Marcin Stoczkiewicz – Doctor of Law Science, Head of the Climate and Energy Programme of ClientEarth.
2
Agnieszka Warso-Buchanan – solicitor in the Climate and Energy Programme of ClientEarth
7
II.The EU greenhouse gas
allowance trading scheme
in the context of the climate
policy of the European Union
– an introduction to the issues
of the Intergovernmental Panel on Climate Change
(IPCC), which published its first report in 1990 presenting science-based evidence on the climate
change processes. Among others, it was as a result
of these actions that in 1992, in the course of the socalled World Summit in Rio de Janeiro, the United
Nations Framework Convention on Climate Change
(UNFCCC) was adopted. It entered into force in 1994
and the so-called Kyoto Protocol to this Convention
was signed during the Third Conference of the Parties to the UNFCCC.
Maria Magdalena Kenig-Witkowska 3
1. The shaping and development of EU
climate policy
The climate policy of the European Union, which
is regarded in the doctrine of European Union law
as the core element of the EU policy in the field
of the environment, corresponds with the global
efforts of the international community to tackle climate change. It is generally believed that with its
emission trading scheme (ETS), which is an element of its climate policy, the European Union has
become the world leader in the combat against
climate change that has effectively mobilised
market-based mechanisms for this combat. 4 The
leadership of the EU in these matters ensues from
both the axiological framework for the EU policy
in the field of the environment and the EU experiences related to the need to reconcile the individual
interests of the Member States with the sciencebased requirements in these matters. 5
There is no doubt that the process of shaping EU
climate policy was influenced by the events which
accompanied the development of the awareness
of the international community about climate change
at the global scale, such as the First World Climate
Conference in 1979, the establishment of the World
Climate Programme 6 and the appointment in 1988
The European Union became a Party to both
the Convention7 and the Kyoto Protocol, 8 exercising the competences now provided for in Title XX
of the Treaty on the Functioning of the EU entitled
Environment, which was introduced into the EU
Treaties by the provisions of the Maastricht Treaty,
and the competences provided for in Title V entitled International agreements. Under the then provisions of Articles 130s and 228 of the TEC and
Articles 175 and 300 of the then Treaty establishing
the European Community (TEC) (now Article 191,
in conjunction with Article 218 of the TFEU and
Article 16 of the TFUE), the EU was competent to
conclude both of these agreements the provisions
of which were binding for both the EU Institutions
and the Member States.
The term “EU climate policy” is not a Treaty-based
concept and relates to the EU policy in the field
of the environment which has been shaped by
the action programmes of the European Community and which was incorporated for the first time
into the catalogue of EU policies in 1986 by the provisions of the Single European Act. 9 It should be
noted that it was only the Lisbon Treaty that incorporated the objective of combating climate change
into the environmental regulations by revising
the provisions of the Treaty establishing the European Community (TEC). From the Treaty-based
point of view, the concept of EU climate policy
3 Maria Magdalena Kenig-Witkowska – Professor of Law Science, Professor Ordinary of Warsaw University, a Member of the Programming Council of the Foundation
ClientEarth Poland.
8
4
See e.g. F. Convery, D. Ellerman, C. Perthuis, The European Carbon Market in Action: Lesson from the first Trading Period, JEEPL 2008, pp. 2015-233.
5
See Case C 22/70 ERTA, the judgment of 1971, ECR 273.
6
The Conference organised by the WMO, UNEP, FAO, UNESCO and WHO.
7
Council Decision 94/69/EC of 15 December 1993, OJ L 33 of 07.02.1994, p. 11.
8
Council Decision 2002/358/EC of 25 April 2002, OJ L 130 of 15.05.2002, p. 1.
9
Official Journal of the Laws of 2004, No. 90, Item 864/6.
is a legal concept referring to the policy of the European Union designed to achieve a particular EU
objective in the field of the environment which is
combating climate change.
EU climate policy is shaped and developed by
the so-called general action programmes of the EU
which lay down the priority objectives in the field
of the environment (Article 192(3) TFEU). Although
they are not normative in character, in practice
these legal acts provide a legal framework for
the adoption of legal acts which have exactly such
a character.10 In accordance with the cited provision, the general action programmes are adopted
by the European Parliament and the Council in an
ordinary legislative procedure, following the consultations with the Economic and Social Committee and the Committee of the Regions. The legal
acts laid down to implement these programmes are
adopted under the principles provided for in Article
192(1) TFEU (the ordinary legislative procedure), or,
depending on the case, under Article 192(2) TFEU
(without prejudice to Article 114, the Council acts in
accordance with a special legislative procedure, after the consultations with the European Parliament
and both advisory committees).
Before a legal ground was laid down in the Lisbon
Treaty for the policy of combating climate change,
the EC action programmes had provided the basis for the issues related to the climate as the
object of protection. For the first time reference
was made to them in the Third Environmental Action Programme adopted for 1982–1986.11 It confirmed that one of the objectives of environmental
policy was to ensure the long-term conservation
of resources which determined the quality of life,
including the climate.12 Another, Fourth Environmental Action Programme adopted for 1987-199213
referred to the climate protection issues at the level of the general policy orientations of the European Union. It indicated, inter alia, the necessary
restrictions on the use of fossil fuels in relation to
the unfolding climate change which resulted from
greenhouse gas emissions into the atmosphere.
This document emphasised the need to prepare
a relevant EU strategy and that the Commission
should continue its studies in this scope.14
The Fifth Environmental Action Programme 15
for 1993-2000, which treated climate change
as one of the major environmental problems,
was of breakthrough importance in the process
of shaping EU environmental policy. It defined climate change as a global problem and threat.16 It
also made direct reference to the UNFCCC and indicated its objectives, such as maintaining the carbon dioxide emissions at a level not exceeding
Earth’s absorbing capacity. The actions proposed
in the Programme included energy conservation,
improvement of energy efficiency and the replacement of fossil fuels by those from low- or noemission sources. Another Action Programme for
2001-2010 defined climate change as one of the
priorities of EU environmental policy, anticipating
the ratification of the Kyoto Protocol and the implementation of its provisions, inter alia, by introducing a greenhouse gas emission allowance trading
scheme.17 In accordance with its provisions, combating climate change was an integral part of the
external relations policy of the European Union.
The Seventh Action Programme18 covering 20132020 considered the climate policy of the EU to
be a pillar in the process of transforming the European Union into a resource-efficient economic area.
Among others, it emphasised that the achievement
of the objectives laid down in it required primarily
the full implementation of the EU climate and energy
package. It also stressed that the EU greenhouse gas
emission allowance scheme was to remain the central pillar of the policy of tackling climate change after
2020, too.19
Over the last thirty years, the European Commission and the European Council played a major role in
10 M. M. Kenig-Witkowska, Prawo Środowiska Unii Europejskiej (The Environmental Law of the European Union). Op. cit., p. 108.
11 OJ C 46 of 17.2.1983, p. 1.
12 Paragraphs II.9 and 22.
13 OJ C 328 of 7.12.1987, p. 1.
14 Point 2.3.20.
15 OJ C 138 of 17.5.1993, p. 1
16 Chapter 10.
17 Decision No 1600/2002/EC, Article 5(2).
18 OJ L 354 of 28.12.2013, p. 171.
19 Ibidem, paragraph 43(a).
9
the shaping and development of the climate policy
of the EU, taking action in these matters on the basis
of the Community method.20 Thus, in 1988 the Commission published its Communication where it presented its programme concerning the evaluation
of policy scenarios for the actions to be taken by
the then Community in these matters.21 As a followup to the Communication, it its Conclusions adopted
in 1989 the Council requested the Commission to
formulate proposals for initiatives concerning the EU
position to be presented at international forums in
debates on climate change.22 The outcome of the
work undertaken by the Commission was its Communication on climate change which was published
in 1991 and concerned a strategy to limit carbon dioxide emissions into the atmosphere and to improve
energy efficiency in the EU.23 As a result of its further work, in 1992 the Commission presented proposals for two Directives on limiting carbon dioxide
emissions by improving energy efficiency24 and a tax
on energy.25
The enhanced activity of the Commission in
these matters which could clearly be seen after
1992 was related to the accession of the EU to
the United Nations Framework Change on Climate Change and, subsequently, to the Kyoto
Protocol. In this context, two important documents of the Commission should be mentioned,
i.e. the Communication of 3 June 1998 on the EU
strategy after the adoption of the Kyoto Protocol 26 and the Communication of 19 May 1999 on
the measures to prepare for the implementation
of the Kyoto Protocol. 27
An extremely important step shaping EU climate
policy was the European Climate Change Programme (ECCP) which was launched by the European Commission in 2000,28 with the aim, inter
alia, of taking preparatory measures on joint and coordinated policies to reduce greenhouse gas emission levels in the EU legal transaction area. In this
context, the Commission presented the so-called
Green Paper, thus beginning a debate on the emission trading in the EU, as well as on the objectives
of the emission trading scheme in relation to the objectives and principles of other European Union policies.29 The importance of the work under the ECCP
is indicated by the fact that in the first six years of its
implementation the EU adopted more than thirty legal acts involving horizontal measures in the EU to
tackle climate change.30
The 2014 Communication from the Commission
on a policy framework for climate and energy in
the period from 2020 to 2030 31 was a very important document shaping the future EU climate policy
in the scope of greenhouse gas emissions. In this
document, the Commission proposed that the EU
should adopt a target of a 40% greenhouse gas
emission reduction compared with 1990, to be
achieved in 2030. It should be noted that in the opinion of the Commission the policies and measures
which the Member States implemented and intended to implement would still bring effects after 2020.
2. The legal basis for EU climate policy
in the Treaty of Lisbon
In accordance with the provisions of Article 191
TFEU, EU climate policy should contribute to
the achievement of one of the objectives of EU
policy in the field of the environment, which is combating climate change. The phrase used in Article
191(1) TFUE indicates its dynamic character, with
many possible variables related to its finalité. Therefore, the legal measures taken to implement it which
20 For more about the Community method, see M. M Kenig-Witkowska [in]: M.M. Kenig-Witkowska (Ed.), Prawo instytucjonalne Unii Europejskiej (The Institutional Law of the
European Union – in Polish), C. H. Beck, 6th edition, Warsaw 2015, p. 38 et seq.
21 Communication from the Commission to the Council: “The Greenhouse Effect and the Community” Commission Work Programme concerning the evaluation of policy options to deal with the “greenhouse effect”, COM (88) 656 final, 16.1.1989.
22 Council Resolution of 21 June 1989 on the greenhouse effect and the Community (OJ C 183 of 20.7.1989, p. 4).
23 Communication from the Commission to the Council: “A strategy to limit carbon dioxide emissions and to improve energy efficiency”, SEC (91) 1744 final, 14 October 1991
(paragraph 17).
24 Proposal for a Council directive to limit carbon dioxide emissions by improving energy efficiency (SAVE programme), COM (92) 182 final, 26 June 1992.
25 Proposal for a Council directive introducing a tax on carbon dioxide emissions and energy, COM (92) 226 final, 30 June 1992.
26 Communication from the Commission to the Council and the European Parliament – “Climate change –Towards an EU post-Kyoto strategy”, COM (1998)353 final, 3.6.1998.
27 Communication from the Commission to the Council and the European Parliament “Preparing for Implementation of the Kyoto Protocol”, COM (1999)230 final, 19.5.1999.
28 Communication from the Commission to the Council and the European Parliament on EU policies and measures to reduce greenhouse gas emissions: towards a European
Climate Change Programme (ECCP), COM (2000) 88 final, 8.3.2000.
29 Green Paper on greenhouse gas emissions trading within the European Union COM (2000) 87 final, 8.3.2000.
30 Cz. Damro, I. Hardie & D. MacKenzie, The EU and Climate Change policy: Law. Politics and Prominence at Different Levels, JCER, vol. 4, Issue 3, pp. 179-180.
31 Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions. A policy
framework for climate and energy in the period from 2020 to 2030 (COM 2014) 15 final.
10
because of their nature respond more dynamically
to scientific and technical data than other measures
launched under Title XX of the Treaty of Lisbon
depend on the positions adopted by the Member
States which are assessed from the point of view
of the provisions of Article 191(3) TFEU.
The provision of Article 191 TFEE mentions combating climate change among the environmental
objectives of the European Union. Thus, it is a particular objective with respect to the general objectives of the European Union which are laid down
in Article 3 of the Treaty establishing the European
Union and which include: the sustainable development of Europe, a high level of protection and improvement of the quality of the environment and
the sustainable development of the Earth. Although
combating climate change as an objective of the
EU policy laid down in the provision of Article 191
TFEE relates it directly to the international level,
i.e. one involving the external actions of the Union,
the general objective which is the sustainable development of Europe and the Earth, makes it operational on both levels of the actions of the Union and
the Member States, i.e. the internal and external
ones. Although in general in the literature the opinion is held that the objectives laid down in Article
191 TFEU primarily have the nature of policy guidelines, the obligation set out in Article 191 TFEU, to
promote at international level measures to resolve
regional or worldwide environmental problems, in
the wording in which it has provided the basis for
the adoption of the United Nations Framework Convention on Climate Change (UNFCCC) and the Kyoto Protocol by the European Union, imposed clear
legal obligations on the EU to execute the provisions of both agreements.
In this context, it should be noted that the wording
of the provision of Article 191 TFEU in its part relating to combating climate change (“…promoting at
international level measures...”) only slightly takes
account of the fact that climate policy is horizontal
in nature, that its implementation needs measures
at the level of many EU policies and that the generally phrased integration clause in Article 11 TFEU
may not replace the objective of the European
Union as clearly defined in its Treaties, which, in
the light of EU actions, combating climate change
undoubtedly is. It should also be noted that in case
of extreme competence-related doubts about
the legitimacy of the basis adopted for the legal
measure applied in this context, one can still apply the provision of Article 352 TFEU, establishing
the presumed competence of the EU, also in case
of a possible collision between the norms related to
different UE policies.
Reflecting on the legal value of the objectives laid
down in the EU Treaties from the point of view
of the EU commitments to implement them, consideration should be given to the case-law of the
European Court of Justice, indicating that the provisions setting out the EU objectives and tasks
do not solely have the nature of general policy
assumptions, but are legally binding. 32 However,
the restrictions related to this position should be
borne in mind, since, in general, the regulations
setting out the objectives do not include competence-related provisions. In accordance with
the principles of the EU law, the latter ensue from
these particular norms of primary and secondary
law that provide a clear basis for the actions of the
EU Institutions. Thus, it is only exceptionally, e.g.
in the situation where in the absence of such competences the existing norms could not be applied,
that one can presume the existence of competences in given matters by making direct reference
to the objectives and tasks laid down in the Treaties. The binding legal effect of the regulations
laying down objectives and tasks also consists in
that they may constitute an auxiliary measure in
the interpretation and application of other provisions of European Union law.
With reference to the legal basis for EU climate
policy, it should be noted that the basis for legal
measures adopted to implement this policy are primarily the provisions of Title XX TFEU, concerning
the EU policy in the field of the environment. This
comment also applies to the sources of the law on
the EU greenhouse gas emission allowance trading
scheme, which area, just as the field of the environment, is subject to one of divided competences.33 The European Commission has the legislative
initiative in this respect and, in principle, legal acts
32 M. M. Kenig-Witkowska, Prawo Środowiska Unii Europejskiej. Zagadnienia Systemowe (The Environmental Law of the European Union. Systemic Issues – in Polish), 3rd edition,
Warsaw 2011, p. 47.
33 Article 4(2)(e) TFEU.
11
are adopted in an ordinary legislative procedure.34
As a derogation and without prejudice to the provisions of Article 114 TFUE, the Council unanimously
adopts the legal measures laid down in the Treaty after the consultations with the European Parliament,
the Economic and Social Committee and the Committee of the Regions, in accordance with a special
legislative procedure (Article 192(2) TFEU).
The incorporation of Title XXI – Energy (Article 194
TFEU) into the Treaty on the Functioning of the European Union also strengthened in axiological terms
the Treaty basis for taking measures to implement
climate policy when the objectives of energy policy
were pursued, such as the promotion of energy efficiency and support for renewable energy sources,
which are also the objectives of EU climate policy.
In the case of lawmaking pursuant to the provision of Article 194 TFEU, an ordinary legislative
procedure is applied. Just as in the case of action
programmes, the legal measures are adopted after
consultations with the Economic and Social Committee and the Committee of the Regions.
3. The greenhouse gas emission allowance
trading scheme in the EU in the context
of EU climate policy
A review of EU legal acts indicates that the EU climate policy which has been shaped in the EU since
the mid-1980s has largely concerned three fields
of action where common mechanisms and legal
measures have been implemented, i.e. greenhouse
gas emission reductions, renewable energy sources
and energy efficiency.
In the range of international and intra-Community
legal transactions, the emission allowance trading
scheme (ETS) is considered to be a core element
of EU policy on combating climate change and
a basic tool which functions within the mechanism
for greenhouse gas emission reductions based on
the economic principle of cost-effectiveness. The
EU greenhouse gas emission allowance trading
scheme is an effect of one of the assumptions of EU
climate policy concerning greenhouse gas emission reductions as part of the pursuit of the general
Treaty-based objective of the EU which is an improvement in the quality of the environment (Article
3 TFEU).
In accordance with the principles of the scheme established pursuant to the provisions of the UNFCCC
and the Kyoto Protocol, the EU and the Member
States of the European Union committed themselves to reduce their greenhouse gas emissions,
inter alia, through the implementation of legal instruments contributing to the achievement of the
reduction targets, which included the Joint Implementation Mechanism, the Clean Development
Mechanism and the international gas emission
allowance trading scheme. This scheme allowed
the Parties to the Kyoto Protocol to purchase and
sell emission reduction units (ERUs), certified emission reduction units (CERs), assigned amount units
(AAUs) and removal units (RMUs), and to introduce
the emissions trading scheme at the national and
regional levels, an example of which is the emissions trading scheme in the European Union based
on the national allocation plans (NAPs). Under
the agreement adopted by the Council on 16 June
1998 35 the reduction commitments were divided
among the particular Member States by laying
down their allocations.
The EU greenhouse gas emission allowance trading
scheme was created pursuant to Directive 2003/87/EC
establishing a scheme for greenhouse gas emission
allowance trading within the Community,36 amended
by the provisions of Directive 2004/101/EC establishing a scheme for greenhouse gas emission allowance trading within the Community, in respect
of the Kyoto Protocol’s project mechanisms.37 The
scheme began to operate in the European Union
on 1 January 2005, preceding the entry into effect
of the Kyoto Protocol (the Protocol entered into effect on 16 February 2005).
In 2007, after two years of the functioning of the
emission allowance trading scheme in the EU,
in its Conclusions the European Council confirmed
the adoption of the target of a 20% reduction
by 2020 compared with 1990 and, moreover, signalled the need for the adoption of a 30% reduction
target provided that similar commitments were made
34 Article 192 TFEU.
35 Doc. 9702/98 of 19 June 1998 of the Council of the European Union reflecting the outcome of proceedings of the Environment Council of 16-17 June 1998, Annex I.
36 OJ L 275 of 25.10.2003, p. 32.
37 OJ L 338 of 13.11.2004, p. 18.
12
by other developed countries under a future global
agreement on this issue.38 In 2008, the European
emission allowance trading scheme was extended
to cover aircraft operators (Directive 2008/101/EC
amending Directive 2003/87/EC so as to include
aviation activities in the scheme for greenhouse gas
emission allowance trading within the Community39 ).
An effect of EU reduction policy was the position
of the Commission which prepared in January
2008 a proposal for the achievement of the target
of a 20% reduction compared with 1990 by 2020.
This proposal provided the basis for the adoption of Directive 2009/29/EC in 2009, along with
a package of other legal acts which were designed
to combat climate change and concerned with
the promotion of energy from renewable sources, reductions of carbon dioxide emissions from
cars, new standards for fuels and biofuels, as well
as carbon capture and storage. 40 In this context,
one should mention Regulation (EC) No 219/2009
adapting a number of instruments subject to
the procedure referred to in Article 251 of the
Treaty to Council Decision 1999/468/EC. 41 The
provisions of the Directive were implemented into
the legal orders of the Member States of the EU.
As part of the legal order of the European Union,
the greenhouse gas emission allowance scheme
is also governed by a system of Regulations covering the technical elements of the operation of the
scheme. In particular, they concern the functioning of the registry which enables the correct
accounting for transactions within the EU emission allowance trading, 42 the legal requirements
for monitoring and reporting emissions 43 and
the principles of the functioning of emission allowance auctioning in the EU. 44
The technical aspects of the functioning of the scheme
are also governed by the Regulations of the European
Commission45 concerning the elements of the scheme
which need relatively frequent changes, e.g. the updating of the list of sectors exposed to the so-called
carbon leakage,46 decisions concerning the allocation
of emission allowances47 or temporary solutions.48
The regulations on the greenhouse gas emission allowance trading scheme are also complemented at
the explanatory level with acts of so-called soft law,
such as e.g. guidance (communications) issued by
the European Commission, inter alia, on State aid49
and in relation to the monitoring and verification
of emissions.50
4. The climate and energy package as an
instrument of EU climate policy
The pursuit of the climate policy of the European
Union which aims at tackling climate change is primarily perceived in relation to the legal instruments
laid down in the so-called climate and energy
package of the EU. 51 In this context, consideration
should also be given to the fact that the actions
based on other acts of EU law, e.g. those related to
38 Conclusions of the European Council, 7/8 March 2007, 7224/1/07 REV 1, points 31 and 32.
39 OJ L 8 of 13.1.2009, p. 3.
40 Directive 2009/29 of the European Parliament and of the Council of 23 April 2009 amending Directive 2003/87/EC so as to improve and extend the greenhouse gas emission
allowance trading scheme of the Community (Text with EEA relevance), OJ L 140 of 5.6.2009, p. 63.
41 OJ L 87 of 31.3.2009, p. 109.
42 Commission Regulation (EU) No 389/2013 of 2 May 2013 establishing a Union Registry pursuant to Directive 2003/87/EC of the European Parliament and of the Council,
Decisions No 280/2004/EC and No 406/2009/EC of the European Parliament and of the Council and repealing Commission Regulations (EU) No 920/2010 and No 1193/20110 (OJ
L 122 of 3.5.2013, p. 1).
43 Regulation (EU) No 525/2013 of the European Parliament and of the Council of 21 May 2013 on a mechanism for monitoring and reporting greenhouse gas emissions and for
reporting other information at national and Union level relevant to climate change and repealing Decision No 280/2004/EC (OJ L 165 of 18.6.2013, p. 13).
44 Commission Regulation (EU) No 1031/2010 of 12 November 2010 on the timing, administration and other aspects of auctioning of greenhouse gas emission allowances pursuant to Directive 2003/87/EC of the European Parliament and of the Council establishing a scheme for greenhouse gas emission allowance trading within the Community (Text
with EEA relevance) (OJ L 302 of 18.11.2010, p. 1).
45 E.g. Commission Decision of 3 November 2010 laying down criteria and measures for the financing of commercial demonstration projects that aim at the environmentally safe
capture and geological storage of CO2 as well as demonstration projects of innovative renewable energy technologies under the scheme for greenhouse gas emission allowance
trading within the Community established by Directive 2003/87/EC of the European Parliament and of the Council (OJ L 290 of 6.11.2010, p. 39.).
46 E.g. Commission Decision of 27 October 2014 determining, pursuant to Directive 2003/87/EC of the European Parliament and of the Council, a list of sectors and subsectors
which are deemed to be exposed to a significant risk of carbon leakage, for the period from 2015 to 2019 (OJ L 308 of 29.10.2014, p. 114.).
47 E.g. Commission Decision of 19 April 2010 concerning the national allocation for the allocation of greenhouse gas emission allowances notified by Poland on 8 April 2010 in
accordance with Directive 2003/87/EC of the European Parliament and of the Council (unpublished).
48 Commission Implementing Decision of 31 October 2013 on the adjustments to Member States’ annual emission allocations for the period from 2013 to 2020 pursuant to
Decision No 406/2009/EC of the European Parliament and of the Council (2013/634/EU) (OJ L 292 of 1.11.2013, p.19).
49 Communication from the Commission – Guidelines on certain State aid measures in the context of the greenhouse gas emission allowance scheme post-2012 (OJ C 158
of 5.6.2012 r., p. 4, as amended); Guidelines on certain State aid for environmental protection and energy 2014-2020 (OJ C 200 of 28.6.2014, p. 1).
50 Guidance for Commission Regulation (EU) No 601/2012 of 21 June 2012 on the monitoring and reporting of greenhouse gas emissions.
51 It is generally believed that the package is based on: Directive 2009/28/EC on the promotion of the use of energy from renewable sources (OJ L 140 of 5.6.2009, p. 16); Decision No 2009/406/EC on the effort of Member States to reduce their greenhouse gas emissions to meet the Community’s greenhouse gas emission reduction commitments up to
2020 (OJ L 140 of 5.6.2009, p. 136); Directive 2009/29/EC so as to improve and extend the greenhouse gas emission allowance scheme of the Community (OJ L 140 of 5.6.2009,
p. 63); Directive 2009/31/EC on the geological storage of carbon dioxide (OJ L 140 of 5.6. 2009, p. 114).
13
the accession of the EU to the Vienna Convention for
the Protection of the Ozone Layer and the Montreal
Protocol to that Convention also fall within the range
of this policy.52
In 2007, the European Union adopted the concept
of an integrated approach to climate and energy
policy with a view to transforming the EU range
of legal transactions into a highly efficient and
low-carbon economy. The assumptions adopted
by the EU provide for the achievement of the
following targets by 2020 (the so-called 3 x 20
policy): (1) the reduction of emissions by at least
20% compared with their level in 1990; (2) a 20%
enhancement of the consumption of energy from
renewable sources; and (3) a 20% reduction of energy consumption due to enhanced efficiency
of its use. In 2014, the EU adopted new targets for
climate and energy policy by 2030. In its Conclusions (of 23 and 24 October 2014), the European
Council adopted a binding reduction target providing for the reduction of domestic greenhouse gas
emissions by at least 40% compared with the level in 1990 by 2030. 53
These assumptions of EU policy are implemented
pursuant to legal acts concerning the so-called
climate and energy package, which govern e.g.
the European emission trading scheme, promote
renewable energy sources and concern the monitoring of pollutant emission levels related to fuel production and use. They also lay down the commitments
to promote the development and safe use of technologies for carbon dioxide capture and storage and
the reduction of carbon dioxide emissions from road
transport.54 However, it should be borne in mind that
progress in the implementation of the assumptions
of EU climate policy in the context of the climate and
energy package depends on the quite differentiated
profile of the energy policies of the Member States;
particularly those where energy production is still
based on coal combustion.
5. Conclusion
The parties to international legal transactions and
representatives of the doctrine agree as to the positive effects of the climate policy pursued by the European Union, also at the global level. In the light
of this, the international community should consider whether conclusions should not be drawn at
the global level from this policy, affecting more than
500 million people in the twenty eight states making
up the Union with different levels of development,
which have been convinced to take joint action for
the natural environment, including primarily the human environment.
52 Decision 88/540/EEC; Regulation (EC) No 2037/2000 of the European Parliament and of the Council of 29 June 2000 on substances that deplete the ozone layer ( OJ L 244,
p. 1, as amended).
53 http://data.consilium.europa.eu/doc/document/ST-169-2014-INIT/pl/pdf
54 This is considered more extensively in A. Serzysko, Zmiany klimatu (Climate Change – in Polish), Polityka i Prawo, Warsaw 2010, passim.
14
II.EU environmental and energy
policy and Member States’
energy mix
(a) (b) (c) Ludwig Krämer55
(d) EU competence in energy policy matters grew steadily over the years. While the EEC Treaty of 1958 did
not contain provisions on energy issues, the Euratom Treaty of the same year introduced responsibilities for a non-military use of nuclear energy. And
already since 1952, the Treaty on Coal and Steel
provided for competence for the EEC in matters
of coal, at that time the primary energy source. Energy matters were then progressively discussed in
the context of the establishment of an EC-wide internal market, which included an internal market for
oil, gas and electricity. A Treaty amendment of 1993
requested the establishment of trans-European networks for energy infrastructure (now Articles 170 to
172 TFEU). Another Treaty amendment of 1999 provided that the EU could decide, in the context of its
environmental policy, on “measures significantly affecting a Member State’s choice between different
energy sources and the general structure of its energy supply” (now Article 192(2)(c) TFEU).
2. The Lisbon Treaty which entered into effect in
December 2009, provided that environmental
measures under Article 192 TFEU also had the objective to combat climate change. At the same
time, the Lisbon Treaty provided for a shared competence between the EU and its Member States in
energy matters (Article 4(2)(i) TFEU) and inserted
a new Article 194 into the Treaty on the Functioning of the European Union (TFEU). This provision
reads as follows:
“1. In the context of the establishment and functioning of the internal market and with regard
3. for the need to preserve and improve the environment, Union policy on energy shall aim,
in a spirit of solidarity between Member
States, to:
ensure the functioning of the internal market;
ensure security of energy supply in the Union;
promote energy efficiency and energy saving
and the development of new and renewable
forms of energy; and
promote the interconnection of energy networks.
Without prejudice to the application of other
provisions of the Treaties, the European Parliament and the Council, acting in accordance
with the ordinary legislative procedure, shall
establish the measures necessary to achieve
the objectives in paragraph 1. Such measures
shall be adopted after consultation of the Economic and Social Committee and the Committee of the Regions.
Such measures shall not affect a Member
State’s right to determine the conditions for
exploiting its energy resources, its choice between different energy sources and the general structure of its energy supply without
prejudice to Article 192(2)(c).
By way of derogation from paragraph 2,
the Council, acting in accordance with a special legislative procedure, shall unanimously
and after consulting the European Parliament,
establish the measures referred to therein
when they are primarily of a fiscal nature”.
The provisions of Article 192(2) and Article 194
TFEU overlap in part. Their relationship is not completely clear. In particular, it is unclear to what extent a Member State is free to decide on its own
energy-mix and to what extent the EU is competent to interfere in this question. To give but one
example: when the EU determines that the share
of renewable sources of energy in each Member
State shall reach 20 per cent or more, this means
that a Member State which relied, until then,
by 90 per cent on coal, on oil or nuclear energy
55 Professor Ludwig Krämer – an expert in the fields of environmental law and European law. In the period from 1969 to 2004, he held the office of a judge. For more than 30 years
he has cooperated with the European Commission. The author of more than 20 books and 200 articles on European environmental law. A lecturer at more than 50 Universities in
Europe and North America. A legal expert of ClientEarth.
15
as energy source, is obliged to change the structure of its energy supply and to rely more on renewable sources of energy.
The application of Articles 192 and/or 194 TFEU
by EU legislative acts and with regard to Member
States’ competence in energy matters will be discussed in the following lines.
Article 194 TFEU fixes four objectives of the EU
energy policy: on the one hand, this policy shall
ensure the functioning of the energy market and
the security of energy supply, on the other hand,
it shall promote energy efficiency, energy saving
and the development of new and renewable forms
of energy and the interconnection of energy networks. The term “ensure” indicates that there is
a legal obligation for the EU to pursue with a view
of reaching the results mentioned in the first two
objectives. In contrast, the achievement of the
last two objectives shall only be promoted, which
does not mean the achievement of a result, but
only the deployment of efforts to approach these
objectives. This is also reasonable as neither
the improvement of energy efficiency or energy
saving nor the development of new and renewable forms of energy can ever be declared to be
“reached”. Indeed, nobody can be sure that new
forms of energy, such as nuclear fusion or hydrogen, or new technologies or procedures will ever
be developed, or that energy efficiency or saving
cannot be developed beyond a specific limit.
With regard to the energy policy objectives mentioned in Article 194(1) TFEU, it is not for the EU
to decide which sources of energy the Member
States use. As long as the energy market functions,
the energy supply is ensured and the interconnection of networks is promoted, the source of energy
which a Member State chooses is not relevant, all
the more, as energy efficiency and energy savings
are not dependent on a specific source of energy;
these objectives may also be approached by measures for example in the nuclear or in the coal sector. Finally, the reference to environmental policy
in Article194(1) TFEU just confirms the general requirement of Article 11 TFEU that environmental
concerns shall be taken into consideration in the development and application of all EU policies. 56
This understanding is confirmed by Article 194(2),
second paragraph. That provision leaves the competence of three areas in the hand of the Member
States: (1) the conditions for exploiting a Member
State’s national energy resources; (2) the Member
State’s choice between different energy sources;
(3) the general structure of the Member State’s
energy supply. EU measures on the basis of Article 194 TFEU may not interfere in these areas,
independently of the intensity of such an interference. Under its energy competence, the EU may
not regulate any of the three areas. Any Member
State has a right of veto against such an interference based on article 194 TFEU, and the European
Court of Justice would have to quash any EU decision, based on Article 194 TFEU and containing
such an interference.
However, Article 194(2) second paragraph is placed
under the proviso that it applies “without prejudice
to Article 192(2)(c)”. Article 192(2)(c) is part of the
provisions on the EU environmental policy. This
means that the EU is competent to deal with matters which significantly affect a Member State’s
choice between different energy sources and
the general structure of a member State’s energy
supply, provided such measures are necessary to
pursue or achieve the environmental objectives
as laid down in Article 191 TFEU.
Therefore, the three areas mentioned in Article
194 (2) second paragraph are not once and for all
in the competence of the Member States. Decisions which influence the choice of a Member
State between different energy sources (energy
mix) or which affect the general structure of its energy supply may be adopted by the EU on the basis
of Article 192(2)(c) TFEU, provided the measure is
part of the establishment and functioning of the EU
environmental policy. Whether this is the case will
have to be determined according to each individual
measure, on a case-by-case basis, as no general
criteria exist.
Article 192 TFEU is a provision of EU environmental policy. This policy pursues the objectives which
are laid down in Article 191 TFEU, in particular
the protection of the environment, the prudent use
of natural resources and the protection of human
56 Article 11 TFEU: „Environmental protection requirements must be integrated into the definition and implementation of the Union policies and activities, in particular with a view
to promoting sustainable development”.
16
health. The Lisbon Treaties added the fight against
climate change to the list of objectives, underlining thereby the particular importance of EU measures to combat climate change.
The problem of classifying a specific EU measure
under one or the other provision of the EU Treaty
is not new and not specific to the environmentalenergy sectors. A precise and correct classification
is, though, highly relevant, because of the decision-making process at EU level and Member
States subsequent rights after the adoption of the
EU measure are different, according to the choice
of the legal basis. For example, Article 193 TFEU
allows Member States, once an EU measure was
adopted on the basis of Article 192 TFEU, to maintain or introduce measures at national level which
give a better protection to the environment than
the EU measure. A provision similar to Article 193
TFEU does not exist in Article 194 TFEU for energy-related measures.
The EU Court of Justice has, in a consistent line
of case-law, established criteria for the classification of a specific EU measure as belonging to one or
the other sectors of EU policy. according to the Court,
the classification of a measure – the choice of the
legal basis – is not left at the discretion of the EU
institutions or of the Member States, but must follow objective criteria which may be controlled by
the Court of Justice.57 Decisive for the classification
is the aim and content of the measure, as it is laid
down in its recitals and its different legal provisions.58
When an EU decision addresses several aspects
which come into different sectors of EU policy,
the Court of Justice applies the so-called theory
of the “centre of gravity”. The legal basis is chosen
according to the main or predominant purpose or
component, where the centre of gravity, the preponderance of the measure lies. Aspects of other policy
sectors, which are secondary or merely incidental
with regard to this main objective, shall not be decisive for the choice of the legal basis.59
A double legal basis is only very exceptionally and
only in those cases admitted, where the objective
of the two areas is of exactly the same weight and
where, furthermore, the EU decision-making process is equivalent.60
These criteria do not only apply when a new legislative act is adopted by the EU. Rather, they also apply when an existing legislative act is amended. The
amending act is to be assessed on its own as to its
objective and content and, as the case may be, as to
its center of gravity. It does not automatically follow
the legal basis of the initial legislative act.
In the light of these general observations, some
EU directives and decisions will be examined
hereafter as to the question whether Article 194
or Article 192 TFEU is the correct legal basis and
on what legal basis amendments to the legal act
would have to be adopted. In this regard, it should,
however, be noted that several of the legal acts
were adopted at EU level before Article 194 TFEU
entered into force. It will therefore also be discussed whether the legal act would today have to
be based on another legal basis – Article 194 TFEU
– than when it was adopted.
Decisions 2002/358 61 and 406/2009 62
The first Decision concerned the approval of the
Kyoto Protocol on the reduction of greenhouse gas
emissions by the EU and the internal, EU-wide burden sharing of complying with the commitments
under the Kyoto Protocol. Energy questions were
not subject of the Decision so that the present Article 192 TFEU was the correct legal basis.
During the discussions in Council, a number
of Member States were of the opinion that the decision should be based on Article 192(2)(c) TFEU.
Only when the Commission suggested to submit
the matter to the Court of Justice was agreement
on the present Article 192(1) TFEU as the correct
57 Court of Justice, Cases C-155/91, Commission v. Council, ECR 1993, p.I-939; C-187/93 European Parliament v. Council, ECR 1994, p.I-2857; C-164/97 andC-165/97,
European Parliament v. Council, ECR 1999, p.I-1139; C-41106 Commission v. European Parliament and Council, ECR 2009, p.I-7585; C-103/12 and C-165/12, Commission and
European Parliament v. Council, ECLI:EU:C:2014:xxx;
58 Court of Justice, Cases C-300/89 Commission v. Council, ECR 1991, p.2867; C-268/94 Portugal v. Council, ECR 1996 p.I-6177; C-178/03 Commission v. European Parliament
and Council, ECLI:EU:C:2006:4.
59 Court of Justice, Cases C-36/98 Spain v. Council, ECR 2001, p.I-779; C-211/01 Commission v. Council, ECR 2003 p.I-8913; C-178/03 (fn.3, above).
60 Court of Justice, Cases C -336/00 Huber, ECR 2002, p.I-7699; C -178/03 (fn 3, above).
61 Decision 2002/358, OJ 2002, L 130 p.1.
62 Decision 406/2009, OJ 2009, L 140 p.136.
17
legal basis reached. This appears to be the correct
legal basis, as none of the conditions for the application of Article 192(2)(c) was fulfilled.
Decision 406/2009 also exclusively concerned
the question by which percentage the individual
Member States should reduce their greenhouse
gas emissions until 2020. The Decision did not deal
with energy efficiency or energy saving questions.
The present Article 192(1) TFEU was considered
the correct legal basis for the Decision.
Nothing would change with regard to the legal basis, if the two Decisions were to be adopted under
the legal system as it now exists under the Lisbon
Treaties. Indeed, neither Decision deals with any
of the objectives of Article 194(1) TFEU or interferes with the areas of energy law which are, according to Article 194(2) second paragraph, left at
the competence of Member States.
Directive 2009/28
63
This Directive concerned the promotion of renewable energies. It was based on the present Article
192(1) TFEU, with the exception of Articles 17 to
19. These provisions concerned sustainability criteria for biofuels and bioliquids and the calculation
of their greenhouse gas impact and control provisions, and were based on the present Article 114
TFEU. The Directive fixed mandatory national targets for the use of energy from renewable sources,
to be reached by 2020. These targets were different for each Member State; overall, they were to allow the EU to reach, by 2020, a share of 20 per cent
of renewable sources of energy in its overall gross
final energy consumption. The share of renewables
used in the transport sector had to reach 10 per
cent by 2020 (Article 3).
It follows from the overall 97 recitals that the Directive intended to increase the use of renewable sources of energy in order to combat climate change and
comply with the EU’s commitments under the Kyoto
Protocol which requested the EU to reduce its greenhouse gases (GHG). At the same time, the EU dependency on energy imports, in particular on oil, was
to be reduced and investment security increased.
63 Directive 2009/28, OJ 2009, L 140 p.16.
18
The Directive had thus several objectives which
concerned the environmental, internal market,
transport and energy sector. However, neither
the transport nor the energy sector needed binding national targets. For these sectors, it would
have been sufficient to fix non-binding targets,
as Directives 2001/77 and 2003/30 had done in
the past. Rather, the binding targets of Directive
2009/28 were due to the need to reach the GHG
reduction targets of Decision 2002/358 and, beyond that, those of the Kyoto Protocol. This could
best be reached, according to the Directive, by
increasing the share of renewables and thus indirectly reduce the share of the traditional energy
sources (coal, gas, oil). The internal market provisions of the Directive, in particular Articles 17
to 19, were in this understanding just necessary
accompanying measures to ensure that trade –
including international trade – in biofuels and bioliquids followed uniform criteria.
Thus, the main purpose of the Directive was
the protection of the environment by fighting
against climate change. Article 192 TFEU appears
thus as having been the appropriate legal basis.
And apparently no Member State considered that
the binding national targets which the Directive
fixed, significantly affected its choice between different energy sources or the general structure of its
energy supply, despite the fact that Denmark had to
reach a share of renewables of 30 per cent, Latvia
of 40 per cent, Austria of 34 per cent, Finland of 38
per cent, Sweden of 49 per cent, and Poland of 15
per cent. Had any Member State invoked that these
national binding targets did constitute a significant
interference into its general structure of energy
supply, the Directive would have had to be based
on the present Article 192(2)(c) TFEU.
In case of a dispute between the EU and one Member State, the EU Court of Justice would have had
to decide how the term “significantly” were to be
understood. Indeed, it is clear that where a Member State is obliged to obtain one third or more
of its energy use from renewable sources of energy
the structure of its energy supply is affected. In such
a case, the installations for more traditional sources
of energy – coal-fired power plants, oil and gas installations, pipelines, port infrastructure etc. – become
in part redundant; renewable sources of energy lead
to numerous regional and local installations.64
In 2014, the European Council asked the EU to ensure that renewables reach, by 2030, a share of 27
per cent of its overall energy consumption.65 This
non-binding statement did not yet lead to any legislative proposal for making this 27 per cent target
binding. Should the EU adopt corresponding legislation, the question of the legal basis will again appear.
When binding targets are fixed for Member States,
following the model of Directive 2009/29, each
Member State will have to consider whether the replacement of part of its coal, nuclear or oil infrastructure by structures for renewable sources of energy
significantly affects its existing energy supply structure. In this author’s opinion, an interference of 33
per cent is in any case significant.
Should the majority of the European Parliament and
of the Member States be of the opinion that Article
192(1) TFEU applies, a Member State which does
not agree with this conclusion may appeal to the EU
Court of Justice which will be the final arbiter.
Article 194 TFEU could not be used as a legal basis.
As mentioned above, Article 194(2) second paragraph TFEU does not allow the EU to take a decision
which affects the general structure of the energy
supply of a Member State. In contrast to Article
192(2)(c) TFEU, the term “significantly” lacks in this
provision. Thus, any EU decision which would influence a Member State’s right to determine the general structure of its energy supply would be prohibited
under Article194 TFEU. In the same way, any EU act
to fix a binding national target for the share of renewable sources of energy would interfere with
the Member States’ right to choose between different energy sources.
Directive 2003/8766
This Directive introduced a scheme for greenhouse
gas emission allowance trading within the EU. It was
based on the present Article 192(1) TFEU. Article 1
declared as its objective the promotion of “reductions of greenhouse gas emissions in a cost-effective
and economically efficient manner”, to be reached
by activities that were listed in an Annex I; these
activities mainly concerned the industry and energy
sector. Recital 5 clarified that “(T)this Directive aims
to contribute to fulfilling the commitments of the
European Community and its Member States more
effectively, through an efficient European market in
greenhouse gas emission allowances, with the least
possible diminution of economic development and
employment”. Also the other Recitals referred to
the obligation of the EU under international agreements to reduce its greenhouse gas emissions. The
EU measures adopted were declared necessary to
contribute to preserving the integrity of the internal
market and to avoid distortions of competition (Recital 7).
Overall, the Directive introduced an EU-wide market for GHG emission allowances with the objective of reaching a reduction of GHG emissions in
a cost-efficient manner. Its objective, as it appeared
from the provisions of the Directive and its recitals,
clearly was the environmental objective of reducing
GHG emissions. None of the objectives which are
now laid down in Article 194(1) TFEU) was targeted
by the Directive. Nor were the areas mentioned in
Article 194(2) second paragraph TFEU or of Article
192(2)(c) TFEU affected in any way. The Directive
was thus rightly based on Article 192(1) TFEU, and
would, were it adopted under the auspices of the
Lisbon Treaties, equally be based on that Article.
Directive 2009/29
A major amendment of Directive 2003/87 took place
in 2009.67 The objective of the original Directive,
as laid down in Article 1, was enlarged in order to
establish that the reductions of GHG were to be increased in order to avoid dangerous climate change.
Also, common provisions were laid down concerning reduction commitments exceeding 20%, should
this be decided by an international agreement.
A more harmonised emission trading system was
64 See Directive 2009/28, Recital 6: “The move towards decentralised energy production has many benefits., including the utilisation of local energy sources, increased local
security of energy supply, shorter transport distances and reduced energy transmission losses. Such decentralisation also fosters community development and cohesion by
providing income sources and creating jobs locally”.
65 European Council, Minutes of the meeting of 23 and 24 October 2014, EUCO 169/14.
66 Directive 2003/87, OJ 2003, L 275 p.32.
67 Directive 2009/29, OJ 2009, L 140 p.63.
19
considered imperative (Recital 8). For this purpose,
provisions on new entrants were adopted (Recitals
8 and 16 and Article 9a). The EU-wide quantity for
allowances was decreased by 1.74% from 2013 onwards (Article 9). Articles 10 provided for the auctioning of allowances (see also Recital 19).
Article 10a provided for transitional EU-wide rules
for harmonised free allocation of allowances; Article 10b contained measures to support certain
energy-intensive industries in the event of carbon
leakage. And Article 10c gave Member States options for transitional free allocation for the modernisation of electricity generation. When Member
States wanted to make use of that option in Article
10c they had to apply to the Commission which
was to assess the application and was entitled
to reject it when it considered that not all conditions laid down in Article 10c were complied with.
The main purpose of Directive 2009/29 was to make
the EU GHG emission allowance trading scheme
more effective and reduce GHG emissions, as expressed in its Article 1 and in Recitals 8, 16 and 23.
Practically all provisions of Directive 2009/29 refer
to the trading scheme and the need to reduce emissions. As the reduction of GHG emissions is one
of the most important objectives of the fight against
climate change, the objective of Directive 2009/29 is
thus an environmental objective and its correct legal
basis was the present Article 192(1) TFEU.
The energy sector is only mentioned in Article 10c
of the Directive which allows Member States for
a transitional period to give free allocations to “installations for electricity production”, provided that
certain conditions, laid down in Article 10c, were
complied with. Article 10c is an exception from
the provision of Article10 which provides that all allowances shall be auctioned (sold). It is not compulsory, but opens a temporary (“transitional”)
opportunity to Member States. Apparently, Article
10c was included in the Directive in order to allow
those Member States where the modernisation
of electricity generation raised particular problems
to reduce the costs for power plants and other electricity installations.
The application of Article 10c was made subject
to relatively strict and detailed conditions. Furthermore, a Member State which wanted to recur to this provision had to made an application to
20
the Commission, and the Commission was entitled
to reject the application. Energy installations might
thus not be able to profit from the exceptional provisions of Article 10c. This might create economic difficulties for individual installations or, where several
energy installations of a Member State are in a similar situation, affect the possibility of that Member
State to exploit its energy resources at reasonable,
competitive prices and to reduce its dependency on
energy imports.
Nevertheless, these considerations do not lead to
suggest that Article 194 TFEU should have been,
alone or together with Article 192 TFEU, the correct legal basis for Directive 2009/29. Indeed, Article 10c is an isolated provision within Directive
2009/29. Its objective is to facilitate the modernisation of electricity production and to ease thus
the potential economic burden which installations
might suffer from having to buy, via auctions, GHG
emission allowances. Article 10c constitutes a transitional option for ensuring the reduction of GHG
emissions at reasonable costs. It is an accessory
provision within the overall context of Directive
2009/29 and even more so of the broader objective
of Directive 2003/87 to ensure an EU-wide harmonised system of emissions trading allowances. The
“centre of gravity” of both Directives 2009/29 and
2003/87 is quite obviously the objective to reduce
GHG emissions, an objective of environmental, not
of energy policy.
The increased costs which Directives 2003/87 and
2009/29 may cause for certain energy sectors in
a Member State may be mitigated by national State
aid schemes or EU support schemes, but cannot be
a reason to deviate from the legal provisions as regards the applicable provisions of the TFEU. Even
in such cases, one has to bear in mind that the fight
against climate change ranks above the energy
competence provisions which remain with Member
States under Article 194(2) second paragraph TFEU.
This follows that this national residual competence
remains with Member States “without prejudice
to the provision of Article 192(2)(c) TFEU”. In other
terms, a Member State could not resist EU measures for combating climate change by reducing GHG
emissions with the argument that its energy sector
would be seriously affected and that the Member
State was thus not able to exploit its natural energy
resources. The Member States’ interests are sufficiently safeguarded by the requirement of Article
192(2)(c) TFEU to adopt measures at unanimity –
which gives de facto a veto right to each Member
State.
Whether a future amendment of Directive 2003/87
will have to be based on Article 192(1) or (2), on Article 194 TFEU or whether it would infringe Member
States’ competences in the energy sector (Article
194(2) second paragraph) cannot be answered at
present. All depends on the content of any such
future amendment. Generally, though, it has to be
underlined that the GHG emission allowance trading scheme is a scheme which intends to reduce
GHG emissions in a cost-efficient way, by giving
industrial installations the option either to invest in
clean technologies or to buy emission allowances.
Such a scheme is part of the global as well as the
EU objective to reduce GH emissions. Therefore,
it is part of environmental policy, so that normally
Article 192(1) TFEU is the appropriate legal basis
for any adjustment, improvement or amendment
of the scheme.
Conclusion
The choice of the legal basis of an EU legislative
act depends on the objective of the act, as it is laid
down in the provisions and the recitals of that act.
The criteria for choosing the legal basis are subject
to judicial review by the EU Court of Justice.
Article 194 TFEU, which was introduced into the EU
Treaties at the end of 2009, attributes to the EU
a shared competence in energy matters, in order
to pursue the objectives laid down in Article 194(1).
However, any measures which the EU might adopt
in the area of energy policy may not affect a Member
State’s rights which are laid down in Article 194(2)
second paragraph. This area of Member States’
competence in energy matters is, however, itself restricted by the addition of the terms “without prejudice to Article192(2)(c)”.
Under Article 192(2)(c) TFEU, the EU may, in the context of its environmental policy which includes
the fight against climate change, adopt measures
which significantly affect a Member State’s choice
between different energy sources and the general
structure of its energy supply. The safeguard for
the individual Member State lies in the requirement
that decisions under Article 192(2) TFEU have to be
taken unanimously, though the Council may unanimously decide to adopt measures under Article
192(2) TFEU by majority.
Directive 2009/28 on renewable sources of energy
was mainly based on Article 192(1) TFEU; no Member State appears to have insisted that binding national targets for renewables would significantly
affect its choice between different energy sources
and the general structure of its energy supply and
ask for Article 192(2)(c) TFEU as the legal basis.
This questions may reappear, if future amendments
of the Directive fix new binding national targets.
Directive 2003/87, as amended by Directive
2009/29, introduced a scheme for greenhouse gas
emission allowance trading which covers in particular industrial and energy installations. As a rule,
such allowances shall have to be bought by the affected companies. Under certain conditions, Member States may grant free allowances to installations
in order to facilitate the modernisation of electricity
generation. Such decisions by Member States may
be rejected by the Commission (Article 10c). A stricter or a more flexible monitoring of this power allows
the Commission to influence, to a certain extent,
the modernisation of the electricity producing installations and thus the structure of the energy supply in
the Member States.
The emission allowance scheme of Directive
2003/87 has the objective to reduce greenhouse gas
emissions in a cost-efficient manner. Its objective
is to contribute to the fight against climate change
and allow a smooth transition to a carbon-reduced
economy. It thus has mainly an environmental objective, but does not pursue any objective of EU energy
policy. This principal objective of Directive 2003/87
is not put into question by the option which Member
States were given under its Article 10c.
The legal basis of future amendments of Directive
2003/87 will depend on the objective and content
of such amendments.
21
IV. Free greenhouse
gas emission allowances
for the energy sector in Poland
Karolina Ubysz68
1. The implementation of the greenhouse
gas emission allowance trading scheme
(EU ETS) into the Polish legal order
Directive 2003/87/EC was implemented into the Polish legal order with the Act of 22 December 2004
on the Trade in the Allowances for the Emissions
of Greenhouse Gases and Other Substances into
the Air.69 In relation to the amendment of Directive
2003/87/EC by Directive 2009/29/EC70 (hereinafter
also referred to as “the ETS Directive”), the new Act
of 28 April 2011 on the Greenhouse Gas Emission Allowance Scheme was adopted (hereinafter referred
to as “the ETS Act of 2011”).71
In accordance with Annex I to the ETS Directive,
the so-called National Allocation Plan was drawn up
for the carbon dioxide emissions for the period from
2008 to 2012 for the Community emission allowance trading scheme (hereinafter referred to as “the
NAP”). After its approval by the European Commission the NAP was adopted by the Regulation of the
Council of Ministers of 1 July 2008.72
The data used to draw up the NAP concerned
past emissions from installations and included information on the installed capacity or production
capacity of installations. The number of emission
allowances for the individual installations was
determined on the basis of the abovementioned
information and data, taking into account the reduction capacities in these installations.73 The
number of the emission allowances to be allocated
for the second trading period (2008 – 2012) was
determined by the same method. The number
of emission allowances defined for each installation in the NAP was expected, in principle, to
correspond to the real demand of an installation
for emission allowances. The number of allowances for installations was determined on the basis
of the emission levels from a given installation, its
installed capacity or its production capacity.
Given the fact that the Community (EU) greenhouse gas emission allowance trading scheme
(the ETS scheme) entered into effect on 1 January
2005 and given the absence of earlier experiences
in the allocation of emission allowances, after two
trading periods it turned out that installations were
allocated a number of allowances which exceeded their real demand for emission allowances. It
should be pointed out that this situation emerged
not only in Poland, but also in the other Member
States. In the light of this, the European Commission decided to introduce thorough changes in
the EU ETS scheme. These changes were introduced by the provisions of the abovementioned
Directive 2009/29/EC. In order to ensure the full
transposition of Directive 2009/29/EC into the national legal order, the new Act of 12 June 2015
on the Greenhouse Gas Emission Allowance Trading Scheme was adopted (hereinafter referred to
as “the new ETS Act of 2015”),74 which entered
into force on 9 September 2015.
2. A transitional allocation of free
greenhouse gas emission allowances
– derogations for the energy sector
As an exception to the rule that emission allowances should be purchased at auctions,
68 Karolina Ubysz – a legal counsel, graduated from Warsaw University and the Warsaw School of Economics (SGH). At ClientEarth she dealt with issues related to the greenhouse
gas emission allowance trading scheme, industrial emissions and air quality.
69 Official Journal of the Laws of 2004, No 281, Item 2784, as amended.
70 Directive 2009/29/EC of the European Parliament and of the Council of 23 April 2009 amending Directive 2003/87/EC so as to improve and extend the greenhouse gas emission allowance scheme of the Community (OJ L 140 of 5.6.2009, p. 63).
71 Official Journal of the Laws of 2011, No 122, Item 695, as amended. Strictly speaking, this Act only transposed selected articles of Directive 2003/87/WE following the amendment made by Directive 2009/29/EC.
72 Official Journal of the Laws of 2008, No 202, Item 1248, as amended.
73 See the National Allocation Plan for CO2 Emissions: http://www.kobize.pl/uploads/materialy/kpru/KPRU_I_plan.pdf (accessed on 04.01.2016).
74 Official Journal of the Laws of 2015, Item 1223.
22
Directive 2009/29/EC added Article 10c to Directive 2003/87/EC, which made it possible to give
a transitional allocation of free emission allowances for the modernisation of electricity generation. This is a so-called derogation mechanism
(hereinafter referred to as “derogations” or “the
derogation mechanism”).75 This solution deviates
from the harmonised approach to the allocation
of emission allowances through their purchase at
auctions.
sector. Moreover, what is most important here is
the fact the value of these investments must correspond to the value of the emission allowances
allocated for free.78
The derogations for the energy sector are transitional in nature and limited in time. Article 10c(2)
of the amended Directive 2003/87/EC unequivocally provided that “the total transitional free allocation (...) shall gradually decrease, resulting in no
free allocation in 2020”. At the same time, the European Commission recognised that the Member
States would have full discretion in setting out an
appropriate course of the reduction in the free allocation.76
The modernisation of the energy sector should
involve such aspects as: the upgrading of the energy infrastructure, the implementation of clean
technologies and the diversification of energy
sources, energy mix and sources of supplies.79
The emission allowances allocated under the derogation mechanism do not completely meet
the demand of installations for these allowances.
Installations for electricity production are allocated
allowances which are appropriately reduced every
year. In 2013, the total number of free allowances
allocated on a transitional basis did not exceed
70% of the average annual quantity of verified
emissions for the period from 2005 to 2007 and
in 2020 (i.e. in the last year of the third trading
period) there will be no free allocation of emission
allowances for energy generators.77
2.1. Purposes of the derogation mechanism
The purpose of the derogation mechanism is to
modernise the existing energy infrastructure, to
build new linear sites and, in the case of the construction of new capacity, to apply technologies
contributing to reducing emissions from installations. The Member States which have decided to
apply the derogation mechanism are obliged to
take action to ensure investments in the energy
Under its assumption, the derogation mechanism
is to contribute to a wide modernisation of the
energy sector in those States where this sector
operates on the basis of a fossil fuel of one type
(most frequently, coal).
The purpose of the derogations is also to contribute
to the diversification of the energy structure and
sources of supplies and to ensure investments
in clean technologies. An incentive encouraging
the launch of these investment projects are free
emission allowances which the entities implementing the investment projects will be able to
receive in return for their implementation, as the
value of the emission allowances allocated needs
to be balanced with the value of the investment
projects carried out. 80
2.1.1. Free greenhouse gas emission allowances
It should be emphasised that free greenhouse gas
emission allowances which may be allocated under the derogation mechanism do not constitute
an additional pool of allowances. In accordance
with the provisions of Article 10c(2) of the ETS
Directive, they have been deducted from the pool
of emission allowances intended for sales at auctions. By reducing this pool, the Member State
gives up a substantial part of its budget revenues
which would be generated if the pool were not reduced. At the same time, in implementing the objectives of the ETS Directive laid down in Article
10(3), at least 50% of the financial resources obtained from the sales of emission allowances at
75 See Article 1(12) of Directive 2009/29/EC; inter alia, Article 10c “Option for transitional free allocation for the modernisation of electricity production”.
76 See paragraph (11) of the Communication from the Commission – Guidance document on the optional application of Article 10c of Directive 2003/87/EC (2011/C 99/03) OJ C
99 of 31.3.2011, p. 9 (hereinafter referred as “the Communication from the Commission”).
77 Ibidem, Footnote 73.
78 Paragraph (1) of the Communication from the Commission, Footnote 74.
79 Ibidem and Annex V to the Communication from the Commission, Footnote 74.
80 Ibidem, Footnote 73.
23
auctions or their equivalent in financial value should
be used for the environmental objectives indicated
in Article 10(3). These objectives include, inter alia:
reductions in greenhouse gas emissions, the adaptation to the impacts of climate change, the development of energy from renewable sources,
investments in carbon capture and storage (CCS),
the creation of a system of incentives to encourage a shift to low-emission technologies, the carbon sequestration by forests, the improvement
of energy efficiency or the thermal modernisation
of buildings.
It does not follow from the provisions of the Directive that the installations for which the investment
process was physically initiated by 31 December
2008 at the latest are obliged to hold a permit for
their emissions.82
While the criterion for determining whether an installation is eligible to receive free emission allowances for its operation before 31 December 2008 and
the related obligation to hold a permit for its emissions does not raise any doubts, the issue whether
the derogation mechanism covers an installation at
the stage of the investment process can cause important difficulties with its interpretation.
2.1.2. Eligibility for the free allocation
of emission allowances
Pursuant to Article 10c(1) in the amended Directive
2003/87/EC, free emission allowances may be allocated to installations in operation by 31 December
2008 or to installations for which the investment
process was physically initiated by 31 December
2008.81 This laid down the two basic criteria determining whether the derogation mechanism could apply to an installation.
Moreover, it is important to note the provisions
of the ETS Directive in the range where it imposes
on the Member States the obligation to ensure that
each installation which is eligible to be covered by
the EU ETS scheme holds a relevant permit for
greenhouse gas emissions. This obligation was
laid down in Article 4 of the ETS Directive. In accordance with the cited regulation: “Member States
shall ensure that, from 1 January 2005, no installation
carries out any activity listed in Annex I resulting in
emissions specified in relation to that activity unless
its operator holds a permit (...)”. In the light of this,
it should be pointed out that, in principle, only those
installations that carry out an activity causing emissions and hold a permit for the emissions may participate in the EU ETS scheme.
The situation is different in the case of the derogation mechanism with its range covering both the installations in operation and those at the stage of the
investment process.
2.1.2.1. The physically initiated investment process
– the physically started construction work
The Communication from the Commission – Guidance document on the optional application of Article 10c of Directive 2003/87/EC (hereinafter
referred as “the Communication from the Commission”) 83 specified the provisions concerning
the derogation mechanism and the investment
process itself.
In its section 3, paragraphs 13-15, the Communication from the Commission indicates that an
installation for electricity production may receive
free emission allowances if the investment process was “physically initiated” by 31 December 2008 at the latest. Moreover, the prospect
of receiving free emission allowances should
not provide the basis for taking the decision to
build a new power plant (paragraph 14). Thus,
the Member States were obliged to demonstrate
that the possibility that the installation operators
might receive free emission allowances was not
the reason why the decision to launch the investment process was taken. In order to demonstrate
this fact, the Member States had to present substantiated evidence that:
1)
the physically initiated construction work was
visible on the investment site by 31 December 2008,
81 Ibidem, Footnote 73.
82 The content of Article 4 of the ETS Directive clearly indicates that the obligation to hold a permit applies to installations which carry out an activity causing emissions for which
the investment process has been physically initiated..
83 Communication from the Commission – Guidance document on the optional application of Article 10c of Directive 2003/87/EC (2011/C 99/03) OJ C 99 of 31.3.2011, p. 9.
24
2)
a contract for the construction of the power
plant between an investor (which can be the installation operator) and a company in a charge
of the construction work was signed by 31 December 2008.
Moreover, as indicated by the content of the Communication from the Commission (paragraphs 13
and 15), the term ”physically initiated investment
process” is of essential importance for determining
the range covered by the derogation mechanism. It
is the appropriate definition of this term that decides
which installations at the stage of the investment
process may be covered by the derogation mechanism. In its paragraph (15), the Communication from
the Commission addresses the situation where in
a given context the physically started construction
work may include preparatory work for the construction of the investment project. Importantly, in
each of such cases the work must be undertaken
on the basis of an explicit approval by the competent national authority, if necessary. Moreover, in
accordance with the content of the Commission
guidance, the Member States should submit a relevant authorisation document, which should be
of substantive legal status consistent with the national or EU law. As an exception to the above rule,
under the Communication from the Commission
“other evidence” may also be presented to enable
the determination that the construction work was
started by 31 December 2008.
With reference to the national regulation in
the scope addressed above, it should be pointed
out that in its Article 50 the ETS Act of 2011 provided that the start of the implementation of an
investment project took place on the date when
the investment process was physically initiated.
The date of the physical start of the investment
process is deemed to be the date before 31 December 2008 when preparatory work on the construction site of the installation was launched. It
should be pointed out that the ETS Act of 2011 did
not include the definition of “preparatory work”.
In should be noted in passing that the absence
of the definition of the term “preparatory work”
in the ETS Act of 2011 can give rise to serious interpretation doubts, primarily as regards
the very interpretation of this term. The application of a wide interpretation, in the context of the
investment process carried out in accordance
with the provisions of the Act on the Greenhouse
Gas Emission Allowance Trading Scheme, poses
the risk of too large discretion in the assessment
to determine the satisfaction of the eligibility criteria for an investment to be covered by the derogation mechanism, which, as indicated by
the guidance of the European Commission (see
e.g. the Communication from the Commission),
has undoubtedly the nature of an exceptional solution – a derogation from the rules laid down in
the ETS Directive. 84
2.1.2.2. The eligibility criteria for installations
for electricity production to be covered by
the derogation mechanism
Pursuant to the provisions of Article 10c of the
amended ETS Directive, the installations for electricity production:
1) which were in operation before 31 December
2008 or
2) for which the investment process was initiated
before 1 December 2008
may be allocated free emission allowances.
Other conditions for the application of the derogation mechanism relate to the internal situation
of the Member States. This mechanism could be
applied if the Member State met one of the following conditions:
1) in 2007, the national electricity network was
not directly or indirectly connected to the network interconnected system operated by
the Union for the Coordination of Transmission
of Electricity in Europe (UCTE),
2) in 2007, the national electricity network was
only directly or indirectly connected to the network operated by UCTE through a single line
with a transmission capacity of less than 400
MW, or
3) in 2006, more than 30% of electricity was produced from one type of fossil fuel and the GDP
per capita at market prices did not exceed
50% of the average GDP at market prices in
the Community.
84 See the appealable judgement of the Provincial Administrative Court, File No. IV SA/Wa 824/14, Lex No. 1562889.
25
2.1.3. Methodology for the allocation of free greenhouse
gas emission allowances
the emissions directly related to electricity production were to be taken into account. 87
With a view to meeting the long-term objective
of the European Union which is to reduce the intensity of carbon dioxide emissions and to modernise
the electricity production sector, while minimally disturbing the rules of competition in the internal market, the European Commission adopted a decision
on the methodology for the transitional allocation
of free emission allowances to installations for electricity production pursuant to Article 10c(3) of the
ETS Directive (hereinafter referred to as: the Commission Decision on guidance on the methodology
to allocate emissions). 85
With regard to the other method for the allocation
of free emission allowances based on an ex-ante
efficiency benchmark,88 the Member States could
use a Union-wide or a specific benchmark reflecting
the share of fuels used for electricity production in
a given Member State.
The Commission Decision on guidance on
the methodology to allocate emissions provides
for two methods for allocating free emission allowances, i.e. the method based on verified emissions
of eligible installations (so-called “grandfathering”) or the method based on an ex-ante efficiency
benchmark.
Grandfathering 86 covers verified, “past” emissions from installations (which were qualified for
the derogation mechanism) in the period from
2005 to 2007. The allocation based on this method
had to be such that the number of emission allowances planned to be allocated to each installation (qualified for the derogation mechanism) did
not exceed annual average emissions of these installations in the period from 2005 to 2007. The
emissions should reflect the performance of each
installation based on the relation between the total annual average emissions of these installations
in the period from 2008 to 2010 and their total annual average emissions in the period from 2005
to 2007.
The derogation mechanism could also cover installations for combined electricity and heat production (cogeneration). In the case of installations
of this type, in calculating the number of emission allowances which could be allocated, only
Each Member State which decided to use the derogation mechanism could choose the benchmark.
The value of the benchmark and the method for
calculating the amount of the allocation using a relevant formula were also indicated in the Commission Decision on guidance on the methodology
to allocate emissions. This Decision was adopted
pursuant to Article 10c(3) of Directive 2003/87/EC.
In the case of Poland, emission allowances were
allocated to installations for electricity production
on the basis of both of the methods described
above. The method based on past emissions was
applied for those installations that were in operation in the whole period from 2005 to 2007. The
other method (based on an ex-ante emission
benchmark) was applied for those installations
that began to operate after 1 January 2005 or in
the case of which the physically initiated investment process started by 31 December 2008. 89
3. The implementation of Article 10c
of Directive 2003/87/EC in Poland
– free greenhouse gas emissions
for the energy sector
It was not mandatory to use the derogation mechanism. Each of the Member States could individually
decide whether it would implement it.90 In order to
allocate free emission allowances to installations for
electricity production, a Member State was obliged
to prepare and submit the so-called derogation application, along with the National Investment Plan, to
the European Commission by 30 September 2011.
85 The C ommission Decision of 29 March 2011 on guidance on the methodology to transitionally allocate free emission allowances to installations in respect of electricity production pursuant to Article 10c(3) of Directive 2003/87/EC, C (2011) 1983 final.
86 Ibidem, Article 3.
87 Ibidem, Article 3(2).
88 Ibidem, Article 2.
89 See the public consultations on the application for the allocation of free greenhouse gas emission allowances for the period from 2013-2020 for the modernisation of electricity
production (04.08-24.08.2011)- http://www.mos.gov.pl/konsultacje_wniosek_bezplatne_uprawnienia_do_emisji (accessed on 15.12.2015).
90 Ibidem, Footnote 73.
26
3.1. The formal requirements for the derogation
application
The Member States which decided to use the derogation mechanism were obliged to submit an
application containing the proposed methodology for the allocation of emission allowances to
the European Commission by 30 September 2011.
In accordance with the requirements of Article 10c(5)
of the amended Directive 2003/87/EC, the application should contain:91
1) evidence in the light whereof the Member
State submitting the application meets one
of the criteria indicated in Article 10c(1) of the
Directive,
2) a list of the installations covered by the application, along with the amount of emission allowances for the planned investments indicated in
the National Investment Plan,
3) the National Investment Plan,
4) the regulations on monitoring and enforcement for the planned investments included in
the National Investment Plan,
5) information indicating that the emission allowances granted for free do not create undue distortions of competition.
1.
directly or indirectly (investments in networks
and ancillary services) contribute to decreasing
greenhouse gas emissions in a cost-effective
manner,
2.
will make it possible to eliminate in the future
the situations consisting in:
the absence of a direct or indirect connection
of the national electricity network with the network of the former UCTE,
a direct or indirect connection of the national
electricity network with the network of the former UCTE through a single line with a transmission capacity of less than 400 MW,
the production of more than 30% of electricity from one type of fossil fuel by the Member
State,
•
•
•
3.
should be compatible with each other and
with relevant legislation of the European
Union; they must not, at the same time, unduly distort competition and trade in the internal market and, if possible, they should
strengthen competition in the internal market
for electricity,
4.
should be additional to investments which
the Member States must undertake to
achieve other objectives or to meet the legal
requirements ensuing from the law of the
European Union; they should not be investments required to meet the growing demand
for electricity,
5.
should contribute to the diversification of the
energy mix and sources of energy supply for
electricity production and to reduction in carbon intensity,
6.
should be economically viable in the absence
of the allocation of free emission allowances
under Article 10c of Directive 2003/87/EC after
the end of the transitional allocation of these
allowances, with the exception of specific predefined emerging technologies at the demonstration stage (demonstration projects in
the area of carbon capture and storage (CCS)
and those in the area of innovative renewable
1.2. The National Investment Plan – general information
Pursuant to Article 10c of the amended Directive
2003/87/EC, the Member State which decided to
introduce the derogation mechanism was obliged
to submit to the European Commission the National
Investment Plan (NIP) for retrofitting and upgrading
of the infrastructure and clean technologies, also
providing for the diversification of its energy mix
and sources of supply, for an amount equivalent, to
the extent possible, to the market value of the free
allowances allocated.
The detailed requirements for the national plans
and the principles which the Member States were
obliged to follow in preparing these plans were laid
down in the Communication from the Commission.92
In the light of the principles laid down in the Communication from the Commission, the National Plan
should include investments which:93
91 See Article 1(12) of Directive 2009/29/EC.
92 Ibidem, Footnote 74.
93 Ibidem, Chapter 4.
27
energy sources – these projects were listed in
Annex III to the Communication from the Commission).
In accordance with the position of the European
Commission laid down in the Communication from
the Commission, the investments defined in the National Investment Plan “should, to the extent possible, comply with these principles”94 (as indicated
above). The analysis of these principles indicates
that they refer directly to the main goal of the derogation and the phrases applied in the above principles
specify, at the same time, the provisions of Article
10c of the ETS Directive.
In accordance with paragraph (30) of the Communication from the Commission, the NIP should
contain information in which years given stages
of individual investments will be implemented.
For each investment included in the plan its value
should be given in a breakdown into the individual
stages of its implementation. Taking into account
the value of the investment, the plan should also
indicate the number of emission allowances and
their market value corresponding to the value
of a given investment. 95
The proposal of an investment for the NIP did not
mean an absolute obligation to implement it. Installation operators could propose more than one
investment. It should also be pointed out that, in
accordance with the Communication from the Commission, there was no obligation to implement
the investments notified in the plan and the initiated
investment did not have to be fully completed. However, in case of failure to complete an investment
process all the emission allowances allocated so far
to a given installation had to be returned and incorporated into the allowance pool allocated to a given
Member State to be sold at auction.96
The European Commission believes that, in order
to better understand the provisions of Article 10c
of Directive 2003/87/EC in respect of the objectives
to be achieved by the implementation of the investment indicated in the NIP and in relation to which
the installations for electricity production are entitled to receive free emission allowances, it is necessary to clarify such terms as: infrastructure, clean
technologies and diversification of energy sources.
The interpretation of these terms by the Commission is given in Annex IV to the Communication
from the Commission. 97
In accordance with the guidance from the European
Commission:
“Infrastructure” is a term the meaning of which, in accordance with the Communication from the Commission, includes all the support network-related
facilities needed to ensure transport (transmission
and distribution) of electricity and the scope of the
meaning of this term also covers power plants.
“Clean technologies” are technologies for electricity
production which cause relatively low carbon dioxide
emissions or ensure a higher level of environmental
protection, including technologies for energy production from renewable sources.
In turn, “diversification” means increasing the share
of energy from renewable sources in primary energy
supplies and in electricity production. The purpose
of such measures is to balance energy supplies and
reduce dependence on fossil fuel imports.
In conclusion, it should be pointed out that both
the principles described above and the interpretation of the notions considered here provide the basic guidance to be followed in the implementation
of the investments included in the National Investment Plan. This guidance also provides the basis for
the evaluation by the European Commission of the
implementation of the derogation mechanism and
the extent to which the plan has been implemented
by a specific Member State.
3.3. The Polish derogation application 98
Poland submitted its derogation application on 30
September 2011, i.e. on the last day of the deadline
94 Ibidem, paragraphs (23) and (24).
95 Ibidem, paragraph (30).
96 Ibidem, paragraph (63), the 4th indent.
97 Ibidem, paragraph (32) and Annex IV.
98 See.http://www.mos.gov.pl/artykul/7_archiwum/21353_bezplatne_uprawnienia_do_emisji_co2_dla_energetyki.html (accessed on 16.12.2015) and http://www.mos.gov.
pl/konsultacje_wniosek_bezplatne_uprawnienia_do_emisji/ (accessed on 16.12.2015).
28
for its submission. This deadline was laid down in
Article 10c(5) of the amended Directive 2003/87/EC.
The derogation application contained a list of 176
installations. This number included 145 installations which had been in operation before 31
December 2008 and 31 installations for which,
according to the applicant, the physically initiated
investment process had also began before 31 December 2008. 99
The total market value of free emission allowances
which were requested for the third trading period
(2013-2020) for installations for electricity production was estimated at EUR 7,406,000,000. This value corresponded to 404,600,000 tonnes of CO2. It
was calculated using the methodology laid down in
Annex VI to the Communication from the Commission. The value of the allowances was adjusted to
the price level in 2010.100
As indicated above, in Poland’s case the allocation
of emission allowances to installations for electricity production was based on two methods for allocating emissions, i.e. grandfathering and an ex-ante
benchmark.
Pursuant to Article 21(8) of the ETS Act of 21,
the Council of Ministers adopted the Regulation
of the Council of Ministers of 8 April 2014 on the list
of installations for electricity production covered
by the greenhouse gas emission allowance trading
scheme in the trading period starting on 1 January
2013, along with the numbers of allowances allocated to them.101
That list of installations and the National Investment
Plan constituted the basic part of the derogation application.
3.3.2. Investments in the energy sector
– the National Investment Plan
3.3.1. The legal basis for the Polish derogation application
The Polish derogation application was based on
the condition laid down in Article 10c(1)(c) of the
amended Directive 2003/87/EC. In accordance with
that provision, more than 30% of electricity in Poland was produced from one type of fossil fuel and
its GDP per capita at market prices did not exceed
50% of the average GDP per capita at market prices
of the European Union as a whole.
In accordance with the provision of Article 21(3)
of the ETS Act of 2011, the Minister of the Environment, in agreement with the Minister of Economy,
was obliged to prepare a draft list of installations
for electricity production covered by the EU ETS
scheme in the trading period starting on 1 January 2013, along with the numbers of emission
allowances allocated to these installations, in accordance with the executive regulations issued by
the European Commission to implement the ETS
Directive.
With its Decision of 13 July 2012 concerning the application pursuant to Article 10c(5) of Directive
2003/87/EC of the European Parliament and of the
Council to give transitional free allocation for the modernisation of electricity production notified by Poland
(hereinafter referred to as: the Commission Decision
of 13 July 2012), the European Commission conditionally consented to approve the Polish derogation
application, making a number of comments which
will be addressed below.102
The European Commission considered one installation (indicated in Annex I to the Commission
Decision of 13 July 2012) as a new entrant, i.e.
an installation which obtained a greenhouse gas
emissions permit for the first time after 30 June
2011, which meant, in the light of the provisions
of the ETS Directive, that it could not be allocated
free emission allowances.103 Subsequently, the European Commission decided not to allocate free
emission allowances to another 5 installations
99 See paragraph (6) of the Commission Decision of 13 July 2012 concerning the application pursuant to Article 10c(5) of Directive 2003/87/EC of the European Parliament and
of the Council to give transitional free allocation for the modernisation of electricity production notified by Poland C(2012) 4609 final (hereinafter referred to as: the Commission
Decision of 13 July 2012).
100 See paragraph (19) of the Commission Decision of 22 January 2014: Derogation of Article 10c of Directive 2003/87/EC on emission trading – free allowances to power generators, C(2013) 6648 final, and Annex VI to the Communication from the Commission – Guidance document on the optional application of Article 10c of Directive 2003/87/EC (2011/C
99/03).
101 Official Journal of the Laws of 2014, Item 472, as amended.
102 See Article 1 of the Commission Decision of 13 July 2012 concerning the application pursuant to Article 10c(5) of Directive 2003/87/EC of the European Parliament and of the
Council to give transitional free allocation for the modernisation of electricity production notified by Poland C(2012) 4609 final.
103 Ibidem, paragraphs (8-9).
29
(Annex II to the Decision of the Commission of 13
July 2012) for which the Commission questioned
the methodology for allocating emission allowances.104 In addition, thirty investments (Annex III to
the Decision of the Commission of 13 July 2012)
were excluded from the National Investment
Plan, as in their case the Commission believed
that “Upon request, the Polish authorities could
not substantiate that the investment included in
the national plan goes beyond the initial investment plan in order to contribute to the modernisation of the installation (...)”.105
In a detailed analysis of the Commission Decision
of 13 July 2012, it should be pointed out that the installation indicated in Annex I of the Decision indicated above was not eligible, in the opinion of the
Commission, for receiving free emission allowances, since it did not meet the criterion laid down
in Article 10c(1) of the ETS Directive. In the opinion of the European Commission, the information
on that installation submitted by Poland indicated
that it was not granted an emissions permit until after 7 July 2011. In accordance with the provisions of Article 10a(7)(3) of the ETS Directive,
neither any new entrant, i.e. an installation which
obtained a greenhouse gas emissions permit for
the first time after 30 June 2011, nor any installation which had a significant extension after that
date were eligible to be covered by the derogation
mechanism. For this reason, the European Commission considered the installation in question to
be a new entrant. In the opinion of the European
Commission, the evidence provided by Poland
was not sufficient for the Commission to come to
the conclusion that that installation was eligible for
free allocation.
The other installations, listed in Annex II, in respect of which the European Commission voiced
its objections were those that failed to meet
the criterion laid down in Article 10c(3) of the ETS
Directive and in Article 1 of the Decision on the allocation methodology. In accordance with Article
10c(3) of the ETS Directive, in conjunction with
Article 1 of the Decision on the allocation methodology, the allocation of free emission allowances
should be based either on the verified emissions
of a given installation in 2005-2007 or an ex-ante
104 Ibidem, paragraphs (10-15).
105 Ibidem, paragraphs (17-22).
30
efficiency benchmark. In the situation where there
are no data on emissions, allowances can only
be allocated on the basis of an ex-ante efficiency
benchmark. Moreover, it should be pointed out
that only one method for calculating the allocation
may be applied for one installation.
The European Commission argued that the derogation mechanism did not apply to a “sub-installation”
which functioned as part of an installation in operation before 1 December 2008 and that, moreover,
the term “sub-installation” was completely absent
from the scope of the derogation mechanism. In
refusing to regard a “sub-installation” as an independent installation, the European Commission
indicated that only one method for calculating
the allocation of emission allowances might be applied for each installation – based either on verified
emissions or on an ex-ante benchmark.
In the questioned case, the number of emission
allowances was determined using the methodology based on an ex-ante benchmark, whereas in
the case of the installation to which the “sub-installation” was related the allocation was based on
the verified emissions in 2005-2007. In the opinion
of the European Commission, this was the situation where two methods for allocating free emission allowances were applied for one installation.
Taking into account the circumstances described
above, the European Commission concluded that
the installation mentioned above could not be regarded as an independent one and refused to consent to the allowance allocation.
The other installations which were excluded from
the derogation application due to the objections
of the European Commission based on the condition laid down in Article 10c(3) of the ETS Directive
and the provisions of the Decision on the allocation methodology were installations the allocation
for which was to based on an ex-ante benchmark
and they were installations which were extended
after 2007. The European Commission considered
that the installations which underwent a significant
extension after 2007 should be treated as new
entrants and, in the light of this, they could not
receive free emission allowances under the derogation mechanism. Indeed, in accordance with
the provision of Article 10a(7) of the ETS Directive,
no emission allowances could be allocated to new
electricity producing entrants.
In accordance with the provision of Article 3(h)
of the ETS Directive, new entrants are defined
as those installations that obtained for the first
time a greenhouse gas emissions permit after
30 June 2011 or the installations the operations
of which were significantly extended after 30
June 2011 only to the extent of their extension.
As it pointed out in its evaluation of the application, the European Commission could not exclude
that the installations referred to above underwent a significant extension after 30 June 2011
and that, in the light of this, as new entrants they
were not eligible for receiving free emission allowances. These installations were excluded from
the derogation application.
Moreover, the European Commission raised its objections to the thirty investment projects listed in Annex III to the Commission Decision of 13 July 2012.
Bearing in mind that the main objective of the investment projects included in the NIP should be to
modernise the energy infrastructure, to apply clean
technologies and to diversify sources of energy
supply, the European Commission considered that
the investment projects listed in the abovementioned Annex III could not be financed with free
emission allowances, since they were not consistent with the objectives laid down in Article 10c
of the ETS Directive. In the opinion of the European
Commission, “the mere fact that an investment relating to an installation for which the investment process was physically initiated by 31 December 2008
provides new electricity generation capacities is not
sufficient to satisfy the modernisation requirement.
Article 10c requires that the decision underlying this
investment process has been taken irrespective
of the prospects offered by Article 10c of the Directive (...)”.106 Indeed, the construction of new capacities does not automatically entail the modernisation
of the energy sector.
At the same, in paragraph (24), it specified, referring to the main objective established in
the provision of Article 10c of the ETS Directive
– i.e. the modernisation of the electricity generation sector – how the emission allowances should
be used. The European Commission emphasised
that “(...) the value of the allowances provided pursuant to Article 10c(1) should not be used to increase the electricity generation capacity to supply
a growing market demand”(...).
In a further part, the European Commission also
pointed out that in the situation where investments
to build new electricity generation capacities were
funded from free emission allowances “the added
value in terms of modernisation required by Article
10c must be ensured through a proportionate and
timely de-commissioning of existing less-efficient
electricity generation capacities”.107
It should be added in passing that the European
Commission noted that “In its application, Poland
confirmed that where an investment leads to an increase in the electricity generation capacity of an
installation, less efficient capacity will be de-commissioned elsewhere”.108 It follows from the above
that investments to build new capacities (i.e. new
power plants or heat and power generating plants)
are eligible provided that these plants would be
built to replace less efficient installations.
With respect to the other 140 installations, the European Commission considered that they met
the requirements of Article 10c(1) of the ETS Directive and, thus, were eligible for being covered
by the derogation mechanism. Ultimately, the Polish National Investment Plan as approved by
the European Commission contained a list of 347
investments.109
3.4. Monitoring and annual reports on the implementation
of the National Investment Plan
The Member States are obliged to monitor and enforce the implementation of the investments laid
down in their national investment plans. For this
purpose the Member States have been obliged
to adopt clear and effective laws, regulations
and administrative provisions, as well as a series
106 Ibidem, paragraph (20).
107 Ibidem, paragraph (24).
108 Ibidem, paragraph (24).
109 See paragraph (16) of the Decision: Derogation of Article 10c of Directive 2003/87/EC on emission trading – free allowances to power generators ,C(2013) 6648 final.
31
of compliance indicators to be used by the competent national authorities to assess progress and
compatibility of investments with the requirements
laid down in Directive 2003/87/EC and the Communication from the Commission.110
Annex VIII to the Communication from the Commission lists examples of compliance indicators –
the parameters used to evaluate whether a given
investment implemented under the derogation
mechanism has been carried out in compliance with
the requirements of Directive 2003/87/EC.111 Among
others, they include:
1)
expected and implemented decrease in total
greenhouse gases emissions generated by national electricity production due to investments
undertaken under Article 10c (compared to
business as usual scenario);
2)
expected and implemented efficiency gains in
electricity generation/distribution networks (in
terms of MWh saved) due to investments undertaken under Article 10c and corresponding
CO2 emission reductions;
3)
expected and implemented increase of the
share of CO2-free and less CO2 intensive fuels
in national energy mix due to investments undertaken under Article 10c;
4)
installed capacities (in MW) on stream in December 2008 that will be replaced by new less
carbon intensive capacities financed due to investments undertaken under Article 10c;
5)
share of installed capacities on stream in December 2008 replaced by new less carbon intensive capacities financed due to investments
undertaken under Article 10c, compared to total installed capacities (in MW) on stream in
December 2008;
6)
installed capacities (in MW) of renewable energy to be put on stream due to investments
undertaken under Article 10c.
It should be noted that the new ETS Act of 2015 imposes on entities which carry out investment projects the obligation to submit to the Minister of the
Environment an application for an approval of the
relevant compliance indicator for a given investment
before it is started.112 After the completion of the investment, in order to fully account for it, an application must be submitted to the competent authority
for confirmation that the approved compliance indicator has been achieved. In case that it is impossible to confirm it, the emission allowances issued
will have to be returned. The compliance indicators
designed to demonstrate that the investment projects under the NIP are implemented in accordance
with the principles laid down in the Communication
from the Commission were established in Annex 2
to the new ETS Act of 2015.113
In conclusion, it should be pointed out that pursuant to the ETS Act of 2015, the procedure related
to the implementation of an investment requires
the entities which implement investment projects to
carry out the following activities:114
1) the approval of the compliance indicator,
2) the confirmation that the compliance indicator
has been achieved,
3) the submission of physical and financial reports verified by an auditor.
The purpose of the activities listed above is to ensure that the implementation of the investments
defined in the NIP will contribute to the modernisation of the energy sector and thus attain the objectives for the achievement of which the derogation
mechanism has been established. The aim of the
introduction of this procedure was also to prevent
the situation where the entities implementing investments could gain excessive benefits or profits.
On the one hand, the derogation mechanism offers
an opportunity for mobilising additional financial resources for the implementation of an investment
(in the form of free emission allowances). On the other hand, it introduces the principles under which
the whole investment process is implemented
in terms of the achievement of its objective which is
110 Ibidem, Footnote 74, section 6.2.
111 See Annex VIII to the Communication from the Commission, Footnote 74 – Examples of compliance indicators.
112 Official Journal of the Laws of 2015, Item 1223 - Article 32 of the Act of 12 June 2015 on the Greenhouse Gas Emission Allowance Trading Scheme.
113 Official Journal of the Laws of 2015, Item 1223 – Annex 2.
114 Ibidem – see Articles 32 and 34.
32
the modernisation of the energy sector, while minimising the risk of distortion of competition if the allowances were not used for the purpose for which
they have been allocated.
The Member States which use the mechanism
of the allocation of free greenhouse gas emission
allowances are obliged to submit to the European
Commission, in the form of annual reports, the results of the procedure of monitoring investments
in modernising electricity generation, along with
the relevant documentation confirming, in particular,
that the investments in question contribute to the reduction of greenhouse gas emissions.115
3.4.1. The reports for 2009-2013 and for 2014
Poland submitted its first report in January 2014. Forwarded by the Minister of the Environment to the European Commission, it included the investments
implemented from 25 June 2009 to 31 December
2013.116 On the basis of information contained in it,
the European Commission issued the emission allowances for 2013 to the installation operators.
This report was drawn up on the basis of data provided in the physical and financial reports submitted
by installation operators. The physical and financial
reports contained verified data on the costs incurred
in relation to the implementation of investments included in the NIP. The physical and financial reports
were verified by auditors.117
The report submitted to the European Commission
primarily contained information on the eligible investment costs118 to be balanced with the value of the
emission allowances planned to be allocated for
2013 and a list of 159 investment projects underway.
In their physical and financial reports, the entities implementing investment projects were obliged to provide
the eligible investment costs in PLN in 2020 prices, taking into account the investment price indices determined
on the basis of a communication from the President
of the Central Statistical Office. The eligible costs in
2010 prices were, subsequently, recalculated into EUR.
The EUR/PLN exchange rate was determined on the basis of the weighted average EUR/PLN exchange rate
announced every day by the National Bank of Poland,
which amounted to 3.9945 on average for 2010. The
adopted EUR/PLN exchange rate was 4.0000, just as in
the application which Poland submitted under Article
10c(5) of the ETS Directive. The eligible costs expressed
in EUR provided the basis for calculating the number
of free emission allowances which should be allocated. Under paragraph (26) of the Commission Decision
of 13 July 2012, the value of an allowance amounting to
EUR 14.78 euro was adopted to calculate the number
of emission allowances for 2013.119
The data included in the report of the Minister of the
Environment for the period from 25 June 2009 to
31 December 2013 indicate that at that time 159 investments were implemented. Those investments
involved in particular:
1) the modernisation of existing energy generating installations,
2) the modernisation of transmission networks,
3) the construction of new smart grids,
4) the optimisation of energy generation processes,
5) the reduction of carbon dioxide emissions by
limiting transmission losses,
6) the construction of gas-fired power generators,
7) the reconstruction of district heating networks,
8) the construction of steam and gas units,
9) the construction of coal and biomass-fired
units,
10) the limitation of transformer losses.
The value of the investments implemented from 25
June 2009 to 30 June 2013 and the corresponding
number of emission allowances to be issued are presented in Table 1.
The second report on the implementation of the
NIP was submitted to the European Commission in
January 2015.120 This report covered the period from
115 See Article 10c(4) of the ETS Directive and section 6.3 of the Communication from the Commission, Footnote 74.
116 See the Report under Article 10c(1) of Directive 2003/87/EC for 2013: http://www.mos.gov.pl/artykul/5688_instalacje_wytwarzajace_energie_elektryczna/23810_
sprawozdanie_z_art_10c_ust_1_dyrektywy_2003_87_we_za_2013_r.html (accessed on 23/12/2015).
117 Ibidem.
118 Eligible costs were defined in the cited Report of the Minister of the Environment as investment costs incurred to implement an investment project included in the NIP less
the value of the costs incurred in relation to: (a) the satisfaction of obligations under the regulations on industrial emissions; (b) the regulations on the promotion of the use of energy
from renewable sources due to the failure of the Republic of Poland to exceed the overall national target of a 15% share of energy from renewable sources in the final gross energy
consumption; (c) the financial costs incurred from the resources constituting State aid. See also Article 36(3) of the new ETS Act of 2015.
119 Ibidem, Footnote 114.
33
1 July 2013 to 30 June 2014 when 127 investments
were implemented. These investments are not different from those indicated in the first report, while
some investment projects included in the first report
are still underway. Table 2 shows the value of these
investments and the corresponding number of emission allowances to be issued.
The data contained in the abovementioned two reports of the Ministry of the Environment indicate
that the free emission allowances for 2013 and 2014
were issued to 174 installations. The sum total of the
allowances which could be issued for 2014, including those not issued for 2013, was 84,082,475, representing an amount of EUR 1,242,738,980.5.121
As indicated above, the condition for the issue
of emission allowances for a given trading period is,
in particular, the submission of a physical and financial report by the entity interested in receiving free
emission allowances. In the case where this report
is not submitted because the entity implementing
an investment project has not incurred investment
costs, the Ministry of the Environment has to be notified of this fact. In accordance with the amended
ETS Act of 2015, in the situation described above,
the issue of emission allowances is suspended, for
not longer than a period of 4 years. Moreover, failure
to submit a physical and financial report for five successive reporting years is tantamount to the cessation of the implementation of the investment project
and the equivalent value of the emission allowances
issued in relation to the implementation of the investment project must be returned.122
3.4.2. Recipients of free allowances
and investment types
In evaluating the investment included in the National
Investment Plan, it should be pointed out that 146 projects out of 347 finally notified were defined in the Plan
Table 1. The emission allowances planned to be issued and those issued for 2013123
Number of non-issued
Eligible costs of the
implementation of the
Emission allowance
projects reported on
allocation for 2013
as incurred from 25
June 2009 to 30 June
Utilisation of the
possible allowance
allocation for 2013
allowances for 2013
Value of the allowances
(available in successive
allocated for 2013
years after eligible
costs have been
demonstrated)
2013
77,816,762
EUR
3,407,084,845.80
65,992,703
EUR
975,372,150.34
11,824,059
Table 2. The emission allowances planned to be issued and those issued for 2014124
Possible emission
allowance allocation for
2014
72,258,416
Eligible investment
Number of allowances
Value of allowances to
costs incurred for 2014
to be issued for 2014
be issued for 2014
EUR
1,065,843,806.74
52,826,465
EUR
780,775,152.7
Number of non-issued
emission allowances for
2014125
19,431,951
120 See: https://www.mos.gov.pl/artykul/5688_instalacje_wytwarzajace_energie_elektryczna/24960_sprawozdanie_z_art_10c_dyrektywy_2003_87_we_za_2014_r.html
(accessed on 23/12/2015) and https://www.mos.gov.pl/g2/big/2015_08/e6ab78d65ad9e5124c25a8dfb5e8641d.pdf (accessed on 23/12/2015).
121 Ibidem, Footnotes 114 and 119. The allowance price in 2010 as adopted in the Polish derogation application was EUR 14.78 EUR for 2013-2014.
122 Ibidem, Footnote 72, see Articles 34(4)-(5).
123 Ibidem, Footnote 114, see Table 2. A list for capital groups from the Report under Article 10c(1) of Directive 2003/87/EC for 2013.
124 Ibidem, Footnote 119. See also Table 2 – Information on the incurred implementation costs of the investment projects listed in the NIP and the related allowance allocations
divided into groups from the Report (of the Minister of the Environment) under Article 10c(1) of Directive 2003/87/EC of the European Parliament and of the Council establishing
a scheme for greenhouse gas emission allowance trading within the Community, amended by Directive 2009/29/EC of the European Parliament and of the Council of 23 April
2009 amending Directive 2003/87/EC so as to improve and extend the greenhouse gas emission allowance scheme of the Community – derogations for the electricity sector.
125 This number has been calculated by the Author as the difference between the number of the allowances allocated for 2014 and the number of the allowances to be issued
for 2014.
34
as modernisation projects. The National Investment Plan
also provided for 31 investments in renewable energy
sources (RES), while two investment projects involved
the construction of nuclear power units.
The free emission allowances for 2013 and 2014
were allocated to 68 capital groups. The largest recipients of the emission allowances were the capital
groups listed in Table 3.
Taking into account the investment types included
in the Polish NIP which have been implemented
as well those that are still underway, it should be
pointed out that, in principle, they are consistent with
the examples of investment types listed in Annex V
to the Communication from the Commission. The
examples of investment types listed in Annex V to
the Communication from the Commission126 include:
1)
2)
2)
the modernisation of electricity generation in
order to ensure more efficient and less CO2 intensive electricity generation (a better relation
between gross and net electricity consumption, i.e. increasing the share of net electricity
consumption in gross electricity consumption
and decreasing CO2 emissions per MWe);
the reduction of CO2 emissions through retrofitting coal power plants (state of the art);
electricity generation using energy from renewable sources (at a level exceeding the target laid down in the Directive on renewable
energy sources), along with corresponding
network requirements;
4)
5)
6)
7)
the replacement of more CO2 intensive generation capacity by less CO2 intensive generation
capacity;
carbon capture and storage;
smart grids;
cogeneration (CHP), along with corresponding
network requirements.
In turn, the investment notified in the National Investment Plan included, inter alia:
1)
the modernisation of existing energy generation
units,
2) the modernisation of heat and power generating
plants,
3) the construction of new coal and biomass-fired
units,
4) the construction of new oil and gas or oil and
steam boilers,
5) the reduction of own demand for energy,
6) the conversion of a coal-fired boiler into one
burning only biomass,
7) the limitation of transformer losses,
8) the modernisation of boilers by replacing oil
with natural gas,
9) the installation of new engine-gensets,
10) the optimisation of the electricity and heat generation processes by implementing advanced
automatic controls and software,
11) the reduction of CO2 emissions by decreasing
transmission losses,
12) the enhancement of electricity generation by
expanding the district heating system.
Table 3. Five largest recipients of the allocation of free emission allowances for 2013 and 2014127
Recipient
Possible emission
Value of allowances
Possible emission
Value of allowances
allowance (EUA)
which could be allocated
allowance allocation for
to be issued for 2014
allocation for 2013
for 2013 [EUR]
2014
[EUR]
PGE
31,048,028
458,889,853.84
28,700,711
424,196,508.58
TAURON
11,925,960
176,265,688.80
6,197,006
91,591,748.68
EDF
6,795,801
100,441,938.78
2,371,313
34 554 871,44
ENEA
5,689,089
84,084,735.42
4,960,364
34,554,871.44
GDF
2,696,073
39,847,958.94
2,492,243
36,835,351.54
126 See Annex V to the Communication from the Commission – Guidance document on the optional application of Article 10c of Directive 2003/87/EC (2011/C 99/03).
127 Ibidem, Footnotes 114 and 119, see Table 2 from the Report of the Minister of the Environment for the period from 25.06.2009 to 30.06.2013 and from 01.07.2013 to
30.06.2014.
35
In analysing the investment types notified in the NIP,
it should be pointed out that, among others, they
aim at: modernising the existing energy generation
units, expanding the existing network, building new
gas and steam boilers, generating heat and electricity as part of cogeneration as well as the operation
of processes to produce electricity from biomass
(co-combustion).
It should be added that one installation operator could
propose several investment projects to be included
in the NIP and free emission allowances could also
be allocated to entities which carried out no investment projects included in this document. The condition for the allocation of free emission allowances
to these entities was that they funded investments
implemented by Polskie Sieci Elektroenergetyczne
(PSE - Polish Power Grid) or Gaz System.
In accordance with the Communication from
the Commission, to the extent to which it applies
to National Investment Plans, the scope of these
plans can cover those companies which are not
subject to the EU ETS scheme.128 Moreover, not
all companies included in the NIP may receive free
emission allowances.
In the light of the above, such entities as the operators of transmission and distribution systems
which are not electricity generators may not receive free emission allowances, but may be
obliged to undertake the investment projects indicated in the NIP. The investment projects which
they implement are based on an agreement with
an entity which is an electricity generator. This entity will incur the costs related to the implementation of the investment project and, in return for its
financing of the investment project, it will be able
to receive free emission allowances. This arrangement was approved by the European Commission
in its document of 22 January 2014.129
4. Conclusions
The derogation mechanism introduced pursuant
to Article 10c of the amended Directive 2003/87/EC,
is an exception to the Union-wide harmonised
approach, consisting in auctioning of emission
allowances as the basic method for allowance allocation.
The Member States which have met the criteria laid down in the Directive and decided to use
the possibility of a transitional allocation of free
emission allowances are obliged to take measures
to ensure investments in the energy system. Such
measures include the modernisation and diversification of the energy infrastructure and sources
of supply, as well as the application of clean technologies, in an amount equivalent to the value
of the corresponding emission allowances allocated for free.
In analysing the list of the investment projects
proposed as part of the National Investment Plan,
it should be said that only less than 10% (31 out
of 347) of the projects are investments defined
as “the outlays related to RES”. Importantly, these
are investment projects primarily related to cocombustion of coal with biomass or biomass particles. Only one investment proposed as related
to RES entails the construction of a hydropower
plant. In the National Investment Plan submitted
to the European Commission, there are no other
investments in renewable energy sources, such
as energy from agricultural biogas, solar energy or
geothermal waters.
More than 70% of the proposed projects are related to investments in coal combustion infrastructure. Thus, the objective which should be
the launch of measures contributing to the diversification of the electricity production structure
and the differentiation of the energy mix and
the use of clean technologies is pursued in Poland
to a very limited extent.
It should also be mentioned that in the case
of about 30% (22 out of 69) of entities implementing the investment projects included in the National
Investment Plan there is no information on the eligible costs incurred in 2013 and 2014, as this information is defined as “sensitive data”.130 In their major
128 See paragraphs 40 - 46 of the Communication from the Commission – Guidance document on the optional application of Article 10c of Directive 2003/87/EC (2011/C 99/03).
129 See paragraph (17) of the Commission Decision of 22 January 2014: Derogation of Article 10c of Directive 2003/87/EC on emission trading – free allowances to power generators C(2013) 6648 final.
130 Ibidem, Footnotes 114 and 119.
36
part, the eligible costs131 are the investment costs
incurred by an individual entity to implement an investment part included in the National Investment
Plan. Because of this, the absence of information on
the level of really incurred costs practically makes it
impossible for the public to assess the scale of the
investments underway, which are defined in the reports mentioned above in general terms as modernisation or investments to improve infrastructure.
There seems to be no justification for the category
of “sensitive data” to include the investment costs
incurred by the entities which receive free emission
allowances under the derogation mechanism.
It should be added that the form and scope of the
reports on the implementation of successive stages
of the National Investment Plan which are presented to the public should enable it to make a genuine evaluation of the investments carried out under
the derogation mechanism and, thus, ensure public
participation in the successive stages of the introduction and implementation of the derogation.
131 See the definition in Footnote 116.
37
V. Free emission allowances
for the Polish energy sector
in the light of regulations
on State aid
Marcin Stoczkiewicz
1. Introduction
Directive 2003/87/EC established a Community (EU) greenhouse gas emission allowance
trading scheme (“the ETS scheme”). Directive
2003/87/EC in its wording laid down by Directive
2009/29/EU (hereinafter referred to as “the ETS
Directive”) introduced the principle of auctioning of emission allowances for new installations
for electricity production.132 The newly adopted Article 10c of the ETS Directive introduced
a derogation from the auctioning principle under
which the Member States could allocate for free
up to 70% of the allowances granted 2013 until
the complete liquidation of their free allocation in
2020. Article 10c of the ETS Directive laid down
detailed conditions for the Member States which
had the right to use this Article. Indeed, these
requirements were so formulated that they were
met only by the Member States which acceded
to the European Union after 2004.133 Moreover,
the derogation from the effect of Article 10c
of the ETS Directive could only be applied to installations “in operation by 31 December 2008 or
to installations for electricity production for which
the investment process was physically initiated
by the same date”.134
The introduction of the auctioning system for
the sales of emission allowances by the ETS
Directive, coupled with the possibility of operators being exempted from this obligation by
the Member States, gave rise to a question about
the legal status of free greenhouse gas emission
allowances in the light of State aid regulations.
The purpose of this study is to answer the following questions:
(i) whether free emission allowances under
the ETS scheme constitute State aid within
the meaning of Article 107(1) of the Treaty
on the Functioning of the European Union
(hereinafter also referred to as “the Treaty”
or “TFEU”);135
(ii) whether the free emission allowances allocated to the Polish energy sector constitute
State aid which is compatible with the internal
market (admissible);
(iii) what conditions determine the compatibility
of the allocation of free emission allowances
for the Polish energy sector with the internal
market?
2. Free emission allowances
as State aid
The European Commission expressed its opinion
on the State aid issues related to the transitional
allocation of free emission allowances in the 3 rd
phase of the ETS scheme in its Communication
“Guidance document on the optional application of Article 10c of Directive 2003/87/EC.”136
In the opinion of the Commission, “the free allocation of emission allowances to electricity
generators and the financing of corresponding
investments required by Article 10c of Directive
2003/87/EC would in principle involve State aid
within the meaning of Article 107(1) TFEU.”137
This opinion was repeated by the Commission
as a general comment in its Communication
132 Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC (OJ L 275 of 25.10.2003, p. 3), amended by Directive 2009/29/EC of the European Parliament
and of the Council of 23 April 2009 amending Directive 2003/87/EC so as to improve and extend the greenhouse gas emission allowance scheme of the Community
(OJ L 140 of 5.6.2009, p. 63).
133 Commission, a press release of 13 July 2012.
134 The ETS Directive, Article 10c(1).
135 OJ C 326/01 of 26.10.2012.
136 Communication from the Commission – Guidance document on the optional application of Article 10c of Directive 2003/87/EC, OJ C 99 of 2011, p. 9.
137 Communication from the Commission, Footnote 135, paragraph 27.
38
“Guidelines on certain State aid measures in
the context of the greenhouse gas emission allowance trading scheme post-2012”.138 In this
document, the Commission stated that: “The
special and temporary measures provided for in
the context of implementation of the ETS Directive involve State aid within the meaning of Article 107(1) of the Treaty on the Functioning of the
European Union. In accordance with Article 108
of the Treaty, State aid must be notified by Member States and may not be put into effect until it
is approved by the Commission”.139
Article 107(1) contains a list of the conditions all
of which must be met at the same time for a given
measure to constitute State aid. In accordance
with the established case-law of the Court of Justice of the European Union, these are the following
conditions: firstly, there must be an intervention
by the State or through State resources; secondly,
the intervention must be liable to affect trade between Member States; thirdly, it must confer an
advantage on the recipient by favouring certain
undertakings or the production of certain goods;
fourthly, it must distort or threaten to distort competition.140 As demonstrated in the article “Free
allocation of EU ETS emission allowances to installations for electricity production from a State
aid law perspective”, in the case of the allocation of free emission allowances under Article
10c of the ETS Directive, all the conditions defining State aid are satisfied.141 The European Commission issued a number of decisions assessing
State aid under Article 10c of the ETS Directive,
finding each time that the allocation of free allowances constituted State aid.142 At present, there
is no longer any doubt that the allocation of free
emission allowances constitutes State aid within
the meaning of the provisions of TFUE.
3. Free emission allowances as State
aid compatible
with the internal market
The guidelines of the Commission on certain
State aid measures in the context of the greenhouse gas emission allowance trading scheme
post-2012 (hereinafter referred to as “the 2012
Guidelines”) 143 lay down the conditions after
the satisfaction of which the State aid related
to free emission allowances may be regarded
as compatible with the internal market, i.e. admissible. It should be emphasised that the Commission is the only authority which may decide
whether State aid is compatible with the internal
market and has a wide scope of discretion in this
respect. This discretionary power of the Commission is limited by the provisions of the Treaty. The
Commission is also bound by the guidelines defining the conditions for the admissibility of aid
which it has issued itself.144 The State aid for objectives related to environmental protection may
be allowed by the Commission pursuant to Article
107(3)(c) TFUE. This provision provides that “The
following may be considered to be compatible
with the internal market” (...) (c) aid to facilitate
the development of certain economic activities or
of certain economic areas, where such aid does
not adversely affect trading conditions to an extent contrary to the common interest;”.145
The 2012 Guidelines specify further the provisions
of the Treaty with regard to the implementation
of the ETS scheme. They provide that the primary
objective of State aid control in the context of implementation of the ETS is to ensure that the State
aid granted results in a higher reduction of greenhouse gas emissions than would occur without
the aid and also to ensure that the positive effects
138 Communication from the Commission – Guidelines on certain State aid measures in the context of the greenhouse gas emission allowance trading scheme post-2012,
OJ C 158 of 2012, p. 4.
139 Communication from the Commission, Footnote 137, paragraph 3.
140 Judgment of the C JEU in Case C -280/00, Altmark Trans, see Reports of Cases 2003 I-07747, paragraph 75; see M.Stoczkiewicz, Pomoc panstwa dla przedsiebiorstw energetycznych w prawie Unii Europejskiej (State aid for energy undertakings in European Union law – in Polish), Warsaw 2011.
141 M. Stoczkiewicz, Free allocation of EU ETS emission allowances to installations for electricity production from a State aid law perspective, Environmental Economics, Volume 3 (3), 2012, pp. 99-107.
142 State aid SA.33449 (2012/N) – Estonia, Transitional free allocation of greenhouse gas emission allowances for the modernisation of electricity generation installations; State
aid SA.34753 (2012/N) – Romania, Transitional free allocation of greenhouse gas certificates for electricity producers under Article 10c of the ETS Directive; State aid SA.33537
(2012/N) – The Czech Republic, Transitional free allocation of greenhouse gas emission allowances for the modernisation of electricity generation installations; State aid SA.34086
(2012/N) – Hungary, Investments aiming at the modernisation of the Hungarian energy sector under Article 10 c) EU ETS Directive; State aid SA.34457 (2014/N) – Lithuania,
National Investment plan for transitional free allocation of emission allowances under Article 10c(5) of Directive 2003/87/EC; State aid SA.34385 (2013/N) – Bulgaria – Allocation
of free greenhouse gas emission allowances in line with Article 10c of Directive 2003/87/EC in exchange for investments in installations for electricity production and in energy
infrastructure (National Investment Plan under Article 10c of the ETS Directive).
143 Communication from the Commission, Footnote 137.
144 Case C-313/90, CIRFS v Commission [1993] ECR I-1125, paragraph 36; Case C-351/98, Spain v Commission [2002] ECR I-031, paragraph 53; Case C-409/00, Spain v Commission [2003] ECR I-1487, paragraph 95.
145 OJ C 326/01 of 26.10.2012.
39
of the aid outweigh its negative effects in terms
of distortions of competition. State aid must be
necessary to achieve environmental objective
of the ETS (necessity of the aid) and should be
limited to the minimum needed to achieve a desirable level of environmental protection (proportionality of the aid), without causing undue distortions
of competition and trade in the internal market.146
Thus, it is clear that the primary justification of the
grant of aid under the ETS is a higher reduction
of greenhouse gas emissions than would be possible without the aid. The 2012 Guidelines lay down
detailed conditions intended to ensure that the aid
will contribute to reducing greenhouse gas emissions, that it will be necessary and proportional
and that it will not cause undue distortions of competition and trade in the internal market. These
conditions are laid down in section 3.3 of the 2012
Guidelines.
For the aid to be considered compatible with
the internal market, it must meet at the same
time all the conditions laid down in section 3.3
of the 2012 Guidelines. These conditions are
as follows:147 Firstly, the transitional free emissions allowances have been allocated pursuant to
Article 10c of the ETS Directive and in accordance
with the Commission Decision on guidance on
the methodology to transitionally allocate free
allowances to installations for electricity production pursuant to Article 10c(3) of the ETS Directive 148 and the Commission Communication on
the optional application of Article 10c of the ETS
Directive.149 Secondly, the national plan pursues
an objective in the common interest, such as increased environmental protection, in the light
of the overall objectives of the ETS Directive.
Thirdly, the national plan includes investments in
retrofitting and upgrading of the infrastructure, in
clean technologies and in diversification of their
energy mix and sources of supply, in accordance
with the ETS Directive, implemented after 25
June 2009. Fourthly, the market value (at the level of capital groups) of free emission allowances
in the whole emission allowance allocation period
does not exceed the total costs of investments
implemented by the recipient of free emission allowances (at the level of a capital group). If the total investment costs are lower than the market
value of emission allowances or the recipient
of the free emission allowances does not implement any investment eligible under the national
plan, the recipient of free allowances must transfer the difference to a mechanism which will
finance other investments eligible under the national plan. Fifthly, the aid does not adversely affect trading conditions to an extent contrary to
the common interest, in particular in the cases
where the aid is concentrated on a certain limited number of beneficiaries or where the aid
may strengthen the position of beneficiaries on
the market (at the level of a capital group). Sixthly, investments must be undertaken after 25 June
2009. Seventhly, the eligible costs must be limited to the total investment costs (tangible fixed
assets or intangible or legal assets) as listed in
the national plan corresponding to the market
value of free emission allowances granted per
beneficiary, irrespective of the operating costs
and profits of a given installation. Eighthly, the aid
must not exceed 100% of eligible costs.
The 2012 Guidelines entered into force on 5
June 2012.150 Following the principles described
above, the Commission approved a number
of aid schemes for transitional free emission allowances notified by the Member States which
made use of the options offered by Article 10c
of the ETS Directive. The Commission adopted
its first decision on the allocation of free emission allowances on 27 June 2012 for the scheme
notified by Estonia.151 In its decision concerning
this scheme, the Commission had no doubts that
the allocation of free emission allowances constituted State aid within the meaning of Article
107(1) TFEU.152 The Commission also evaluated
the compatibility of the programme with the conditions laid down in the 2012 Guidelines, concluding that all the conditions had been met and
that the positive effects of the aid outweighed
146 Communication from the Commission, Footnote 137, paragraph 5.
147 Communication from the Commission, Footnote 137, section 3.3.
148 Commission Decision of 29 March 2011 on guidance on the methodology to transitionally allocate free allowances to installations for electricity production pursuant to Article 10c(3) of Directive 2003/87/EC, C(2011) 1983 final, of 29.3.2011.
149 Communication from the Commission, Footnote 135.
150 Communication from the Commission, Footnote 137, paragraph 137, paragraph 55.
151 State aid SA.33449 (2012/N) – Estonia, Footnote 141, paragraph 54.
152 State aid SA.33449 (2012/N) – Estonia, Footnote 141, paragraph 27.
40
its negative effects.153 The Commission applied
a similar pattern of evaluation in its other decisions on the schemes for the allocation of free
emission allowances notified by the Member
States which made use of Article 10c of the ETS
Directive. In all the cases, the Commission considered that those measures constituted State aid
and also that the aid was compatible with the internal market; therefore, it raised no objections to
those programmes.154 A detailed analysis of those
decisions would go beyond the limits of this
study. Still, it is important to note that the decision on the aid scheme notified by Poland,155
which is subjected here to an in-depth analysis,
corresponds with the pattern which the Commission followed in all the proceedings of this type.
4. Free emission allowances
for the energy sector in Poland
as State aid compatible
with the internal market
On 30 June 2011, Poland submitted to the Commission its national investment plan where it
presented eligible investments which could be
undertaken to modernise energy production in
the transitional period of free allowance allocation. By way of its decision of 13 July 2012,156
the Commission decided not to object to the Polish application for a transitional allocation of free
emission allowances for installations for electricity production in 2013–2019, but rejected certain
aspects of it, in accordance with Article 10c(6)
of the ETS Directive. In particular, Annex III to
the decision contains a list of 30 investments
which the Commission considered to be ineligible.
For this reason, notifying the aid in accordance
with Article 108(3) TFEU, Poland presented
a modified national plan which no longer included
the investments mentioned above. Moreover, in
paragraph 29 of the decision in question, the Commission reminded the Polish authorities that they
could not implement the proposed aid measures
until the Commission took its final decision as to
the compatibility of the State aid in question with
the internal market. It should be noted that the notification of the national investment plan was not
the notification of State aid and that the decision
of 13 July 2012 was not a decision concerning
State aid, but a decision determining the legality
of using the derogation referred to in Article 10c
of the ETS Directive.
Therefore, in accordance with Article 108(3)
TFEU, Poland formally notified its intention to use
the option referred to in Article 10c of the ETS
Directive. As a result of pre-notification contacts,
on 2 September 2013 Poland notified the Commission of the aid scheme which it proposed. It
provided for a derogation pursuant to Article 10c
of the ETS Directive, i.e. free allowances for electricity generators. On 6 December 2013, the Polish authorities sent additional information to
the Commission. On 22 January 2014, the Commission issued its decision that it did not object
to the proposed aid.157
It should be noted that the purpose of the aid
scheme notified by the Polish authorities was to
change the fuel mix in the electricity generation
segment by gradually reducing the use of coal.
As stated in the Commission Decision of 22 January 2014, “6. The Polish authorities consider that
the fuel mix used in the electricity generation segment in Poland is rather homogeneous and mostly
hard coal- and lignite based. Coal is used to produce more than 90% of the domestically generated electricity. 7. Poland’s national plan approved
on 27 September 2011 and covering the period
until 2019, attempts to address this situation by
increasing (1) low-carbon energy production from
biomass; (2) power production from renewable
sources and combined heat/power production;
and (3) by expanding the distribution network
which is necessary to enable inclusion of new energy sources in distributed generation, in particular
those based on renewable sources.”158 According
to the position of the Polish authorities, the use
of Article 10c of the ETS Directive and the allocation of free allowances would allow these objectives to be achieved and – in a wider context
153 State aid SA.33449 (2012/N) – Estonia, Footnote 141, paragraph 53.
154 State aid SA.34753 (2012/N) – Romania, Footnote 141; State aid SA.33537 (2012/N) – The Czech Republic, Footnote 149,; State aid SA.34086 (2012/N) – Hungary, Footnote 141.; State aid SA.34457 (2014/N) – Lithuania, Footnote 149; State aid SA.34385 (2013/N) – Bulgaria, Footnote 141.
155 State aid SA.34674 (2013/N) – Poland, Derogation of Article 10c of Directive 2003/87/EC on emission trading – free allowances to electricity generators.
156 C(2012) 4609 final.
157 State aid SA.34674 (2013/N) – Poland, Footnote 154, paragraph 43.
158 State aid SA.34674 (2013/N) – Poland, Footnote 154, paragraphs 6-7.
41
– accelerate the modernisation of the national energy sector. Accordingly, Poland envisaged that it
would allocate free emission allowances to those
operators that committed to implement investments for the modernisation of its electricity generation system, provided that such investments
met a number of criteria, including e.g. those that:
the investment should directly or indirectly contribute cost-effectively to greenhouse gas emission reductions; the investment should conform
to the national investment plan; the investment
should comply with the relevant EU legislation;
the investment should be additional to investments which Poland has to implement in order
to achieve other objectives or fulfil legal requirements under EU legislation; the investment should
diversify the energy and supply sources for electricity production and reduce the greenhouse gas
emissions from energy production processes.159
According to the information provided by the Polish authorities, it is estimated that the total market
value of the free emission allowances allocated
will be about EUR 7,406 million in the period from
1 January 2013 to 31 December 2019. This value
corresponds to 404.6 million tonnes of CO2.160
The functioning of the aid scheme in question is
described in detail in paragraphs 6-19 and 26-41
of the Commission Decision of 22 January 2014.
In assessing the aid scheme notified by Poland,
it is important to consider several findings of the
Commission. In its assessment as to the presence
of the features of State aid, the Commission had no
doubts, finding that the allocation of free allowances to the planned beneficiaries meant resignation
from State revenues which Poland could receive
if it auctioned the allowances. In turn, the recipients of free allowances were relieved of the costs
of buying the needed allowances, thus gaining an
economic advantage. The notified measure was
imputable to a Member State (Poland), since it resulted from acts of the Government which made
use of the optional, but not required derogation
under Article 10c of the ETS Directive. The advantage of the beneficiaries was selective in nature,
since only a limited number of undertakings might
gain from it. Since the beneficiaries operated in
the electricity supply sector, which was a market
open to competition in Poland and entailed trade
flows between Poland and other Member States,
the measure distorted or threatened to distort
competition and was liable to affect trade between
Member States. For these reasons, the Commission found that the notified measure was State aid
within the meaning of Article 107(1) TFEU.161
Following a detailed analysis of the features of the
proposed measure in the context of the conditions
laid down in the 2012 Guidelines, the Commission
also came to the conclusion that the positive effects of the notified measure offset its negative
effects and that the potential distortions caused
by the measure did not change the market conditions to such an extent that it would be contrary
to the common interest. In consequence, the Commission concluded that the notified aid was compatible with the internal market in accordance with
Article 107(3)(c) TFEU and, therefore, decided not
to raise objections to it.162
It is important to note, in particular, the commitments of the Polish authorities which were the immanent features of the notified measure. They were
the conditions for the admissibility of the aid as laid
down by the Commission:
(i) the allocation of allowances to operators only
after they demonstrated in a report submitted
by 15 February of each year, to the satisfaction
of the competent authority, that eligible investments included in the national plan of a value
equivalent to the value of free allowances had
indeed been carried out in the previous years;
(ii) the scrutiny over the investments exercised by
the competent authority subject to reporting
to the Commission, in accordance with Article
10c(1) and (4) of the ETS Directive;163
(iii) the imposition on the operators of the obligation to shut down generation to an extent
corresponding to newly installed capacity
159 For a complete list of the conditions, see State aid SA.34674 (2013/N) – Poland, Footnote 154, paragraph 8.
160 State aid SA.34674 (2013/N) – Poland, Footnote 154, paragraph 19.
161 State aid SA.34674 (2013/N) – Poland, Footnote 154, paragraphs 22-24.
162 State aid SA.34674 (2013/N) – Poland, Footnote 154, paragraphs 42-43.
163 State aid SA.34674 (2013/N) – Poland, Footnote 154, paragraph 32.
42
(decommissioning) and report to the Commission as part of annual reports on the implementation of the national plan;164
(iv) ensuring a higher share of energy generation from renewable sources and differentiation of the energy mix (by 2020 the installed
electricity output from coal- and lignite-fired
power plants should fall from the current
31,375 MW to 28,854 MW; at the same time,
it is expected that the installed electricity output from renewable sources should grow accordingly).165
5.Conclusions
In concluding, it should be said that the aid scheme
proposed by the Polish authorities in the form of an
allocation of free greenhouse gas emission allowances under Article 10c of the ETS Directive constitutes State aid within the meaning of Article 107(1)
TFEU, which was approved by the Commission
pursuant to Article 107(3)(c) TFEU as aid compatible with the internal market. In the practice of its
decisions, the Commission follows norms of general and abstract character laid down in “Guidelines
on certain State aid measures in the context of the
greenhouse gas emission allowance scheme post2012”. The decision of the Commission not to raise
objections to the aid scheme notified by Poland166
corresponds to the pattern applied by the Commission in its proceedings related to the schemes
notified by other Member States which made
use of the option of a transitional derogation from
the system of auctioning of greenhouse gas emission allowances under the ETS Directive.
Important legal implications result from the fact
that the Polish aid scheme in the form of an allocation of free greenhouse gas emission allowances
constitutes State aid approved by the Commission in
its Decision of 22 January 2014.
Firstly, this aid is allowed only to the extent explicitly
provided for in the notified scheme and approved by
the Commission Decision. Pursuant to Article 108(3)
TFEU, the intention to refinance, alter or replace
the scheme must be notified to the Commission and
must not be implemented until the Commission issues its positive decision.
Secondly, the aid ceilings must not be exceeded irrespective of whether the financial support originates
entirely from State resources or is partly financed
by the EU. Such aid cannot be combined with other
State aid within the meaning of Article 107(1) TFEU
or with other forms of financing from the EU, if such
combination results in higher aid intensity than laid
down in the 2012 Guidelines.167
Thirdly, all the conditions for the admissibility of aid
as laid down in the Commission Decision of 22
January 2014 where it decided not to raise objections must be satisfied. This applies, in particular, to
the conditions laid down in paragraph 40 of the Commission Decision of 22 January 2014. In accordance
with Article 108(2) TFEU, if the Commission finds
that State aid is misused, it decides to abolish or alter
this aid. Misused aid means, inter alia, the aid used
by the beneficiary in a violation of the Commission
Decision where it decided not to raise objections.168
Fourthly, Poland must submit annual reports to
the C ommission and ensure that detailed documentation on the aid is maintained.169 This documentation must contain all the information necessary to
establish that the conditions for eligible costs and
maximum allowable aid intensity have been met.
It must be kept for 10 years from the date when
the aid was granted and presented it to the Commission on its request.
164 State aid SA.34674 (2013/N) – Poland, Footnote 154 , paragraph 39.
165 State aid SA.34674 (2013/N) – Poland, Footnote, paragraph 40.
166 State aid SA.34674 (2013/N) – Poland, Footnote 154.
167 See details in the Communication from the Commission, Footnote 137, paragraphs 46-47.
168 Article 1(g) of Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the EC Treaty, OJ L 83/1 of 27.3.1999.
169 Communication from the Commission, Footnote 137, paragraphs 48 and 54.
43
VI.Conclusion
and recommendations
The basis for legal measures adopted to implement the climate policy of the European Union are
primarily the provisions of Title XX TFEU, concerning the EU policy in the field of the environment.
As indicated by the content of Article 191 TFEU, EU
climate policy should contribute to achieving one
of the objectives of the EU policy in the field of the
environment which is tackling climate change. The
incorporation of Title XXI – Energy (Article 194
TFEU) into the Treaty on the Functioning of the European Union also strengthened the Treaty basis
for taking measures to implement climate policy.
Article 194 TFEU, which was incorporated into
the EU Treaties at the end of 2009 conferred to
the EU divided competences in energy matters in
order to implement the objectives laid down in Article 194(1) and provided for the need to take into
account the requirement to preserve and improve
the quality of the environment in the field of EU
energy policy.
The EU ETS scheme is the main instrument for
the reduction of greenhouse gas emissions in
the European Union and the most important element of the implementation of the climate policy of the European Union. This system covers
more than 11,000 power plants and production
plants in all the Member States of the EU, as well
as those in Liechtenstein, Iceland and Norway.
The reformed emission allowance trading scheme
is also expected to be the main European instrument to be applied to achieve the greenhouse gas
emission reduction target after 2020. The summit
of the European Council held on 23-24 October
2014 laid down a framework for EU climate and
energy policies in the period until 2030 and approved a binding EU target, assuming a reduction
in domestic greenhouse gas emissions of at least
40% by 2030 relative to their level in 1990. In
setting out this framework, the European Council
also provided that the emission allowance trading
scheme would be the main instrument to achieve
this target.
44
At present, it is impossible to answer the question whether a future amendment of Directive
2003/87 will have to be based on Article 192(1)
or (2), or Article 194 TFEU, and whether it would
infringe Member States’ competences in the energy sector (Article 194(2) second paragraph). All
depends on the content of any such future amendment. Generally, though, it has to be underlined
that the objective of the greenhouse gas emission
allowance trading scheme is to reduce these emissions in a cost-efficient way, by giving industrial
installations the option either to invest in clean
technologies or to buy emission allowances. This
scheme is part of actions intended to attain both
a global and an EU objective to reduce greenhouse
gas emissions. For this reason, it is an objective
of environmental policy; therefore, normally Article 192(1) TFEU is the appropriate legal basis
for any adjustment, improvement or amendment
of the scheme.
Directive 2003/87, as amended by Directive
2009/29, introduced a scheme for greenhouse
gas emission allowance trading, which covers,
in particular, industrial and energy installations.
As a rule, such allowances have to be bought by
the companies covered by the allowance trading scheme. However, under certain conditions,
Member States may grant free emission allowances to installations. The emission allowance trading scheme laid down in Directive 2003/87 has
the objective to reduce greenhouse gas emissions
in a cost-efficient manner. The implementation
of this objective is to contribute to the fight against
climate change. Thus, the main objective of the
Directive relates to environmental protection, but
does not pursue any objective of EU energy policy.
This principal objective of Directive 2003/87 is not
put into question by the option which Member
States are given by the derogation mechanism under its Article 10c.
It should be emphasized that it was not mandatory for the Member States to use the derogation
mechanism. Each of the Member States could individually decide whether it would implement it. In
order to allocate free emission allowances to installations for electricity production, a Member State
was obliged to prepare and submit the so-called
derogation application, along with the National
Investment Plan, to the European Commission
by 30 September 2011. Free greenhouse gas
emission allowances which might be allocated under the derogation mechanism did not constitute
an additional pool of allowances. In accordance
with the provisions of Article 10c(2) of Directive
2003/87/EC, they were deducted from the pool
of emission allowances intended for sales at auctions. By reducing this pool, the Member State
gave up a substantial part of its budget revenues
which would have been generated if the pool had
not been reduced. At the same time, in implementing the objectives of the Directive 2003/87/EC laid
down in Article 10(3), at least 50% of the financial
resources obtained from the sales of emission allowances at auctions or their equivalent in financial
value should be used for the environmental objectives indicated in Article 10(3). These objectives
include, inter alia: reductions in greenhouse gas
emissions, the adaptation to the impacts of climate change, the development of energy from
renewable sources, investments in carbon capture and storage (CCS), the creation of a system
of incentives to encourage a shift to low-emission
technologies, the carbon sequestration by forests,
the improvement of energy efficiency or the thermal modernisation of buildings.
In analysing the investment types notified in
the Polish National Investment Plan, it should
be pointed out that, among others, they aim at:
modernising the existing energy generation units,
expanding the existing network, building new gas
and steam boilers, generating heat and electricity
as part of cogeneration as well as the operation
of processes to produce electricity from biomass
(co-combustion).
However, it should be pointed out that more than
70% of the proposed projects are related to investments in coal combustion infrastructure. Thus,
the objective which should be the launch of measures contributing to the diversification of the electricity production structure and the differentiation
of the energy mix and the use of clean technologies is pursued in Poland to a very limited extent.
Only less than 10% (31 out of 347) of the projects
are investments defined as “the outlays related to
RES”. Importantly, these are investment projects
primarily related to co-combustion of coal with biomass or biomass particles. Only one investment
proposed as related to RES entails the construction
of a hydropower plant. In the National Investment
Plan submitted to the European Commission,
there are no other investments in renewable energy sources, such as energy from agricultural biogas, solar energy or geothermal waters.
It should also be mentioned that in the case
of about 30% (22 out of 69) of entities implementing the investment projects included in the National Investment Plan there is no information on
the amounts of eligible costs incurred in 2013 and
2014, as this information is defined as “sensitive
data” in the reports of the Minister of the Environment. Since, in their major part, the eligible costs
are the investment costs incurred by an individual
entity to implement an investment part included in
the National Investment Plan, the absence of information on the level of really incurred costs practically makes it impossible for the public to assess
the scale of the investments underway, which are
defined in the reports mentioned above in general
terms as modernisation or investments to improve
infrastructure. There is no justification for the category of “sensitive data” to include the investment
costs incurred by the entities which receive free
emission allowances under the derogation mechanism. The form and scope of the reports on the implementation of successive stages of the National
Investment Plan which are presented to the public should enable it to make a genuine evaluation
of the investments carried out under the derogation mechanism and, thus, ensure public participation in the successive stages of the introduction
and implementation of the derogation.
The aid scheme proposed by the Polish authorities
in the form of an allocation of free greenhouse gas
emission allowances under Article 10c of the ETS
Directive constitutes State aid within the meaning of Article 107(1) TFEU, which was approved
by the Commission pursuant to Article 107(3)(c)
TFEU as aid compatible with the internal market.
Important legal implications result from the fact
that the Polish aid scheme in the form of an allocation of free greenhouse gas emission allowances
constitutes State aid approved by the Commission
Decision of 22 January 2014. The aid granted to
specific entities is allowed only to the extent explicitly provided for in the notified scheme and
approved by the Commission Decision, while
the established aid ceilings must not be exceeded irrespective of whether the financial support
45
originates entirely from State resources or is partly
financed by the EU. Moreover, all the conditions
for the admissibility of aid must be satisfied. Poland must also submit annual reports to the Commission on the implementation of the aid and
ensure that specific documentation on the aid is
maintained. It is important to emphasise that submitting its derogation application Poland undertook to decommission less efficient generation
capacity in the case where new electricity generation capacity was financed from the value of the
free emission allowances allocated in accordance
with Article 10c(1) of the ETS Directive.
2.
The form and scope of the reports on the implementation of successive stages of the National Investment Plan which are prepared by
the Minister of the Environment and presented
to the public should enable it to make a genuine evaluation of the investments carried out
under the derogation mechanism and, thus,
ensure public participation in the successive
stages of the introduction and implementation
of the derogation. Moreover, there is no justification for the category of “sensitive data”
to include the investment costs incurred by
the entities which receive free emission allowances under the derogation mechanism.
Recommendations
3.
The updated National Investment Plan should
define precisely and unambiguously which
part of resources should be directly allocated
to investments in clean technologies, such
as renewable energy sources, so as to avoid
the situation where a substantial part of resources is allocated to investments directly
related to coal combustion. 50% of the resources granted as part of the derogation
mechanism should be invested directly in
renewable energy sources so as to attain
one of the objectives laid down in Article
10c of the ETS Directive, i.e. the diversification of sources of supply and the application
of clean technologies.
4.
Priority support in the next trading period,
i.e. after 2020, should also be given to investments, already partly implemented under cofinancing, in electricity and gas transmission
and distribution systems, with particular consideration given to the possibility of integrating
energy generators from renewable sources
into the existing transmission systems.
Taking into account the situation in the Polish energy sector and the need for its modernisation,
the diversification of the energy infrastructure and
sources, and increasing the share of renewable
energy sources in the Polish energy mix, it should
be concluded that the option to use the derogation
mechanism may be extended after 2020. However, given the experiences arisen to date, it should
be emphasised that necessary changes should be
introduced in the areas indicated below in the form
of recommendations:
1.
46
Real public participation should be ensured in
the preparation of the new National Investment
Plan or in the process of verification of the
investments implemented after 2020. Consultations should be held in accordance with
the principles laid down in Directive 2001/42/
EC of the European Parliament and of the
Council of 27 June 2001 on the assessment
of the effects of certain plans and programmes
on the environment.
ISBN: 978-83-938296-4-4