As previously described in The Climate Report, under the EU-ETS Directive, which established the European Union's cap and trade program for greenhouse gas emissions, as amended by Directive 2009/29/EC of April 23, 2009, and to Regulation No. 1031/2010 of November 12, 2010, the auctioning of emission allowances becomes the rule for the 2013–2020 period, while their allocation for free will become the exception. The French Code of the Environment and the French Monetary and Financial Code have been amended by a legislative ordinance (Ordinance No. 2012-827 of June 28, 2012) to adapt domestic law to the new auctioning requirements. Beyond implementation of the "full auction" principle, this Ordinance imposes a variety of new environmental requirements.
France has chosen to exclude only hospitals from the EU scheme of small installations subject to equivalent measures. For these installations, sanctions are stepped up. Excess emissions shall entail a fine proportionate to the volume of such excess emissions. The amount of such fine shall be set out by decree and shall be based on the average value of CO2 allowances in the preceding year.
As amended, the French Code of the Environment now provides that the quantity of emission allowances allocated for free to sectors not exposed to carbon leakage shall be 80 percent of the quantity determined on the basis of the ex-ante benchmarks provided by the EU-ETS Directive. The proportion of emission allowances distributed for free shall decrease each year thereafter by equal amounts, resulting in 30 percent free allocation in 2020 with a view to reaching no free allocation in 2027.
Furthermore, the French Code of the Environment accommodates the uncertainty of the outcome of current status of international talks under the auspices of the United Nations' Framework Convention for Climate Change regarding the proposed extension of the Kyoto Protocol to an additional implementation phase. The Code seeks to afford maximum flexibility to operators in complying with their emission obligations in the future by allowing them to rely upon a diversity of emission units/credits originating from other systems than the EU-ETS.
On the monetary and financial end, the recent Ordinance entrusts the French Financial Markets Authority (Autorité des marchés financiers or "AMF") with various prerogatives, including that of issuing the authorization required by EU Regulation No. 1031/2010 enabling entities established in France to participate in the auctions. The AMF is also entrusted with control, inquiry, and sanction prerogatives to ensure the accomplishment of its mission. In turn, the Ordinance entrusts the Prudential Control Authority (Autorité de contrôle prudentiel), with prior advisory opinion from the AMF, with the mission of issuing the authorization required by EU Regulation No. 1031/2010 to allow investment firms and credit institutions established in France to bid on their own account or on behalf of their clients.
As per a commitment made at the Governmental Environmental Conference of September 14–15, 2012, revenues generated by the auctions of emission allowances will be allocated to the national thermal renovation plan launched by the French government.