On 29 March the European Commission adopted the so-called "derogation package", comprising the Decision on the methodology of transitional allocation of allowances to installations for electricity production and the Guidelines concerning the optional application of Article 10c of Directive 2003/87/EC, supplemented by a commentary in the form of Frequently Asked Questions. The wording of the two documents has a significant impact on the possibility of and the rules concerning free allocation of allowances to the power sector after 2012 in Poland and in the new member states that will decide to take advantage of this possibility.
Article 10c of Directive 2003/87/EC (the so-called ETS Directive) envisages that new EU member states may allocate free CO2 emission allowances to the power sector, thus departing from the rule, applicable from 2013, according to which in order to produce electricity one is required to purchase all the necessary allowances. For the Polish power sector, highly dependant on coal and emissions, the requirement to purchase 100% allowances, as early as 2013, would be an enormous burden and that is why the government and the industry organisations of operators have been for quite a long time undertaking intense actions aimed at Poland making use of the option envisaged in Article 10c of ETS Directive. A given member state may make use of the said departure (the so-called derogation) provided it submits an application to the European Commission, and the Commission approves it. So far the European Commission has unofficially interpreted Article 10c of the ETS Directive in a manner that significantly hindered attempts to be granted the derogation, and made everybody wonder whether the power sector will after all be allocated the free allowances. With regard to this issue Poland and the Commission have for several months been conducting talks aimed at establishing a shared standpoint related to the interpretation of Article 10c. There were many disputable points: the notion of "physical initiation" of an investment project, the decrease trajectory of free allowances in 2013 - 2020 or the principle concerning the allowance allocation at the installation level (benchmark or grandfathering).
The Guidelines, which the Commission issued on 29 March, have been anticipated for a long time, as they present the final (so it seems) standpoint of the Commission related to the interpretation of Article 10c. Even though the Guidelines are not a legally binding document, due to the Commission’s role in the process of applying for derogation, they have a significant meaning as regards the assessment of the probability that the Commission will positively consider Poland’s application. Due to the fact that the Commission has issued the Guidelines, the works on Poland’s application for derogation may get more intense – such works were carried out before but they were of a conditional nature – as when there were no Guidelines it was hard to formulate the final wording of the application.
It may be implied from the adopted Guidelines that the Commission has made its standpoint more lenient as compared to the former one – at least as regards some issues. Namely, as regards the physical initiation of an investment project before the end of 2008, the EC now does not require that the investor presents a building permit issued before 31 December 2008, but deems it sufficient if the preparatory works were initiated before the said date (as regards the "preparatory works" one needs to make sure not to mistake them on the grounds of Polish law with the narrowly defined notion of “prace przygotowawcze” in the light of Polish construction law). Additionally, the Commission indicates that proving that the above condition has been met is not the only way of qualifying an investment project as "physically initiated". It is also permissible to present evidence that the investment decision was not taken in a given case because one expected to be allocated free allowances.
Then the Commission indicates that the gradual decrease in the number of free allowances in 2013 - 2020 does not have to be linear, but it may be. The Commission also accepts a decrease trajectory other than the linear one, within the framework of which a decrease between any two years in the period 2013 - 2020 will not exceed 50% of the mean annual decrease in the remaining years before 2020 (one should consider proposing the trajectory that is optimal from the economic point of view and compliant with the above guideline).
Another important matter is that the Commission has envisaged the possibility of mixing the benchmark and grandfathering methods for the purpose of allowance allocation for individual installations. This means that the new installations that have no historical emission data for 2005 - 2007 will be allocated the allowances on the benchmark basis, whereas the existing installations, for which the benchmark would give fewer allowances than grandfathering, will be allocated allowances on the basis of historical emissions (grandfathering).
The last important matter is the issue of the so-called National Investment Plan. Previously the Commission presented a standpoint according to which the future derogation beneficiaries were required to undertake investment obligations in the area of clean technologies, energy mix diversification and infrastructure upgrade equivalent to the value of the allocated free allowances. The Polish side proposed that the state be burdened with the investment obligation, and not individual operators, for whom the obligation to account for an investment project would constitute an additional administration hindrance. The standpoint presented by the Commission in the Guidelines is not straightforward on this matter. On one hand the EC refers to the National Plan as if it was the state’s obligation, on the other hand, however, at a different point in the Guidelines, it envisages that it is the operator who has to invest funds equivalent to the value of free allowances. Due to such discrepancy within the Guidelines the issue of the National Investment Plan still remains open.