In order to reduce greenhouse gas emissions, Directive 2003/87/EC established a Community scheme for greenhouse gas emission allowance trading within the EU. It provided that, for the second trading period (ETS Phase II: 2008-2012), each Member State had to present a national allocation plan (NAP) stating the total quantity of allowances that it intends to allocate for Phase II and how it proposes to allocate them. The European Commission took the view in 2007 that the NAPs initially submitted by Poland and Estonia were incompatible with several criteria laid down in the ETS Directive. The Commission reduced the total annual quantities of emission allowances submitted by each of these Member States. Both Poland and Estonia subsequently brought actions before the European Court of First Instance (CFI) for annulment of the Commission decisions relating to them.

Judgments in Cases T-183/07 and T-263/07

On 23 September 2009 the CFI annulled the Commission decisions on the Estonian and Polish NAPs. The Court considered that the Commission had misused its powers by rejecting the NAPs, since the reasoning offered merely raised doubts as to the reliability of the data used by Estonia and Poland. The Court ruled that it is for each Member State, and not the Commission, to decide on the basis of its NAP drawn up in accordance with the Directive, on the total quantity of allowances to be allocated for the period in question. The CFI also held that the Commission did not properly examine the NAP submitted by Estonia and, consequently, had infringed the principle of sound administration. Effectively, the Court was very stringent in the requirements it said the Commission had to meet.

Although the Court's ruling has raised some uncertainty concerning the respective powers of the Commission and Member States for the management of ETS Phase II (2008-2012), it is important to bear in mind that the functioning of the ETS will be different under Phase III (2013-2020), and the ruling only applies to quotas for ETS Phase II. The ETS Directive was amended in December 2008 and allowances during Phase III will no longer be based on NAPs provided by Member States but will be directly allocated by the Commission. The CFI's annulment of the Commission decisions on the NAPs will only delay the implementation of the ETS Directive in Poland and Estonia, and does not question the legal basis of ETS and the fact that the scheme will also operate in these Member States. New NAPs will have to be agreed between the Member States concerned and the Commission. However, the timing of this judgment means that the EU's ability to negotiate as a united block of 27 Member States at the Copenhagen talks may be substantially undermined.

Next step

An appeal, limited to points of law only, may be brought before the European Court of Justice (ECJ) against any decision of the CFI, within two months of its notification – in this case 23 November 2009. The Commission and the governments of Poland and Estonia are currently reviewing the judgments and assessing the consequences.