Companies lose top EU court fight over free carbon allowances

Bloomberg

Exxon Mobil Corp., Dow Chemical Co. and OMV AG lost a court challenge to a European Union decision to cut the number of free emission permits they receive under the region’s carbon market, the bloc’s highest court ruled on Thursday.
But the EU Court of Justice in Luxembourg delayed the implementation of its ruling by 10 months so regulators could correct mistakes in the way they calculated the number of free greenhouse-gas allowances. The final number of permits could be higher or lower than under existing EU rules, the court said.
While the extra time is designed to calm the markets, the ruling creates uncertainty about the way the European Commission will calculate free allocation in 2017, said Trevor Sikorski, an analyst at Energy Aspects Ltd. in London.
“What we need is to have insight into all the details as soon as possible,” said Marco Mensink, director general of European chemical industry lobby Cefic. “Solutions will be complex and are still unclear.”
The EU emissions-trading system covers about 12,000 installations owned by manufacturers and utilities and is Europe’s key tool to reduce greenhouse gases, which scientists blame for global warming.
The bloc, which has given away the majority of emissions permits since it started its carbon cap-and-trade plan in 2005, will sell the majority of them in the eight-year trading period that started in 2013.

Benchmark Allowances Fall
Benchmark allowances for delivery in December lost as much as 5.4 percent and were 4 percent down at 6.57 euros per metric ton on the ICE Futures Europe exchange as of 11:38 a.m. in London.
Companies including units of Eni SpA, Royal Dutch Shell Plc and Tenaris SA challenged the European Commission’s 2013 decision to apply a so-called correction factor for allocating free carbon permits. The amount of free permits that companies receive depends on their carbon efficiency. To ensure that the total number of free allowances requested by member states doesn’t exceed the maximum amount allowed under EU law, the commission is entitled to apply a correction factor across industries, cutting the handout.
An advocate general at the EU court in a non-binding opinion in November said the mistakes made by the commission in correcting handouts might have meant that allocations were “too high.” The adviser urged the commission to make a new decision on the allowances within a year, without applying changes retroactively. The court said on Thursday that when calculating the maximum annual amount of permits, the commission is required to refer only to the installations included in the ETS starting in 2013.
Instead, the regulator used data from some countries that communicated information on emissions by new activities carried out in installations subject to the program before 2013. The court declared the commission’s decision invalid in that
respect.
The companies filed the challenges in courts in Austria, the Netherlands and Italy, arguing the system resulted in them getting a smaller allocation of allowances for free than they should have received. The national courts sought the EU top tribunal’s advice in 2014. The cases are: C-191/14 Borealis Polyolefine, C-192/14 OMV Refining & Marketing, C-295/14 DOW Benelux, C-389/14 Esso Italiana, C-391/14 Api Raffineria di Ancona, C-392/14 Lucchini in Amministrazione Straordinaria, and C-393/14 Dalmine.