EU Court Of Justice Rules On Consequences For Operators Who Understate Emissions In A Verified Report

On April 29, 2015, the Court of Justice of the European Union (ECJ) gave its judgment concerning penalties for failing to surrender sufficient emission allowances under Article 16(3) of the EU Emissions Trading Scheme (EU ETS) Directive 2003 (2003/87/EC) when the shortfall is only identified after the annual deadline for surrender.

The ECJ ruled that a national regulator should not impose penalties on an EU ETS operator if subsequent verification by the regulator (after the deadline for surrender) established that the operator had mistakenly understated its emissions and surrendered insufficient allowances. (Bundesrepublik Deutschland v Nordzucker AG (Case C 148/14).)

Legal background

The EU Emissions Trading Scheme (EU ETS) is the principal mechanism for the EU to reduce its emissions of greenhouse gases (GHGs). It is a cap and trade scheme that seeks to reduce GHG emissions by requiring operators of installations in certain energy-intensive sectors to surrender an equal number of GHG emission allowances (EUAs) as the total emissions of carbon dioxide (CO2) (and some other GHGs) from the installation for that year, based on a verified report calculating the total emissions. Article 16 of the EU ETS Directive 2003 requires member states to impose penalties on EU ETS obligated operators for non-compliance. Article 16(3) provides that:

"Member states shall ensure that any operator who does not surrender sufficient allowances by 30 April of each year to cover its emissions during the preceding year shall be held liable for the payment of an excess emissions penalty. The excess emissions penalty shall be EUR 100 for each tonne of carbon dioxide equivalent emitted by that installation for which the operator has not surrendered allowances. Payment of the excess emissions penalty shall not release the operator from the obligation to surrender an amount of allowances equal to those excess emissions when surrendering allowances in relation to the following calendar year."

Facts

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