Clearance on free-allocation state aid issues in the Commission communication of 5 September 2013
Thursday, 12 September 2013 10:07

  

As a result of the delay, until the Commission's communication of 5 September 2013 European industrial installations eligible to be granted free carbon permits were not cognizant of the exact volumes of the allocation under Article 10a of the Directive 20013/87/EC.

 

  

The uncertainty was particularly severe since it related to the entire EU ETS third trading period (2013 - 2020), and not only 2013 vintage allowances.

 

The European Commission Decision of 5 September 2013 concerning national implementation measures for the transitional free allocation of greenhouse gas emission allowances in accordance with Article 11(3) of Directive 2003/87/EC of the European Parliament and of the Council (2013/448/EU) has managed to ease uncertainties, clearing in parallel the issues for the exact values for Cross-Sectoral Correction Factors as well as so-called SCUF.

 

The said Decision provides the basis for calculating the number of allowances allocated for free and auctioned, respectively, but has no effect on the total amount of allowances put on the market in phase three (2013-2020). 

 

Carbon market participants focusing on the key figures and volumes that can be found in the Decision, may miss, however, a small, but pivotal clarification made in Recital 29 in the final part of the preamble to the Decision.

The said provision envisiones the statement that allowances granted free of charge under the European Union Emission Trading Scheme cannot be considered as involving state aid in the sense of Articles 107 and 108 TFEU.

As the European Commission elaborated further on the issue, the allocation of allowances free of charge to installations covered by the EU ETS on the basis of Union-wide harmonised rules does not confer a selective economic advantage to undertakings with the potential to distort competition and affect intra-Union trade. The reason for this is Member States are obliged under Union law to allocate allowances for free and cannot choose to auction the relevant quantities instead. 

 

The above determination seems rational, on the other hand it is necessary in this context to recall the analogous case for free allocation of emission permits under Article 10c of the 2003/87/EC Directive, which is treated in distinct way (see: Aid involved in optional transitional free allowances for the modernisation of electricity generation).

 

Certain implications of the Commission's statement considering the allocation of allowances free of charge under the derogation provided for by Article 10c of the said Directive to involve state aid have been highlighted in Questions & Answers on temporary free allocation of emission allowances for power plants beyond 2012 of 13 July 2012.


Pursuant to the above regulatory guidance Member States are required to notify applications regarding the derogation for the modernisation of electricity generation also under State aid procedures. In that regard decisions pursuant to Article 10(c) of the ETS Directive are without prejudice to Member States' State aid notification obligations pursuant to Article 108 of the Treaty.

This means that the state aid examination carried out by the European Commission will have to assess whether the allocation of allowances and the corresponding investments in the National Plan of these Member States are in line with EU State aid rules as set out in the Commission Guidelines on the application of State aid rules to the ETS. 

 

The above-mentioned dichotomy of the state aid approach in respect of free allocation for industry installations on the one hand, and the allocation under the derogation for the electricity sector on the other hand, represents a point which should not be omitted when analysing further questions involved with the primary market for European emission allowances.

 

 

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