In times of economic crisis many economic operators temporarily cease production in order to withhold the slowdown. When the stoppage relates to production line covered by EU ETS some additional legal circumstances are to be considered.
The issue of a crucial financial weight is for how long the installation can be stopped so that the free emission allowances were not put at risk.
The 6 months deadline is the key date to remember in that regard.
The European Commission Decision of 27.4.2011 determining transitional Union-wide rules for the harmonised free allocation of emission allowances pursuant to Article 10a of Directive 2003/87/EC stipulates for the rule that installation is considered to have ceased the operation and, consequently, free emission allowances are not issued to this installation as of the year following the cessation of operation when “the installation is not operating, but has been operating before and the operator cannot establish that this installation will resume operation at the latest within 6 months after having ceased operations.”
Regardless of the most obvious instances like the expiration of the environmental/greenhouse gas emissions permit or technical impossibility to operate the installation, the above rule allows only 6 months of production stoppage which does not impact on emission allowances handed out for free.
The above decision leaves certain extent of discretion to the EU Member States which may suspend the issuance of the emission allowances to installations as long as it is not established that the installation will resume operations.
Moreover, Member States may extent the above-mentioned term of 6 months up to a maximum of 18 months if, however, the operator “can establish that the installation cannot resume operation within 6 months due to exceptional and unforeseeable circumstances that could not have been avoided even if all due care had been exercised and that are beyond the control of the operator of the installation concerned, in particular because of circumstances such as natural disasters, war, threats of war, terrorist acts, revolution, riot, sabotage or acts of vandalism.”
Guidance Document n°7 on the harmonized free allocation methodology for the EU-ETS post 2012 Guidance on New Entrants and Closures Final version issued on 14 September 2011) gives the following example of cessation of operation following by reopening:
An installation has ceased production in June 2013. It resumes operation in October 2014. It is assumed that there is a start-up phase with normal operation starting 6 months later.
At reopening the installation is considered as a new entrant. Only in exceptional cases the Member States could interpret this as an interruption of 18 months without having to use the new entrant allocation.
As the installation is a new entrant, there may be emissions before the start of normal operation. Allowances will be granted in respect of those emissions. In the phase after the start of normal operation, the installation will receive an allocation based on the initial capacity and the standard capacity utilization factor (product benchmarks) or the relevant capacity utilization factor (other sub-installations).
Special rule is laid down for installations that are kept in reserve or standby and installations that are operated on a seasonal schedule. For such installations the above rule does not apply provided all of the following conditions are fulfilled:
(a) the operator holds a greenhouse gas emissions permit and all other relevant permits;
(b) it is technically possible to start operations without making physical changes to the installation;
(c) regular maintenance is carried out.
The more complex description of legal implications of different production changes with respect to allocation of free emission allowances in the third trading period, covering in particular also the partial cessation of operations of installation, is contained in Benchmarks Decision of the Commission – rules on closures specified.