judgment

Borealis Polyolefine GmbH v. Minister for Land, Forestry, Environment, and Water Management - judgment

Litigation

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This European Court of Justice rejected arguments from three industrial firms—one German, one Dutch, and one Italian—that they should be granted a larger number of free greenhouse gas emissions allowances under the European Union’s greenhouse gas Emissions Trading Scheme (ETS). The Court also instructed the European Commission to revise its approach to determining how many free allowances to grant—a step that has injected uncertainty into the markets built on the ETS. Several features of the ETS are critical to the case: 

- some allowances are auctioned to emitters and others are given away for free; 
- there are a fixed proportion of free allowances, which are granted only to firms that face competition from non-EU firms—a category that excludes electricity generators;
- the process for calculating the number of allowances—auctioned and free—begins with member states’ submission of emission sources and estimated volumes;
- responding to members states’ overestimation of the allowances due to their industrial firms, the European Commission issued Decisions in 2011 and 2013 to govern the calculation of a “correction factor.”

The Court found that the European Commission’s 2013 Decision established a “correction factor” calculation that ignored relevant information, and on that basis instructed the Commission to revise its approach by March 2017. The Court’s ruling largely ratified the November 2015 recommendation issued in the case by Advocate General Kokott, but deviated in one important respect: whereas Kokott had concluded that too many free allowances were granted to the firms, the ECJ determined that it was unclear whether too many or too few had been granted. 