In a ruling sure to have wide-ranging effects on how the EU Emissions Trading Scheme (EU-ETS) will be governed, the European Court of First Instance ruled that the European Commission (EC), had overstepped its boundaries in rejecting national allocation plans for two countries: Poland and Estonia.

The countries had originally appealed decisions made in 2003 for the 2nd phase of the EU-ETS, which runs from 2008-2012; those decisions had been made by the EC and had set each country's allocation of carbon credits lower than they had originally proposed. The Court ruled that the EC could not:

• Reject a country's credit allocation plans on any other ground besides incompatibility with the Directive creating the EU-ETS; (In this case the EC had rejected Poland and Estonia's plans based on what it deemed to be faulty data.)

• Ignore the data submitted by a country and replace it with its own data obtained through its own methods; and

• Impose a single way of assessing credit allocations on all members of the EU-ETS.

European carbon market participants expressed concerns over the ruling:

“It means two things — possibly more allowances in the market and more uncertainty,” Emmanuel Fages, a carbon analyst with Société Générale, the investment bank, said. “It’s another blow because people will say the market doesn’t work.”

However, the EC tried to calm questions of whether this would affect the number of credits available to the market, stating:

In preparing new decisions the Commission would base itself on the best available data. In this context the importance of verified emissions for 2005 to 2008 should be noted. In the light of these data, it would appear unlikely that there would be any material difference concerning the total number of allowances consistent with the terms of the Directive.

However, it is possible that this decision could lead to a number of appeals, as many countries had expressed problems with their credit allocation plans—as modified by the EC—in 2003, all of which could have a serious implication on the number of credits available during this phase of the EU-ETS. This decision could also tie the EC's hands going forward into the 3rd phase of the EU-ETS, which begins in 2013.

European carbon trading market takes hit [Times Online]