The European Emission Trading Scheme Put to the Test of State Aid Rules

Abstract

The European Union emissions trading scheme (EU ETS) was launched in 2005 to cap CO2 emissions from energy-intensive industry. Most Member States chose to distribute their allowances according to historical emissions or expected needs, which led to important distortions of competition, especially in the power sector where so-called 'windfall profits' provided large economic rents to fossil-fuel generation. This paper discusses the question of the compatibility of the emissions trading scheme with the prohibition of state aid under the EC in the light of the relevant case-law and explores the room for manoeuvre of an undertaking that wishes to challenge certain allocation rules of national allocation plans (NAPs). Special attention is given to the case EnBW Energie Baden-Württemberg AG, in which the Court of First Instance clarified for the first time certain basic questions regarding the legal nature of the assessments of the NAPs.

Keywords: EUROPEAN UNION EMISSION TRADING SCHEME, CO2 EMISSIONS, ALLOWANCES, STATE AID, SCARCITY