Chris Backes

A Legal View on Ex Post Interventions in an Emissions Trading Scheme

Up till now, the question whether the government can or should intervene in an emissions trading scheme has hardly been discussed in legal literature. This paper explores some legal aspects regarding so called ex post interventions (retroactive adjustments) within emissions trading schemes, in particular the European greenhouse gas emissions trading scheme. It discusses the need for such ex post interventions, with a focus on the withdrawal of allocated allowances. It states that the issue of ex post adjustments should be considered in view of the allocation method chosen, like auctioning or the free distribution of tradable rights. The present European greenhouse gas allowance trading scheme serves as an interesting case regarding ex post interventions. This scheme is predominantly based on a free allocation of the allowances by the member states. Within this scheme, the issue of ex post adjustments has even led to a striking and important ruling of the Court of First Instance (ruling from 7 November 2007, T-374/04). The Court conducted in its ruling an elaborated analysis of the nature and effects of the ex post adjustment mechanisms as initially proposed by Germany in its first National Allocation Plan, and ruled that the Commission could not uphold its reluctant position on downwards ex post adjustments. The case shows that ex post adjustments within the current emissions trading framework can be used to correct some perverse effects of the cap and trade approach based on historical production data. Although the outcome of this ruling did not have important effects on the current trading period, we conclude that the analysis of the Court should be taken into consideration by the legislative institutions when amending the present emissions trading directive. This case illustrates that the possibility of allowing ex post adjustments in an emissions trading system should not be overlooked. As such, there is not yet available a systematic analysis of the possible (greenhouse gas) emissions trading models and the different forms of governmental interventions within such schemes. The design of such competences, and the conditions and limits to interventions within emissions trading schemes thus needs further exploration from an economic and legal perspective, not only within greenhouse gas emissions trading schemes, but regarding any emissions trading scheme to be considered.

The underestimated possibility of ex post adjustments: some lessons from the initial greenhouse gas emissions trading scheme

This chapter, from a monograph on climate change and European emissions trading, considers some lessons from the initial greenhouse gas emissions trading scheme (ETS), focusing on preliminary experiences with ex post adjustments of allocated rights within the initial framework of the European Union (EU) ETS. The authors hope to provide a starting point for a systematic analysis of possible ex post interventions within ETSs. Topics include the current legislative framework of the EU Greenhouse Gas Emissions Trading Scheme; examples derived from the implementing legislation in The Netherlands, Germany, and Belgium; and an analysis of relevant case law from both the national courts and the Court of First Instance. The authors conclude that one lesson sows that the legislative framework for dealing with adjustments has a highly technical-administrative character and is not well suited to cases occurring in practice. A second lesson reminds policy makers not to overlook the possibility of ex post adjustments being used to correct any perverse consequences of allocation within a cap-and-trade scheme. A final note considers a general lesson in theory: there is no systematic analysis of different forms of governmental intervention within the available models of the emissions trading instrument.