Distortion of competition by the EU's climate legislation?
Annotations on the Emission Trading Scheme (ETS – Directive) and its implementation in European law (from a regulatory and constitutional perspective)
MARKUS C. KERBER
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Abstract
The executive legislation initiated by the European Commission to implement the ETS Directive, approved by the European Parliament on 18 December 2008, proves the institutional mess in the procedure of European legislation and gives further weight to doubts as to whether the ecological ratio of ETS and its application will turn out to be a source of competitive restraints rather than an improvement of entrepreneurial competitiveness. This is even more true after the Commission’s erroneous overestimate of emissions data in 2005, after their release in 2006, which qualify ETS as legally disproportionate. More ETS-regulation giving free allowances to energy consuming industries of exposed sectors (carbon leakage) is a catalogue of exemptions impossible to determine precisely without executive legislation elaborated by the Commission. This bargaining is taking place within the "nether world" of comitology thus leaving doubts as to the true respect of the rule of law set by the new ETS Directive.
As a matter of fact, the definition of sectors exposed to the risk of carbon leakage entitles the industries concerned to claim the allocation of free allowances and thus to be treated equally to those industries expressly mentioned in statistical qualifications, such as the NACE-code. As a matter of fact, the NACE-Code is merely mentioned in Consideration N° 19 of the Directive as a possible method to identify and evaluate the sectors of industry menaced by carbon leakage: This method "should" only be applied "as a starting point" "where appropriate". Consideration N° 19 is therefore far from focusing the Implementation of Art. 10 a N° 9 following on the NACE-Code.
However, the identification of the industries outlined is legally constrained to abide by the principle of equal treatment, ruled by the European Court of Justice as a cornerstone of Community Law. Apart from this legal constraint, which the Commission will have to pay more tribute to, there is an obvious economic reason for equal treatment of similarly exposed sectors: If industries are equally exposed to the risk of carbon leakage, the recourse to arbitrary statistical methods without reference to the factual situation, would make the Commission an agent to distort competition instead of being the guardian of the Treaty. Thus the Commission would forget the guiding objective of the European Economic Community as established in Art. 3 I g of the Treaty, “a system ensuring that competition in the internal market is not distorted”.
