Directive 2003/87/EC of the European Parliament and of the Council of October 13th 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community sets up an EC wide scheme for greenhouse gas emission allowance trading within the EU. It provides that, for each five-year period, each member State should develop a national allocation plan (NAP) stating the total quantity of allowances that it intends to allocate for that period and how it proposes to allocate them. The plan should be based on objective and transparent criteria, including the criteria listed in the Directive, taking due account of comments from the public. It is to be published and notified to the Commission and to the other member States. The Commission may reject it or any aspect of it if it considers the NAP to be incompatible with the criteria listed in the Directive. The member State must not decide upon the total quantity of allowances that it is allocating for the period concerned and must not initiate the process for the allocation of those allowances to the operator of each installation, until proposed amendments are accepted by the Commission.
In 2006 Poland and Estonia notified the Commission of their NAPs for the period from 2008 to 2012. The Commission decided in 2007 that those NAPs were incompatible with the criteria in the Directive and decided that the total annual quantities of emission allowances should be reduced, respectively to 26.7% and 47.8% less than those proposed by those two member States.
Both Poland and Estonia sought annulment of the Commission decisions before the Court of First Instance on the grounds, essentially, that the Commission had exceeded its powers in rejecting their NAPS.
The Court of First Instance agreed with Poland and Estonia. It held that the Commission had exceeded its powers of review of NAPS conferred upon it by Directive 2003/87/EC.
The Court of First Instance recalled that administrative measures must be adopted in compliance with the competences attributed to various administrative bodies and that in principle, according to Article 249 EC, when the directive in question does not prescribe the form and methods for achieving a particular result, the freedom of action of the member States as to the choice of the appropriate forms and methods for achieving that result remains complete. It follows that, where there is no EC rule prescribing clearly and precisely the form and methods that must be employed by the member State, the Commission has the burden, when exercising its supervisory power, pursuant in particular to Articles 211 EC and 226 EC, of proving to the required legal standard that the instruments used by the member State in that respect are contrary to EU law (Case T‑374/04 Germany v Commission  ECR II‑4431, paragraph 78) (For our post on that case, see here).
The Court made a rare reference to the principle of subsidiarity enshrined in the second paragraph of Article 5 EC and stated that such a principle binds the EU institutions in the exercise of their legislative functions. According to that principle, in areas which do not fall within its exclusive competence the EU is to take action only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the member States and can therefore, by reason of the scale or effects of the proposed action, be better achieved by the Community. In the case of environmental protection, which is governed by Articles 174 EC to 176 EC, where the EU and the member States share competence, the EU, that is to say the Commission in the present case, has the burden of proving to what extent the powers of the Member State and, therefore, its freedom of action, are limited in light of Article 10 and the criteria set out in the Directive (Germany v Commission, paragraph 79).
The Court held that the Directive provides in its Article 9(1) and (3) and from Article 11(2) that the member State alone has the power, first, to draw up the national allocation plan, and, secondly, to take final decisions fixing the total quantity of allowances which it will allocate for each five-year period and the distribution of that quantity amongst economic operators. The Member State enjoys a certain room for manoeuvre in choosing the measures which it considers the most appropriate to attain, in the specific context of the national energy market, the result prescribed by the Directive (T-374/04 Germany v Commission, paragraph 80).
As to the Commission's powers to review the national NAP submitted to it, the Court held that those powers were circumscribed by Article 9(3) of the Directive. Thus the Commission is authorized to verify the conformity of the NAP notified by the member State with the criteria set out in Annex III and the provisions of Article 10 of the Directive and to reject that plan on the grounds of incompatibility with those criteria and those provisions, by reasoned decision.
The Court of First Instance went on to describe its own powers of review of the Commission's decisions. It held that the Commission has a discretion in so far as that review causes it to make its own complex economic and ecological assessments having regard to the general objective of reducing greenhouse gases by means of an economically efficient and effective system of trading allowances (Article 1 and recital 5 of the Directive). Consequently, the Court conducts a full review as to whether the Commission applied properly the relevant rules of law. On the other hand, the Court of First Instance cannot take the place of the Commission on issues where the latter must carry out complex economic and ecological assessments in this context: It must confine itself to verifying that the measure in question is not vitiated by a manifest error or a misuse of powers, that the competent authority did not clearly exceed the bounds of its discretion and that the procedural guarantees, which are of particularly fundamental importance in this context, have been fully observed (T-374/04 Germany v Commission, at paragraphs 80 and 81; Case T‑13/99 Pfizer Animal Health v Council  ECR II‑3305, paragraphs 166 and 171; Case T‑70/99 Alpharma v Council  ECR II‑3495, paragraphs 177 and 182; and Case T‑392/02 Solvay Pharmaceuticals v Council  ECR II‑4555, paragraphs 126 and 188).
The Court held that by rejecting the NAP on the basis of reasoning which consists only in the evocation of doubts as to the reliability of the data used by Estonia and Poland, the Commission exceeded its powers. The Commission has no power under the Directive to replace the data provided by the Member States with its own data obtained from its own assessment method. If the Commission could use a single method of assessing NAPs for all the Member States it would confer upon itself a veritable power of uniformisation in the context of implementing the allowance trading system and arrogate to itself a central role in the drawing up of NAPs. The Directive, according to the Court, simply does not allow for that.
Moreover, the Court of First Instance held that by imposing in the contested decisions allowance ceilings above which the NAP would be regarded as incompatible with the assessment criteria, the Commission substituted itself, in practice, for the member States concerned. Therefore, those decisions have the effect of encroaching on the exclusive competence which the Directive confers on the member States in deciding the total quantity of allowances which they will allocate in respect of each five-year period as from 1 January 2008.
In Case T-263/07, the Court also struck down the Commission's decision for being in breach of the principle of sound administration. That happens relatively rarely.
It held that the guarantees conferred by the EU legal order in administrative proceedings include, in particular, the duty of the competent institution to examine carefully and impartially all the relevant aspects of the individual case (Case T‑44/90 La Cinq v Commission  ECR II‑1, paragraph 86; Case T‑7/92 Asia Motor France and Others v Commission  ECR II‑669, paragraph 34; Case T‑31/99 ABB Asea Brown Boveri v Commission  ECR II‑1881, paragraph 99).
The Court held that the Commission had failed to examine the Estonian NAP properly to see if it included, in the total quantity of allowances to be allocated, a ‘reserve’ of allowances. Estonia claimed its NAP did so, while the Commission claimed in the decision that it did not. The Court held that the results set out by the Commission in its decision were simply not reconcilable with the figures provided if a proper examination of them had been made.