Pursuant to Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading within the European
Community, any operator that does not surrender sufficient
allowances by April 30 of each year to cover its emissions during
the preceding year shall be held liable for the payment of an
excess emission penalty of 100 euros for each ton of carbon dioxide
equivalent emitted not surrendered.
At the national level, Swedish companies tried to challenge the
excess emission penalties they had been subject to, arguing that
they had sufficient emission allowances in their holding accounts
to cover their total emissions for the preceding year. They also
argued that the failure to surrender their allowances in time was
only due to an internal administrative breakdown. In the context of
a preliminary ruling, the Swedish court asked the Court of Justice
of the European Union ("CJEU") to clarify the concept of
"excess emission." The Swedish court also asked the CJEU
whether the excess emission penalty may be varied by national
courts on the basis of the principle of proportionality.
In its decision in Billerud Karlsborg AB and Billerud
Skärblacka AB v. Naturvardversket (C-203/12) of October
17, 2013, the CJEU ruled that operators that did not surrender the
allowances equal to their emissions for the preceding year by April
30 of the current year may not avoid the imposition of a penalty
for the excess emissions, even where they hold a sufficient number
of allowances on that date. Therefore, the concept of punishable
"excess emissions" consists in the failure to surrender
allowances equal to the emissions for the preceding year by April
30, "irrespective of the reason for the non-surrendering or of
the number of allowances actually held by the operators." This
interpretation is justified by the very nature of the European Union emissions trading system
("EU-ETS"), which is based on a strict accounting of the
issuance, holding, transfer, and cancellation of allowances.
In addition, the CJEU considered that the excess emission penalty
may not be modified by national courts on the basis of the
principle of proportionality. Indeed, the creation of a predefined
penalty in Directive 2003/87/EC was justified by the protection of
the EU-ETS from distortions of competition resulting from market
manipulations. According to the CJEU, such a fixed penalty does not
carry "drawbacks which are incommensurate with the advantages
to be gained by the EU's fulfillment of its commitments under
the Kyoto Protocol."
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