Emailing "Legal Trouble for EU Cap and Trade"
The European Union implemented a carbon cap and trade system, called the Emission Trading System (ETS), in 2005. The law creates a market for the trading of carbon allowances, and the market establishes the price for these allowances. Like all laws passed by the E.U., implementation of the cap system is left up to the member countries to figure out, with submissions due to the European Commission for a plan to reduce emissions in the 2008-2012 window due back in 2007.
The E.C. was unhappy with plans submitted by Poland and Estonia, and
reduced the carbon caps by 26.7 and 47.8% respectively. The two countries appealed to E.U. courts, and
yesterday the European Court of First Instance sided with Poland and Estonia in an a broader-than-expected win. Carbon markets
reacted negatively, dropping almost 5% on the news. The E.C. was swift to
criticize the
ruling, saying that it was "extremely disappointing" and would probably appeal. Meanwhile,
appeals by Hungary, Lithuania and Slovakia appear to have gained new momentum in light of the decision.
It's important to not overstate the importance of the ruling. European judges haven't shifted course dramatically, they were simply interpreting legislation which they felt didn't grant the European Commission the authority to unilaterally revise each member country's carbon reduction plan. In a way the issue will solve itself as time goes on, since the E.C. will have that authority under new (and clearer) legislation after 2016. For now, though, the relatively emerging economies of central and eastern Europe are breathing a huge sigh of relief from their victory.
The lesson for the U.S. is pretty clear -- draft carbon cap and trade legislation clearly and without ambiguity. And then, sit back and expect litigation. Plan for multi-year delays as issues get worked out in the courts. It's not necessarily a bad thing, and it can be managed, but only a fool would expect any carbon cap and trade system in the U.S. to be implemented right away or without challenge.