Wednesday, March 3, 2010

Arcelor S.A. v. European Parliament and Council of the EU

Today, the EU General Court issued an important decision (here) upholding the legality of the European Union's Emissions Trading Scheme (ETS), which is a central mechanism for EU compliance with the Kyoto Protocol.

The ETS, which began operating in 2005, comprises the largest emissions trading scheme in the world both in volume and value of trading. Emissions caps are imposed on 4 major industrial sectors of carbon dioxide emitters in all member states. Those emitters are not allowed to emit beyond their emissions quotas for any given year, but emitters that reduce emissions below quota limits are allowed to sell unused increments (denominated as "credits") to other emitters. In this way, most of the emissions reduction burden is borne by emitters with the lowest costs of control, while emitters with higher costs of control can avoid reducing emissions as much (i.e., they can raise their quota) by purchasing unused emissions credits on the free market.

Arcelor filed suit asking the court to annul various central provisions of the ETS, as applied to steel makers, on various grounds, including infringement of property rights by raising production costs allegedly to unsustainable levels, for violating the quasi-constitutional principle of proportionality, and for violating the quasi-constitutional principle of equality.

The court dismissed the case on various grounds, including what US lawyers would understand as lack of standing. Specifically, the EU ETS does not directly regulate Arcelor, but applies more generally to a sector of the economy. The court therefore could not assess Arcelor's situation seperately from the rest of that sector. The court also found that Arcelor had not met its burden of showing that the ETS committed a sufficiently serious violation of its property rights. As for the principle of equality, the court followed precedent (a 2008 case involving a previous challenge by Arcelor) in holding that the EU ETS does not violate the principle of equality.  Finally, the court did not find any violation of the principle of proportionality.

This decision is not surprising, but it is somewhat reassuring, given earlier successful challenges to EU oversight of member state cap-setting under the ETS.

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