European lawmakers on Tuesday sided with Latvia and annulled its national allocation plan (NAP) on grounds that the European Commission had missed a 2007 NAP response deadline by one day.
Latvia had a yearly NAP of 3.5m EU allowances (EUAs), one of the smallest in the EU's Emissions Trading System (ETS).
The Baltic country successfully argued at the General Court of Justice's General Court that when it submitted a redrafted NAP on 29 December 2006 - having already had one rejected by Brussels - the Commission was bound by law to comment or reject on that proposal within three months.
Rather than responding on, or prior to, 29 March 2007, the Commission's rebuttal was dated 30 March 2007.
Under the Latvian NAP, 6.25m EUAs were allocated annually, while the initial bid from Riga was pegged higher, at 7.76m EUAs.
Whether the Latvian government will attempt to revert to its more substantial NAP is unclear at this stage, but in light of its EUA length to date, Latvia would have a tough time justifying the extra allowances.
The Commission's Climate Action directorate said on Tuesday that it regretted the decision made by the General Court and would analyse the ruling at length before any comment would be made on contesting the decision.
Should Brussels choose to reject the judgment, it would have three months in which to lodge the complaint - a deadline it is sure to keep this time.
A potential change to the Latvian NAP, however small, could have an impact on phase III of the ETS.
The Commission said it would analyse such implications and take "all possible action in order to protect the integrity of the European-wide market of allowances and minimise the legal uncertainty created by the ruling".
Latvian long position
According to official EU verified emissions data, in both 2008 and 2009 Latvia was net long as a country for EUAs. Last year the country emitted 2.5m tonnes of CO2 equivalent, creating a surplus of 1m EUAs for compliance buyers.
There was no official response from either the Latvian government or environment ministry at the time of going to press.
But a source close to the court case said that any revision would focus primarily on increasing the country's new entrant reserve (NER), within the NAP.
According to the source, the NER has already been depleted, but demand from new installations is growing and is expected to increase further.
Along with the Latvian plea that the Commission's response time was too slow, Riga had claimed that Brussels had overstepped its authority when providing its own calculations for the NAP. Latvia also argued that the decision by the Commission was discriminatory and disregarded aspects of the Kyoto Protocol.
All three of these arguments were rejected by the court.
Latvia is the third EU country to win a case over the Commission regarding the calculation of its NAP.
Both Poland and Estonia have also overturned similar decisions, although neither has notably changed their NAP as a result. In the case of Estonia, no firm NAP that has denied installations from trading surplus EUAs still exists.
The Czech Republic, Lithuania and Romania are awaiting their own cases. TMM