The background to this case is the implementation, in the UK, of the initial stages in the operation of the EU Emissions Trading Scheme ('the EU ETS') launched on 1 January 2005. Directive 2003/87/EC of the European Parliament and of the Council of 13 Octoberj 2003 establishing a scheme for greenhouse gas emission allowance trading ('the Emissions Trading Directive') and amending Council Directive 96/61/EC2 ('the Emissions Trading Directive')3 resulted in the worlds first international trading scheme for CO2, a flagship element in a strategy for EU Member States designed to help them achieve compliance with their commitments under the Kyoto Protocol to the United Nations Framework Convention on Climate Change.
The initial stage4 included a requirement of Member States to prepare National Allocation Plans (NAPs) containing a list of installations, for example, power stations, to be covered by the Emissions Trading Directive and the quantity of allowances to be allocated to each.
In Case T-130/06 Drax Power5 and others v European Commission, the Court of First Instance held that an application by Drax Power and others for annulment of Commission Decision C(2006) 426 final of 22 February 2006 concerning a proposed amendment to the National Allocation Plan notified by the UK in accordance with the Emissions Trading Directive was inadmissible. The Court ruled that the applicants could not be considered to be 'directly concerned' by the contested decision within the meaning of the fourth paragraph of Article 230 of the European Treaty on legal standing:
Any natural or legal person may, under the same conditions, institute proceedings against a decision addressed to that person or against a decision which, although in the form of a regulation or a decision addressed to another person, is of direct and individual concern to the former...
Emissions trading is one of three market-based mechanisms7 available to Parties to the UN Kyoto Protocol on climate change. The European Emissions Trading Scheme is independent of the Protocol but is intended to help EU Member States achieve their binding targets under the Protocol. The logic of emissions trading is best illustrated by referring to the influential essay by Garrett Hardin, 'The Tragedy of the Commons'.8 Hardin predicted that individual users will appropriate resources owned by many to the point where the resources may be degraded and destroyed where property rights do not exist or are ill-defined. Such resources, known as 'commons' or 'common-pool resources' (CPRs), have two characteristics that create conditions for resource deterioration, namely rivalry and open access. Rivalry over consumption combined with an inability to prevent others from using a resource removes any incentive for individual resource users to constrain their resource use. Historically, governments have tackled this dilemma in a number of ways, including taking resources under public control, for example National Parks, or prescribing the types of technology that can be deployed by CPR users, for example fisheries. Governments have also created market incentives such as tradable quotas with a view to encouraging common resource users to internalise costs and adjust their assessment of costs and benefits. Emissions trading in carbon is designed to establish a property rights regime by creating value around entitlements (Allowances) to use the atmosphere as a sink for polluting emissions, and help establish a market and a price for carbon.9 Each EU Member State limits overall national CO2 emissions from the energy and industrial sectors through the emissions allocation process, thereby creating scarcity and establishing a functioning market.