National allocation plans

Before the start of the phases 1 and 2 of the EU emissions trading system (EU ETS), each EU country decided on the allocation of their emission allowances. This was done through national allocation plans (NAPs). This process not only established the EU-wide cap in a decentralised, bottom-up way (the sum of the NAPs was the overall cap), but also set the rules for the allocation of allowances for individual installations.

The European Commission assessed the plans to ensure they complied with the criteria set out in an annex to the ETS Directive and EU rules on state aid and competition.

In many cases the Commission required changes, in particular to reduce national caps. Once a plan was approved, neither the cap nor the allocation per installation could be changed.

Countries had to publish their NAPs by 31 March 2004 (or by 1 May 2004 for the 10 countries which joined the EU in 2004), following guidance from the Commission.

The Commission issued its decisions on the NAPs during 2004-2005. Some plans were amended before the Commission took its decision.

The Commission required some countries to change their plans. Its most common objections were:

• Excessive allocation jeopardised the achievement of the country’s Kyoto target
• The volume of allowances was inconsistent with the assessment of progress towards the Kyoto target, i.e. the allocation exceeded projected emissions
• The country intended to make ‘ex-post adjustments’ to its NAP, i.e. it planned to intervene in the market after the allocation was done and redistribute the issued allowances among the participating companies

The process for phase 1 plans was very time-consuming, and many plans were too complex. These lessons learned helped improve the process for phase 2.

In its guidance document, the Commission emphasised the need to make the plans simpler and more transparent by

• encouraging countries to review the administrative rules created in their first plan
• drawing up standardised tables to summarise key information.

Countries had to publish their NAPs by 30 June 2006.

The Commission issued its decisions on most NAPs during 2006-2007. Poland and Estonia's NAPs were approved in 2010 and 2011, respectively, after proposed plans had been earlier rejected.

The EFTA Surveillance Authority adopted decisions on Liechtenstein's plan in 2007 and Norway's plan in 2009. Iceland did not have a NAP, as the few installations covered by the EU ETS opted out.

In phase 2 many of the proposed caps were subsequently reduced. Moreover, several Commission Decisions on NAPs were challenged by Member States. Avoiding this legal uncertainty constituted one of the factors influencing the decision to use an EU-wide cap for phase 3.

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