Pursuant to Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading within the European Community, any operator that does not surrender sufficient allowances by April 30 of each year to cover its emissions during the preceding year shall be held liable for the payment of an excess emission penalty of 100 euros for each ton of carbon dioxide equivalent emitted not surrendered.

At the national level, Swedish companies tried to challenge the excess emission penalties they had been subject to, arguing that they had sufficient emission allowances in their holding accounts to cover their total emissions for the preceding year. They also argued that the failure to surrender their allowances in time was only due to an internal administrative breakdown. In the context of a preliminary ruling, the Swedish court asked the Court of Justice of the European Union ("CJEU") to clarify the concept of "excess emission." The Swedish court also asked the CJEU whether the excess emission penalty may be varied by national courts on the basis of the principle of proportionality.

In its decision in Billerud Karlsborg AB and Billerud Skärblacka AB v. Naturvardversket (C-203/12) of October 17, 2013, the CJEU ruled that operators that did not surrender the allowances equal to their emissions for the preceding year by April 30 of the current year may not avoid the imposition of a penalty for the excess emissions, even where they hold a sufficient number of allowances on that date. Therefore, the concept of punishable "excess emissions" consists in the failure to surrender allowances equal to the emissions for the preceding year by April 30, "irrespective of the reason for the non-surrendering or of the number of allowances actually held by the operators." This interpretation is justified by the very nature of the European Union emissions trading system ("EU-ETS"), which is based on a strict accounting of the issuance, holding, transfer, and cancellation of allowances.

In addition, the CJEU considered that the excess emission penalty may not be modified by national courts on the basis of the principle of proportionality. Indeed, the creation of a predefined penalty in Directive 2003/87/EC was justified by the protection of the EU-ETS from distortions of competition resulting from market manipulations. According to the CJEU, such a fixed penalty does not carry "drawbacks which are incommensurate with the advantages to be gained by the EU's fulfillment of its commitments under the Kyoto Protocol."

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