31.3.2011   

EN

Official Journal of the European Union

C 99/9

(1)

Article 10c of Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC (1) allows Member States whose electricity systems meet certain criteria to provide for transitional allocation of emission allowances free of charge to installations for electricity production. The criteria relate to the need to modernise the energy system, and Member States deciding to use this option must in parallel undertake action aimed at securing investments in the energy system, such as upgrades of infrastructure, clean technologies etc., of an amount corresponding to the value of the corresponding emission allocations allocated for free.

(2)

It must be stressed that Member States meeting the criteria are not required to use the option, and may well choose not to in the light of the auctioning revenues that they would forego by doing so. However, those who do apply the option must comply with the provisions of Article 10c of Directive 2003/87/EC.

(3)

A harmonised emission trading system is imperative to best exploit the benefits of emission trading and to avoid distortions of competition in the internal market. In this respect, Directive 2003/87/EC establishes auctioning as the basic principle for allocation of emission allowances, as it is the simplest, and generally considered the most economically efficient system. Auctioning also provides a level playing field for competition on the internal electricity market to further develop.

(4)

Furthermore, Directive 2003/87/EC explicitly stipulates that full auctioning should be the rule from 2013 onwards for the power sector, taking into account the sector's ability to pass on the opportunity cost of CO2 to consumers in electricity pricing and thus to generate additional profits (‘windfall profits’). Auctioning will eliminate such windfall profits.

(5)

Article 10c of Directive 2003/87/EC contains provisions derogating from a number of core principles of Directive 2003/87/EC, in particular, the Union-wide fully harmonised approach towards allocation, the introduction of auctioning as the default allocation method and the explicit exclusion of free allocation of emission allowances in respect of electricity production. These principles and rules aim at ensuring the highest possible degree of economic efficiency in the scheme. Accordingly, the implementation of Article 10c should not impair these general rules and objectives of Directive 2003/87/EC.

(6)

Against this background and also bearing in mind the concerns of many Member States with respect to potential distortions of competition accruing from the application of Article 10c of Directive 2003/87/EC, the Commission considers it necessary to provide guidance on the implementation of Article 10c for the following reasons:

(7)

Article 10c(2) of Directive 2003/87/EC determines the maximum number of emission allowances allocated for free that may be allocated to eligible installations in eligible Member States in 2013. Pursuant to this provision, this number must decline in subsequent years and result in no free allocation of emission allowances in 2020.

(8)

When assessing an application pursuant to Article 10c(6), the Commission will analyse whether the maximum number of emission allowances made available free of charge under Article 10c of Directive 2003/87/EC in 2013 in a given Member State exceeds the number resulting from the calculation set out in Annex I, which is based on Article 10c(2).

(9)

Article 10c(2) of Directive 2003/87/EC clearly stipulates that ‘the total transitional free allocation … shall gradually decrease, resulting in no free allocation in 2020.’ For this reason, a credible and convincing gradual trajectory from the starting point of free allocation of emission allowances in 2013 to the end point of free allocation of emission allowances in 2020 is mandatory.

(10)

In the light of the legal mandate to fully phase out allocation of free emission allowances from a maximum level of 70 % to 0 % within a maximum of seven years, a credible and convincing gradual trajectory towards no allocation of free emission allowances in 2020 encompasses a clear downwards trend reflected in the interim steps between 70 % and 0 %.

(11)

When assessing an application submitted pursuant to Article 10c(5) of Directive 2003/87/EC, the Commission will analyse whether Member States pursue a credible and convincing gradual transition to full auctioning. Excessive back-loading of reductions would result in a higher overall number of emission allowances allocated for free over the entire 2013-2020 period, and would consequently have the effect of causing undue distortions of competition in the Union market. This would not be compatible with Article 10c(5) of the Directive. The Commission considers that Member States have some discretion in setting out an appropriate reduction trajectory. The Commission considers that the condition of a gradual decrease would be fulfilled and that competition would not be unduly distorted where a Member State has provided for either a linear reduction trajectory or a non-linear reduction trajectory wherein the decline in emission allowances allocated for free between any two consecutive years in the period from 2013 to 2020 deviates at most 50 % from the average annual decline necessary in the remaining years to reach 0 % in 2020.

(12)

In order to be eligible and benefit from the free allocation of emission allowances for electricity production, installations should have been put in operation by 31 December 2008. In their application pursuant to Article 10c(5) of Directive 2003/87/EC, Member States should demonstrate that installations in their respective territory considered to be eligible for transitional free allocation of emission allowances under Article 10c of Directive 2003/87/EC meet this condition by indicating the verified emissions of these installations for the period 2008-2010 including the permit number and the account holder of the installation concerned, as registered in the CITL. This information should also serve as proof that the installation is still active and has not closed down its operation in the meantime.

(13)

Alternatively, installations may also be eligible for transitional free allocation of emission allowances under Article 10c of Directive 2003/87/EC if the relevant investment process was ‘physically initiated’ by 31 December 2008.

(14)

This implies that the relevant decisions to build a new power plant should have been taken without being affected by the prospect of receiving free emission allowances for the new plant.

(15)

In the light of the above considerations, an investment process should be considered physically initiated no later than 31 December 2008 if it can be demonstrated that the investment decision was not influenced by the option of receiving free allocation of emission allowances. To this end, Member States could provide substantiated evidence that:

The Commission understands that, in the given context, construction work that has physically started could also encompass preparatory work for the construction of the power plant in question, but would always be undertaken on the basis of an explicit approval, if necessary, of the relevant national authority. Member States should submit such relevant authorisation document, which should be of substantive legal status issued in accordance with national or Union law. In the absence of a requirement for an explicit approval for preparatory work, other evidence would be necessary to establish that construction work had been physically started.

The above list should not be considered exhaustive, as Member States may have other means to provide documentary evidence that a certain investment decision was not influenced by the option of receiving free allocation of emission allowances.

(16)

When carrying out the assessment pursuant to Article 10c(6) of Directive 2003/87/EC, the Commission will require clear and substantiated evidence that these conditions have been met. In their application pursuant to Article 10c(5) of Directive 2003/87/EC, Member States should submit all relevant information in this respect. Otherwise the Commission will reject the list of installations covered by the application.

(17)

Pursuant to Article 10c(1) of Directive 2003/87/EC, Member States may transitionally allocate emission allowances for free to installations for electricity production. The phrase ‘installations for electricity production’ is not defined by Directive 2003/87/EC. As an exception from the general rule of Directive 2003/87/EC that no emission allowances should be allocated for free in respect of electricity production, the phrase must be interpreted so as not to impair the objectives of the Directive.

(18)

Such an approach is supported by the need to prevent negative impacts accruing from the implementation of Article 10c of Directive 2003/87/EC from affecting the industrial sector of the Member State concerned and the Union-wide market.

(19)

With a view to defining the scope of the term ‘installations for electricity production’, reference is made to the concept of ‘electricity generator’ defined in Article 3(u) of Directive 2003/87/EC and also referred to in Article 10c(2) of this Directive. In accordance with this concept, all installations producing exclusively electricity and installations producing electricity and heat are covered (2). However, installations carrying out another activity listed in Annex I of Directive 2003/87/EC in addition to combustion of fuels, i.e. the production of electricity and/or heat, would not be included in this definition.

(20)

In the light of the above considerations, the Commission considers as eligible for free allocation of emission allowances pursuant to Article 10c(1) of Directive 2003/87/EC:

(21)

In its assessment pursuant to Article 10c(6) of Directive 2003/87/EC, the Commission will verify whether evidence necessary to ensure compliance with the above criteria is provided.

(22)

To determine emissions attributable to electricity for installations that produce both electricity and heat, Member States should ensure compatibility with implementing measures pursuant to Article 10a, and in particular 10a(4) of Directive 2003/87/EC and should make reference to the allocation methodology pursuant to Article 10c(3) of Directive 2003/87/EC.

(23)

Pursuant to Article 10c(1) of Directive 2003/87/EC, the Member States concerned shall submit to the Commission a national plan for investments. The Commission recommends that the national plan should be based on a number of common principles designed to best ensure a fair and consistent implementation of the objectives accruing from Directive 2003/87/EC in general and Article 10c in particular:

Principle 1: The national plan should identify investments, which, directly or indirectly (investments in networks and ancillary services), contribute to decreasing greenhouse gas emissions in a cost effective manner.

Principle 2: The investments identified in the national plan should be designed to eliminate in the future, to the extent possible the situations referred to in Article 10c(1), letter (a) (3) and (b) (4) and the first condition of (c) (5) of Directive 2003/87/EC.

Principle 3: The investments should be compatible with each other and other relevant Union legislation. They must neither reinforce dominant positions nor unduly distort competition and trade in the internal market and, where possible, should strengthen competition on the internal market for electricity.

Principle 4: Investments identified in the national plan should be additional to investments Member States must undertake in order to comply with other objectives or legal requirements accruing from Union law. They should also not concern investments, which would be required to match increasing electricity supply and demand.

Principle 5: Investments identified in the national plan should contribute to diversification, and reduction in carbon intensity, of the electricity mix and the sources of energy supply for electricity production.

Principle 6: Investments should be economically viable in absence of the free allocation of emission allowances under Article 10c of Directive 2003/87/EC, once transitional allocation of such allowances comes to an end, with the exception of specific pre-defined emerging technologies still at the demonstration stage and listed in Annex III.

(24)

The investments identified in the national plan should, to the extent possible, comply with these principles. Where compliance with all principles cannot be ensured for a certain investment, the Member State concerned should provide detailed reasons as to why. In any case, such investments should not run counter to these principles or undermine the underlying objectives. Investments may likewise not undermine objectives laid down in the Treaties or other relevant Union legislation.

(25)

When assessing the application submitted pursuant to Article 10c(5) of Directive 2003/87/EC, the Commission will analyse to which extent the investments identified comply with these principles. If the information provided by Member States in their application pursuant to Article 10c(5) of Directive 2003/87/EC is not sufficiently detailed for the Commission to carry out a comprehensive assessment allowing for a well founded conclusion, the Commission may request additional information. If this additional information cannot be provided in due time, the Commission will reject the corresponding parts of the national plan. The Commission may also consider information and views from other sources to inform its assessment of the application.

(26)

On the basis of the provisions of Directive 2001/42/EC of the European Parliament and of the Council of 27 June 2001 on the assessment of the effects of certain plans and programmes on the environment (6), Member States should verify whether an environmental assessment of the national plan is required.

(27)

The Commission further notes that the free allocation of emission allowances to electricity generators and the financing of corresponding investments required by Article 10c of Directive 2003/87/EC would in principle involve State aid within the meaning of Article 107(1) TFEU. Pursuant to Article 108(3) TFEU, Member States must notify measures involving State aid to the Commission. Following notification, Member States may not put proposed measures into effect until this procedure has resulted in a final decision by the Commission. The Commission intends to adopt compatibility criteria for assessment of this type of aid in the near future. An application pursuant to Article 10c(5) of Directive 2003/87/EC, and any consequent decision by the Commission, is entirely without prejudice to Member States’ State aid notification obligations pursuant to Article 108 TFEU, and Member States should plan for any required State aid notifications accordingly. When assessing the allocation of free allowances and the national plans under Article 107(3) TFEU, the Commission will ensure that the latter do not result in undue distortions of competition, taking into account the objective of common interest pursued through Article 10c of Directive 2003/87/EC. In particular, where the national plan concentrates aid on a limited number of beneficiaries or where the aid is likely to reinforce the beneficiaries’ market position, Member States should demonstrate that aid will not unduly distort competition beyond what is strictly necessary in the light of the overall objectives of this Directive.

(28)

In view of the title and overall context of Article 10c of Directive 2003/87/EC, investments eligible under this provision should concern the electricity sector and are to be undertaken from 25 June 2009. However, as a matter of principle, investments in other energy sectors are not excluded, on condition that they benefit from strong justification on the basis of Article 10c of Directive 2003/87/EC.

(29)

Member States are well positioned to decide which investments would best contribute to the modernisation of their electricity generation sector, and are responsible for identifying investments that comply with the requirements set out in the Directive. They also have to coordinate reporting on the implementation of investments undertaken under Article 10c of Directive 2003/87/EC at national level (7).

(30)

In their national plans, Member States should set out a list of installations undertaking investments identified in the national plan and specify the list of investments scheduled to result from free allocation of emission allowances. They should also specify to which extent they will be funded by gains from emission allowances allocated free of charge and in which year of the investment cycle this would occur.

(31)

Investments funded by gains accruing from free allocation of emission allowances under Article 10c of Directive 2003/87/EC might be supplementary to investments partly funded from other Union sources (e.g funds made available from the new entrants reserve pursuant to Article 10a(8) of Directive 2003/87/EC, regional funds, TEN-E, European Economic Recovery Programme, European Energy Programme for Recovery, SET Plan, etc) if compliant with the requirements set out in this document and if compatible with those instruments or sources. In such cases, however, only the part of the investment benefiting from funds accruing from free allocation of emission allowances under Article 10c of Directive 2003/87/EC is relevant for the purpose of Article 10c of this Directive on condition that Union rules on overall funding limits are respected.

(32)

Further clarification with respect to the Commission's understanding of the terms ‘infrastructure’, ‘clean technologies’, ‘diversification of energy mix and sources of supply’, as used in Article 10c(1) of Directive 2003/87/EC is provided in Annex IV.

(33)

A non-exhaustive list of investment types eligible under Article 10c of Directive 2003/87/EC is provided in Annex V.

(34)

Pursuant to Article 10c(1) of Directive 2003/87/EC, the amount of investments identified in the national plan shall be equivalent, to the extent possible, to the market value of the free emission allowances. The market value of emission allowances must be used as a reference point for eligible Member States to determine, in their national plans, the amount to be invested at national level.

(35)

Since Member States should be able to provide a precise figure of the amount they intend to invest under Article 10c of Directive 2003/87/EC in their national plans, the market value of any emission allowances to be allocated for free pursuant to Article 10c of Directive 2003/87/EC should be determined in advance and should not be adjusted thereafter (8).

(36)

The Commission recommends that the market value of emission allowances allocated for free should be derived from the model-based projections of European carbon prices as provided by the 2010 Commission Staff Working Document accompanying Commission Communication (2010) 265 final (9). The former provides updated projections taking into account new circumstances in the Union.

(37)

Accordingly, the annual values, as set in Annex VI and taking into account current legislation and emission reduction objectives, should be used as reference by Member States in order to determine the annual market value of free allocation of emission allowances applied to their national plans. In the light of relevant State aid rules, Member States may decide to use higher values to determine the amount to invest: the figures given in Annex VI represent only a minimum level to be applied.

(38)

Except if a Member State can establish that this would be objectively impossible, the value of investments undertaken in the framework of Article 10c of the Directive in a given Member State must correspond to the market value of emission allowances allocated for free under its application. In applications pursuant to Article 10c(5) of Directive 2003/87/EC, Member States must provide the evidence necessary to enable the Commission to carry out its assessment pursuant to Article 10c(6) of Directive 2003/87/EC.

(39)

Directive 2003/87/EC implicitly acknowledges the fact that free allocation of emission allowances can result in windfall profits, in particular where operators can pass on the financial value of the emission allowances to their customers. This is the case for electricity producers and represents one of the reasons why Directive 2003/87/EC provides for auctioning as the default allocation rule, intended to ‘eliminate windfall profits’ (10).

(40)

By derogating from the principle of auctioning as default allocation method, Article 10c of Directive 2003/87/EC provides for free allocation of emission allowances to electricity generators, thereby implicitly accepting the appearance of windfall profits. However, Article 10c of this Directive clearly aims for these profits to be used for the modernisation of electricity generation in the Member State concerned.

(41)

A measure of Union law must be interpreted in the light of its objectives. On the basis of the provisions of Article 10c of Directive 2003/87/EC and in view of its underlying objective, it can be concluded that the windfall profits accruing to companies benefiting from free allocation of emission allowances must be used for the modernisation of electricity generation in the Member State concerned. In the same vein, an optimal use of the value of the emission allowances allocated for free would entail that the emission allowances allocated for free are not used to finance investments that companies concerned would have undertaken, in order to comply with other objectives and legal requirements accruing from Union law. Otherwise, they would only constitute additional profits, which Directive 2003/87/EC aims to eliminate and would consequently run counter to the objectives of the Directive. Moreover, this would cause undue distortions of competition incompatible with Article 10c(5) of the Directive.

(42)

For these reasons, a recipient of emission allowances allocated for free under Article 10c of Directive 2003/87/EC would need to use the value of the free emission allowances by means of undertaking an investment identified in the national plan pursuant to Article 10c(1). Where companies receive emission allowances for free without undertaking such an investment or where they receive more emission allowances for free than necessary to undertake the relevant investment(s) identified in the national plan, they must be required to provide the value of the excess allowances to the relevant entity undertaking the investment.

(43)

Since the national plan designed to modernise electricity generation in the Member State concerned may contain investments to be undertaken by companies that are not subject to compliance with the Union scheme (11), not all companies designated to undertake investments identified in the national plan would/could receive allowances allocated free of charge. In the light of the provisions of Articles 10c(1) and 10c(4) of Directive 2003/87/EC, operators of transmission or distribution systems within the meaning of Article 2(4) and (6) of Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC (12) represent network operators within the meaning of Article 10c(4) of Directive 2003/87/EC. These companies may generally not be involved in the generation or supply of electricity. They would therefore not be able to receive allowances, but may nevertheless be required to undertake investments identified in the national plan.

(44)

In accordance with principle 3 of the principles for the national plan and in accordance with paragraph 27 of this guidance document, whenever investments in generation or supply of electricity, which were identified in the national plan pursuant to Article 10c(1) of Directive 2003/87/EC, would lead to undue distortions of competition or would threat to reinforce dominant position, Member States should consider requiring beneficiaries of the free emission allowances to provide funds for investments in transmission and distribution systems, or for generation or supply of electricity not leading to such distortion.

(45)

It can also not be excluded that companies are allocated a number of free emission allowances of a value lower than would be required to cover an investment identified in the national plan. In this event, it may be appropriate to enable such companies to carry out the relevant investment identified in the national plan.

(46)

For these reasons, Member States may set up, where necessary and appropriate, a mechanism to account for the relevant transfer of funds in the cases described above.

(47)

Such a mechanism should in any case take account of the following requirements:

(48)

Using revenues Member States may gain from auctioning (14) or other State revenues, in order to fund investments listed in the national plan will result in windfall profits for power generators receiving free allowances under Article 10c of Directive 2003/87/EC. In the light of recitals 15 and 19 of the amending Directive 2009/29/EC as well as Article 10c(5)(e), and the overall approach and objectives of the Directive, which provides for auctioning as the default allocation method, the Commission will reject any application submitted pursuant to Article 10c(5) that pursues such an approach.

(49)

Member States making use of the option to allocate allowances for free under Article 10c of Directive 2003/87/EC may decide that such allowances can only be used for surrendering by the installation in the year to and for which they had been allocated. A company receiving allowances subject to such conditionality would not be able to sell these allowances on the market, bank them into another year or allow them to be surrendered by another installation (even of the same company).

(50)

A Member State introducing such conditionality runs the risk of implementing Article 10c in a manner that would not be compatible with the objectives and architecture of the Union scheme, which is designed to achieve overall emission reductions in a cost-effective and economically efficient manner. It would not be legal for Member States to implement Directive 2003/87/EC in a manner contrary to its very objectives.

(51)

Non-transferable allowances would eliminate incentives to take emission abatement measures available to the holder of the non-transferable allowances that are feasible at costs below the prevailing emission allowance price. From the point of view of the holder of non-transferable allowances, carrying out these abatement measures would always appear more expensive than just covering the emissions with non-transferable allowances.

(52)

In view of these considerations, the Commission strongly recommends that Member States do not make use of the option to allocate non-transferable emission allowances. However, were Member States nevertheless consider this option necessary, they must demonstrate that this option is only used to an extent that is necessary to achieve an underlying objective reflected in Article 10c and that could not be achieved more effectively by other means. Member States’ reasons should take due account of the incentives created in respect of emission reductions and the potential increase in ETS compliance costs resulting from the choice to make some allowances non-transferable.

(53)

In the light of and without prejudice to the above, the Commission furthermore takes the view that at least the majority of emission allowances allocated for free pursuant to Article 10c of the Directive should be transferable. It recommends restricting the number of any non-transferable allowances to one which does not exceed the total emissions accruing from the supply of electricity to sectors which would not risk introducing distortions of competition into the industrial sector of the Member State concerned or of the Union (e.g. this could be the case for the household sector). Further to Article 10c(5)(e) and 10c(6), the Commission would have to reject an application that would create undue distortions of competition.

(54)

In assessing an application submitted pursuant to Article 10c(5), the Commission will examine whether in the light of the objectives of Directive 2003/87/EC in general and the specific objective of Article 10c of Directive 2003/87/EC in particular the number of free emission allowances made non-transferable is justified, i.e. is necessary and proportionate, as well as whether this would create undue distortions of competition. The Commission will reject the application submitted pursuant to Article 10c(5) if it finds that these conditions are not satisfied.

(55)

Pursuant to Article 10c(6) of Directive 2003/87/EC, the Commission will assess the application taking into account all relevant elements including those listed in Article 10c(5). It will also consider obligations stemming from the Treaties and general principles of Union law. In order to ensure an efficient assessment process, the application should be based on the template provided in Annex VII to this document. The Commission will only initiate its assessment of the application once all relevant information including the necessary evidence to underpin this information is submitted.

(56)

Article 10c of Directive 2003/87/EC has been introduced to enable the modernisation of electricity generation in eligible Member States. For this reason, the article provides for an exception from an essential principle of the Directive. In accordance with prevailing case-law, this exception must be interpreted and applied in a manner restricted to that which is necessary to achieve the objective established by Article 10c, without jeopardising the overarching objectives of Directive 2003/87/EC.

(57)

With respect to the value of emission allowances allocated free of charge, and their relation to the amount of the investments required by Article 10c(1) of Directive 2003/87/EC, it is important to note that emission allowances allocated for free would result in windfall profits accruing to companies benefiting from emission allowances allocated for free, if the value of these emission allowances were not used for investments or if the value of these emission allowances were used for investments that would have been undertaken, in order to comply with other objectives and legal requirements accruing from Union law. In such a case, there would not be a corresponding contribution to reaching the objective for which the free allocation of emission allowances pursuant to Article 10c has been accepted.

(58)

Furthermore, it is worth noting that the advantages arising from emission allowances allocated free of charge under Article 10c of Directive 2003/87/EC may cause undue distortions of competition inconsistent with Article 10c(5)(e) if they are not used for the purpose for which they are to be allocated.

(59)

For these reasons, the assessment of the Commission will in particular place emphasis on whether the value of free emission allowances granted to eligible installations pursuant to Article 10c of Directive 2003/87/EC is used for the investments undertaken by these installations, or, where this is not the case, verify that the value of free emission allowances is made available to installations/operators or companies that have not received, or have not received sufficient emission allowances to cover respective investments identified in the national plan.

(60)

For the sake of transparency and to enable a well founded assessment of the application by the Commission, Member States should publish an application before submitting it to the Commission to enable the Commission to consider information and views from other sources. Any application submitted by a Member State should be considered environmental information and would be subject to the requirements set out in Directive 2003/4/EC of the European Parliament and of the Council of 28 January 2003 on public access to environmental information and repealing Council Directive 90/313/EEC (15) and Regulation (EC) No 1367/2006 of the European Parliament and of the Council of 6 September 2006 on the application of the provisions of the Aarhus Convention on Access to Information, Public Participation in Decision-making and Access to Justice in Environmental Matters to Community institutions and bodies (16). Member States will also need to verify whether an environmental assessment of their national plan is required, on the basis of the provisions of Directive 2001/42/EC.

(61)

Clear and effective monitoring and enforcement provisions with respect to investments foreseen in the national plan must be set up by Member States to ensure proper execution of the investments identified in the national plan. Pursuant to Article 10c(5)(d) of Directive 2003/87/EC, these provisions should be set out in a detailed manner in an application for free allocation of emission allowances.

(62)

It is the Member States’ responsibility to monitor and enforce investments identified in their national plans. When assessing a Member State's application for free allocation of emission allowances pursuant to Article 10c(6) of Directive 2003/87/EC, the Commission will attach particular importance to whether the Member State provides for clear and effective monitoring and enforcement provisions for the implementation of the national plan, including a mechanism to closely monitor and effectively enforce investments identified in its national plan. To this end, Member States should ensure that they have in force the laws, regulations and administrative provisions that are necessary to subject investments to scrutiny through the competent national authorities clearly identified in the application.

(63)

The following elements are important in this respect:

(64)

The results of the monitoring and enforcement process, accompanied by substantiated evidence, are to be reported each year in the annual reports to be submitted by Member States to the Commission pursuant to Article 10c(1) of Directive 2003/87/EC. In particular, copies of external auditor certification documents (signed with official stamps) accompanied by an official translation into English (if these are not already in English), should be annexed to the reports. Member States may choose to make the relevant operators’ annual reports public.

(65)

Member States’ annual reports on investments made in modernising electricity generation pursuant to Article 10c(1) of Directive 2003/87/EC should be submitted to the Commission by 31 January each year, starting in 2014. They should review the nature and amount of investments undertaken during the previous year (17).

(66)

Annual reports should confirm with substantiated evidence that investments are implemented on the ground and comply with the requirements laid down in Directive 2003/87/EC and in this guidance document, and in particular, that they contribute to the reduction of greenhouse gas emissions.

(67)

The reports also need to demonstrate that the annual amount invested is coherent with the total amount of investments foreseen for the whole period of application, as set out in the Member State's national plan in reference to the market value of emission allowances allocated free of charge defined in this guidance document. Investments need not match the determined market value of emission allowances allocated for free on an annual basis. However, any discrepancy between the value of emission allowances allocated for free and the amount of investments should be remedied in the year subsequent to its occurrence to maintain a credible investment path over the period of application, taking into account the declining number of emission allowances that may be allocated for free.

(68)

Pursuant to Article 10c(4) of Directive 2003/87/EC, annual reports are to be based on the reports provided every 12 months by operators to Member States on the implementation of their investments set out in the national plan. They should also rely on supplementary sources of information, in particular official data and independently verified data. Sources of data and the references of evidentiary documents should be made available in the reports.

(69)

Member States’ annual reports to the Commission should be made available in a transparent manner. Pursuant to Article 10c(4) of Directive 2003/87/EC, Member States’ annual reports to the Commission have to be made public. In any case, the confidentiality of commercially sensitive information should be taken into account.

(70)

In its assessment pursuant to Article 10c(6) of Directive 2003/87/EC, the Commission will examine the correctness of the annual reports on the basis of the evidence provided. It may ask for further information if not all relevant evidence is submitted.

(71)

Where a Member State does not provide sufficient evidence, by means of its annual reports, that the investments identified in the national plan are carried out in accordance with the schedule and the value of free allocation of emission allowances as laid down in the national plan, and unless:

the Commission takes the view that there is a breach of the conditionality inherently established by Article 10c of Directive 2003/87/EC with respect to the allocation of free emission allowances and the investments required by Article 10c(1). Since this conditionality is crucial to achieve the underlying objectives of Article 10c, a lack of investment results in additional gains to the company concerned and does not contribute to achieving the underlying objectives of Directive 2003/87/EC or of its Article 10c in particular. Consequently, this may lead to the illegal application of Directive 2003/87/EC contrary to its very objectives. It may also raise significant Commission concerns under State aid rules. If necessary, the Commission would launch an investigation under Article 108(2) TFEU and/or infringement procedures. A procedure under Article 108(2) TFEU may result in the suspension of free allocation under Article 10c of Directive 2003/87/EC of a number of emission allowances corresponding to the amount of the shortfall in investment. If the situation is not remedied, the Member State concerned should ultimately auction the corresponding number of allowances in accordance with the Regulation adopted pursuant to Article 10(4) of Directive 2003/87/EC.