A Czech tax imposed in 2011-2012 on freely-allocated EUAs breached European law, the EU Court of Justice said on Thursday.

Prague raised tens of millions of dollars worth of revenue over the two years, which came before EU rules changed in 2013 to greatly swell government coffers by selling EUAs instead of giving most away for free.

The EU court said the 32% tax breached EU law because the ETS Directive set a ceiling of 10 percent on the amount of EUAs that governments could sell over the second trading phase (2008-2012).

“The Directive precludes not only the direct fixing of a price for the allocation of emission allowances but also the subsequent levying of a charge in respect of their allocation,” the court ruling said.

The ruling was made at the request of a Czech court which is considering an appeal by electricity producer Sko-Energo.

Power producers in most EU nations are no longer given allowances for free, though industrial companies still receive the vast majority of their requirement without cost, to help them compete in global markets with rivals in countries with looser environmental regulations.

The Czech finance ministry said it was preparing a statement on the issue, Reuters reported.

By Ben Garside – ben@carbon-pulse.com