Nitrogenművek (Environment - Air pollution - System for greenhouse gas emission allowance trading - Judgment) [2026] EUECJ C-519/24 (16 April 2026)

Judgment This request for a preliminary ruling concerns the interpretation of: – recitals 5, 7 and 20, Article 1, point (f) of Article 3, and Articles 10 and 11 of Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a system for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC (OJ 2003 L 275, p. 32), as amended by Directive (EU) 2018/410 of the European Parliament and of the Council of 14 March 2018 (OJ 2018 L 76, p. 3) ('Directive 2003/87'); – Articles 18, 49 and 56 TFEU; – Articles 17 and 21 of the Charter of Fundamental Rights of the European Union ('the Charter'); – Article 14 of the Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR), signed in Rome on 4 November 1950, and Article 1 of the First Additional Protocol thereto, signed in Paris on 20 March 1952. The request has been made in proceedings between Nitrogénművek Vegyipari Zrt., a Hungarian private limited company operating in the fertiliser production sector ('Nitrogénművek') and the Nemzeti Adó- és Vámhivatal Fellebbviteli Igazgatósága (National Tax and Customs Authority – Appeals Directorate, Hungary), concerning the payment of the tax on carbon dioxide (CO2) emission allowances ('the tax on CO2 emission allowances') resulting from the use of free allowances, provided for by national legislation. Legal context European Union law Recitals 5, 7 and 20 of Directive 2003/87 are worded as follows: '(5) The [European] Union and its Member States have agreed to fulfil their commitments to reduce anthropogenic greenhouse gas emissions under the Kyoto Protocol [(Japan)] jointly, in accordance with [Council Decision 2002/358/EC of 25 April 2002 concerning the approval, on behalf of the European Union, of the Kyoto Protocol to the United Nations Framework Convention on Climate Change and the joint fulfilment of commitments thereunder (OJ 2002 L 130, p. 1)]. This Directive aims to contribute to fulfilling the commitments of the European Union and its Member States more effectively, through an efficient European market in greenhouse gas emission allowances, with the least possible diminution of economic development and employment. … (7) Union provisions relating to allocation of allowances by the Member States are necessary to contribute to preserving the integrity of the internal market and to avoid distortions of competition. … (20) This Directive will encourage the use of more energy-efficient technologies, including combined heat and power technology, producing less emissions per unit of output …' Article 1 of that directive, entitled 'Subject matter', provides, in the first paragraph thereof: 'This directive establishes a system for greenhouse gas emission allowance trading within the Union (hereinafter referred to as the “EU ETS”) in order to promote reductions of greenhouse gas emissions in a cost-effective and economically efficient manner.' Article 3 of that directive, entitled 'Definitions', provides: 'For the purposes of this Directive the following definitions shall apply: … (f) “operator” means any person who operates or controls an installation or, where this is provided for in national legislation, to whom decisive economic power over the technical functioning of the installation has been delegated'. Article 10 of the same directive, entitled 'Auctioning of allowances', states, in the first and second subparagraphs of paragraph 1 thereof: 'From 2019 onwards, Member States shall auction all allowances that are not allocated free of charge in accordance with Articles 10a and 10c of this Directive and that are not placed in the market stability reserve established by Decision (EU) 2015/1814 of the European Parliament and of the Council [of 6 October 2015 concerning the establishment and operation of a market stability reserve for the Union greenhouse gas emission trading scheme and amending Directive 2003/87 (OJ 2015 L 264, p. 1)] or cancelled in accordance with Article 12(4) of this Directive. From 2021 onwards, and without prejudice to a possible reduction pursuant to Article 10a(5a), the share of allowances to be auctioned shall be 57%.' Article 10a of Directive 2003/87, entitled 'Transitional Union-wide rules for harmonised free allocation', provides, in paragraphs 1 and 6 thereof: '1. The [European] Commission is empowered to adopt delegated acts in accordance with Article 23 to supplement this Directive concerning the Union-wide and fully harmonised rules for the allocation of allowances referred to in paragraphs 4, 5, 7 and 19 of this Article. … 6. Member States should adopt financial measures in accordance with the second and fourth subparagraphs … in favour of sectors or subsectors which are exposed to a genuine risk of carbon leakage due to significant indirect costs that are actually incurred from greenhouse gas emission costs passed on in electricity prices, provided that such financial measures are in accordance with State aid rules, and in particular do not cause undue distortions of competition in the internal market. … …' Hungarian law Law No CL of 2017 Paragraph 195 of the az adózás rendjéről szóló 2017. évi CL. törvény (Law No CL of 2017 on General Tax Procedure) ( Magyar Közlöny 2017/192) states: 'The tax authority shall take a decision on the supplementary tax return within a period of 15 days from the date of filing, without carrying out any verification, where the sole ground for that supplementary tax return is that the provision providing for the liability to tax is contrary to the Fundamental Law or to a binding legal act of the European Union or, if it involves a municipal decree, to any other rule of law, provided that the decision of the [Alkotmánybíróság (Constitutional Court, Hungary), of the Kúria (Supreme Court, Hungary)] or of the Court of Justice of the European Union ruling on that matter has not yet been published at the time of filing of the supplementary tax return or that the latter is not in conformity with the published decision.' Government Decree No 320/2023 The a jelentős térítésmentes kibocsátásiegység-kiosztásban részesülő létesítmény üzemeltetőjét érintő egyes veszélyhelyzeti szabályokról szóló 320/2023. (VII. 17.) Kormányrendelet (Government Decree No 320/2023 on certain emergency rules relating to operators of installations which have received significant emission allowances free of charge) of 17 July 2023 ( Magyar Közlöny 2023/106; 'Government Decree No 320/2023') was adopted in the context of the state of emergency declared by the Hungarian authorities as a result of the war between Ukraine and Russia. That decree imposes two fiscal charges on operators receiving significant greenhouse gas emission allowances free of charge within the framework of the EU ETS. Under Paragraph 4 thereof, that decree is to enter into force on the third day following the date of its publication, which took place on 17 July 2023. Under Paragraph 1(1) of Government Decree No 320/2023, an operator is considered to be receiving significant emission allowances free of charge if its installation includes a product benchmark sub-installation as defined in Commission Delegated Regulation (EU) 2019/331 of 19 December 2018 determining transitional Union-wide rules for harmonised free allocation of emission allowances pursuant to Article 10a of Directive 2003/87/EC of the European Parliament and of the Council (OJ 2019 L 59, p. 8), or a process emissions sub-installation within the meaning of that delegated regulation, and where the installation or sub-installation – recorded average annual verified CO2 emissions exceeding 25 000 tonnes in the three years preceding the reference year, and – received, in the year preceding the reference year, a free allocation of emission allowances equivalent to at least 50% of the average of its total verified emissions produced in the three years preceding the reference year. The first fiscal charge introduced by that decree, and the only one concerned by the questions referred, consists of the tax on CO2 emission allowances, which amounts to EUR 36 per tonne of annual emissions produced by the operator. The taxable base of that tax is to be declared and the tax paid by 31 May of the year following the financial year concerned. With respect to 2023, the tax on CO2 emission allowances was payable on all emissions produced over the whole year, thereby including emissions produced before the entry into force of the said decree. The dispute in the main proceedings and the questions referred for a preliminary ruling Nitrogénművek, which falls under the scope of Government Decree No 320/2023, was found liable for the payment of the first of the fiscal charges introduced by that decree. On 21 December 2023, it filed with the Nemzeti Adó- és Vámhivatal Veszprém Vármegyei Adó- és Vámigazgatósága (National Tax and Customs Authority – Tax and Customs Directorate, Province of Veszprém, Hungary) a supplementary tax return relating to the tax on CO2 emission allowances on the basis of Paragraph 195 of Law No CL of 2017. That company stated that it was aiming to reduce its tax liability by 2 561 256 000 forint (HUF), in respect of the period from 1 April 2023 to 30 June 2023. Nitrogénművek challenged, in particular, the compliance of Government Decree No 320/2023 with the Magyarország Alaptörvénye (Fundamental Law of Hungary) and with EU law. After the National Tax and Customs Authority – Tax and Customs Directorate, Province of Veszprém, and then the National Tax and Customs Authority – Appeals Directorate, rejected, in essence, Nitrogénművek's supplementary tax return, that company brought the matter before the Veszprémi törvényszék (Veszprém High Court, Hungary), which is the referring court. Nitrogénművek argues before that court that the tax on CO2 emission allowances, which is directly linked to the free CO2 emission allowances allocated pursuant to Directive 2003/87, is incompatible with the European Union's objectives under the EU ETS. It submits, in addition, that Government Decree No 320/2023 is discriminatory, hinders the exercise of the fundamental freedoms guaranteed by the Treaties, undermines the freedom to provide services, the freedom of establishment and the right to property and may come within the scope of State aid legislation. The referring court is uncertain whether the tax on CO2 emission allowances is compatible with Directive 2003/87. It takes the view that the answers to the questions referred in the present case cannot be clearly inferred from the case-law of the Court of Justice, inasmuch as the judgments of the Court relied on by Nitrogénművek have a subject matter different from the action before it. In those circumstances, the Veszprémi törvényszék (Veszprém High Court) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling: '(1) Must – or may – the objectives and the provisions of [Directive 2003/87] – in particular, although not exclusively, Articles 1, 10 and 11 and recitals 5, 7 and 20 thereof – be interpreted as precluding a national measure [(Government Decree No 320/2023)] which: – retrospectively subjects emissions produced as a result of the use of emission allowances to a fiscal charge (levying of a charge); – retrospectively subjects emissions produced as a result of the use of free emission allowances to a fiscal charge (levying of a charge); – retrospectively subjects emissions produced as a result of the use of free emission allowances to a fiscal charge (levying of a charge) the effect of which is to deprive the free emission allowances of their value and their compensatory effect; – retrospectively subjects emissions produced as a result of the use of free emission allowances to a fiscal charge (levying of a charge) the effect of which is to deter operators from reducing their emissions, improving their environmental efficiency or investing in more environmentally friendly technologies; – retrospectively subjects emissions produced as a result of the use of free emission allowances to a fiscal charge (levying of a charge) the purpose of which bears no relation to environmental protection or to the [EU ETS] and its objectives; on the contrary, the purpose of, and sole basis for, authorising the imposition of that charge is to deal with the effects of the armed conflict and humanitarian disaster close to Hungary? (2) In the light of the prohibition of discrimination arising from Articles 18, 49 and 56 [TFEU], Article 21 of the [Charter] and Article 14 [ECHR], must – or may – the concept of “operator” referred to in Article 3(f) of [Directive 2003/87] be interpreted as precluding a national measure [(Government Decree No 320/2023)] which discriminates, in an unjustified and arbitrary manner and without any overriding reason in the public interest, against a particular category of such operators by comparison with operators not falling within its scope? (3) Must – or may – Articles 18, 49 and 56 TFEU be interpreted as precluding a national measure [(Government Decree No 320/2023)] which restricts the exercise of those freedoms and which: – discriminates, in an unjustified and arbitrary manner and without any overriding reason in the public interest, against a particular category of operators within the meaning of Article 3(f) of [Directive 2003/87] by subjecting them to different (more onerous) rules; – defines its scope ratione personae in an arbitrary manner without any overriding reason in the public interest, and which is not suitable for attaining the objectives of empowerment that led to its adoption; and – is introduced suddenly and unforeseeably, with only three days having elapsed between its publication and its entry into force, and at the same time retrospectively imposes retroactive obligations in respect of events that occurred prior to its entry into force? (4) Must – or may – the protection of the right to property guaranteed by Article 17 of the Charter and Article 1 of the First Additional Protocol to the ECHR be interpreted as precluding a national measure [(Government Decree No 320/2023)] which is confiscatory in nature and which deprives operators falling within its scope of all of their gains in the immediate future, thus constituting a disproportionate and intolerable interference?' Consideration of the questions referred The first question As a preliminary point, it must be noted that, according to settled case-law, in the procedure laid down by Article 267 TFEU providing for cooperation between national courts and the Court of Justice, it is for the latter to provide the national court with an answer which will be of use to it and enable it to determine the case before it. To that end, the Court may have to reformulate the questions referred to it (judgment of 29 April 2021, Granarolo , C‑617/19, EU:C:2021:338 , paragraph 32). The fact that a referring court has, formally speaking, worded its request for a preliminary ruling by referring to certain provisions of EU law does not preclude the Court of Justice from providing to the referring court all the elements of interpretation which may be of assistance in adjudicating on the case pending before it, whether or not that court has referred to them in its questions. It is for the Court to extract from all the information provided by the national court, in particular from the grounds of the order for reference, the points of EU law which require interpretation, having regard to the subject matter of the dispute (judgment of 29 April 2021, Granarolo , C‑617/19, EU:C:2021:338 , paragraph 33). In the present case, the main proceedings concern, in essence, the legality of Government Decree No 320/2023 which imposes a tax on greenhouse gas emission allowances. Pursuant to Paragraph 3 of that decree, the taxable base of that tax is the quantity, expressed in tonnes, of CO2 emissions produced by the taxable operator and its rate is set at an amount in forint equivalent to EUR 36 per tonne of CO2. As is apparent from the order for reference, Paragraph 1 of the said decree imposes the tax on any operator which has been allocated a significant amount of greenhouse gas emission allowances free of charge within the framework of the EU ETS, which has an installation or a product benchmark sub-installation and/or process emissions sub-installation, whose installation or sub-installation has (i) recorded average annual verified CO2 emissions exceeding 25 000 tonnes in the three years preceding the reference year, and (ii) received, in the year preceding the reference year, a free allocation of emission allowances equivalent to at least 50% of the average of its total verified CO2 emissions produced in the three years preceding the reference year. Although, in the initial version of Directive 2003/87, the free allocation of CO2 allowances was covered by Article 10 thereof, the relevant provision in that respect in the present case is Article 10a of that directive, following the adoption of Directive 2009/29/EC of the European Parliament and of the Council of 23 April 2009 amending Directive 2003/87 so as to improve and extend the greenhouse gas emission allowance trading scheme of the Community (OJ 2009 L 140, p. 63). Therefore, in answering the first question it is necessary to interpret Article 10a of Directive 2003/87. In the light of the foregoing, it must be considered that, by its first question, the referring court asks, in essence, whether Article 1 and Article 10a of Directive 2003/87, read in the light of recitals 5, 7, and 20 thereof, must be interpreted as precluding national legislation which specifically imposes on an economic operator receiving significant free allocations of greenhouse gas emission allowances under the EU ETS the payment of a tax on the allowances in respect of CO2 emissions from its product benchmark and/or process emissions installation, where that legislation has the effect of neutralising the compensatory effect of allocating such allowances and runs counter to the objectives of preserving competitiveness and preventing carbon leakage. At the outset, as is apparent from Article 1 thereof, Directive 2003/87 establishes within the European Union an EU ETS in order to promote reductions of CO2 emissions in a cost-effective and economically efficient manner (judgment of 12 April 2018, PPC Power , C‑302/17, EU:C:2018:245 , paragraph 18). The Court has repeatedly held that the principal objective of Directive 2003/87 is to reduce greenhouse gas emissions substantially. That objective must be attained in compliance with a series of sub-objectives and through recourse to certain instruments. The principal instrument for that purpose is the EU ETS. As indicated in recitals 5 and 7 of Directive 2003/87, among the other sub-objectives to be fulfilled by the scheme are the safeguarding of economic development and employment and the preservation of the integrity of the internal market and of conditions of competition (judgment of 17 October 2013, Iberdrola and Others , C‑566/11, C‑567/11, C‑580/11, C‑591/11, C‑620/11 and C‑640/11, EU:C:2013:660, paragraph 43 and the case-law cited). As recital 20 of Directive 2003/87 also indicates, another sub-objective pursued by the EU ETS consists in encouraging the reduction of those emissions through technological improvements such as the use of more energy-efficient technologies producing less emissions per unit of output. In order to achieve its objective of reducing greenhouse gas emissions under such conditions, Directive 2003/87 relies on the economic value of allowances to encourage companies to reduce their emissions and, to that end, introduces the EU ETS. Undertakings can thus use the emission allowances allocated to them, or sell them, on the basis of their market value and the profits which they could thus obtain from them (see, to that effect, judgments of 17 October 2013, Iberdrola and Others , C‑566/11, C‑567/11, C‑580/11, C‑591/11, C‑620/11 and C‑640/11, EU:C:2013:660, paragraphs 47, 49 and 55, and of 12 April 2018, PPC Power , C‑302/17, EU:C:2018:245 , paragraph 24). In that context, the free allocation of those emission allowances is provided for in order to prevent EU industries from losing competitiveness, which may lead to the relocation of production as part of a phenomenon known as 'carbon leakage' (see, to that effect, judgments of 17 October 2013, Iberdrola and Others , C‑566/11, C‑567/11, C‑580/11, C‑591/11, C‑620/11 and C‑640/11, EU:C:2013:660, paragraph 39, and of 26 February 2015, ŠKO–Energo , C‑43/14, EU:C:2015:120 , paragraph 28). Therefore, with a view to achieving that objective, relating to the competitiveness of EU industries, Article 10a of Directive 2003/87 provides for a set of transitional rules concerning the issue of free emission allowances. The first subparagraph of Article 10a(1) provides that the Commission is empowered to adopt delegated acts in accordance with Article 23 of that directive to supplement that directive concerning the EU-wide and fully harmonised rules for the allocation of allowances referred to in Article 10a(4), (5), (7) and (19). The second to fourth subparagraphs of Article 10a(1) and Article 10a(2) of the same directive, for their part, determine how to calculate and allocate free allowances, subsequent to the setting of ex ante benchmarks, product by product, to be employed in individual sectors or subsectors. The first and fourth subparagraphs of Article 10a(6) of Directive 2003/87 authorise, in essence, Member States to adopt financial measures in favour of sectors or subsectors which are exposed to a genuine risk of carbon leakage due to significant indirect costs that are actually incurred from greenhouse gas emission costs passed on in electricity prices, provided that such financial measures are in accordance with State aid rules, and in particular do not cause undue distortions of competition in the internal market. In that regard, as the Advocate General observes in point 54 of her Opinion, the rules relating to the free allocation of allowances are fully harmonised at EU level. That follows, inter alia, from recital 23 of Directive 2009/29, which states that 'transitional free allocation to installations should be provided for through harmonised [EU]-wide rules … in order to minimise distortions of competition with the [European Union]'. The Court has moreover held that, when adopting Article 10a(1) of Directive 2003/87, the EU legislature had emphasised the requirement of full harmonisation by providing that 'the Commission shall adopt [EU]-wide and [fully harmonised] implementing measures for the allocation of the allowances', and, moreover, indicated to the Commission the criteria in accordance with which harmonisation was to be undertaken, namely, in essence, on the basis of benchmarks in sectors and subsectors (see, to that effect, judgment of 22 June 2016, DK Recycling und Roheisen v Commission , C‑540/14 P, EU:C:2016:469 , paragraph 52). The Court has, moreover, found that, in providing for this method of free allocation of greenhouse gas emission allowances, fully harmonised on a sectoral basis, the EU legislature gave concrete expression to the essential requirement that distortions of competition in the internal market be minimised (judgment of 22 June 2016, DK Recycling und Roheisen v Commission , C‑540/14 P, EU:C:2016:469 , paragraph 53). It follows from the foregoing that, although none of the provisions expressly limits the right of the Member States to adopt measures of a fiscal nature liable to have an impact on the economic implications of greenhouse gas emission allowances, the fact remains that the adoption of such measures cannot undermine the objectives pursued by Directive 2003/87 as recalled in paragraphs 27 and 29 of the present judgment. It is necessary for the proper functioning of the EU ETS that a national measure of a fiscal nature not diminish the incentive to reduce greenhouse gas emissions to the point of eliminating it entirely. In the present case, as is apparent from the order for reference, the Hungarian tax on CO2 emission allowances is characterised by the fact that (i) it imposes, in essence, a greenhouse gas emission allowance tax on any operator of an installation receiving significant free emission allowances where the installation has a product benchmark sub-installation and/or a process emissions sub-installation, and where the installation has exceeded average annual verified CO2 emissions of 25 000 tonnes and received a free allocation of emission allowances equivalent to at least 50% of the average of its total verified CO2 emissions; and (ii) it is charged on that operator's CO2 emissions in the amount of EUR 36 per tonne of CO2. However, since such a tax is imposed specifically on certain economic operators which have received free greenhouse gas emission allowances, it has the effect of depriving those operators of the incentive to invest in measures to reduce their emissions at the level of the amount of tax due. Furthermore, such a tax is liable to strip those allowances of a substantial part of their economic value and is tantamount to neutralising the incentive mechanisms on which the EU ETS is based and, as a consequence, eliminating the incentives aimed at promoting the reduction of greenhouse gas emissions. In that regard, the circumstance that the amount of tax due depends linearly on the emissions actually produced cannot be understood as having any incentive effect whatsoever on operators. That interpretation cannot be called into question by the Hungarian Government's line of argument based on the mechanism provided for in Paragraph 3(6) of Government Decree No 320/2003, which it claims encourages operators to reduce their emissions by allowing those subject to the tax to reduce their taxable base by 50% when their CO2 emissions have decreased relative to the verified emissions of the second year preceding the reference year by an amount at least equal to the linear reduction factor used and required under the EU ETS. The reduction of that taxable base also has the effect of depriving greenhouse gas emission allowances of a substantial part of their economic value, such that economic operators lose any incentive to invest in measures to reduce their emissions which would have enabled them to earn a profit from the sale of their unused allowances. Thus, it seems that the Hungarian tax on CO2 emission allowances has the effect of neutralising the principle of the free allocation of greenhouse gas emission allowances provided for in Article 10a of Directive 2003/87 and of undermining the objectives pursued by that directive, which it is for the referring court to verify. In the light of the foregoing considerations, the answer to the first question referred is that Article 1 and Article 10a of Directive 2003/87, read in the light of recitals 5, 7 and 20 thereof, must be interpreted as precluding national legislation which specifically imposes on an economic operator receiving significant free allocations of greenhouse gas emission allowances under the EU ETS the payment of a tax on the allowances in respect of CO2 emissions from its product benchmark and/or process emissions installation, where that legislation has the effect of neutralising the compensatory effect of allocating such allowances and runs counter to the objectives of preserving competitiveness and preventing carbon leakage. The second, third and fourth questions Having regard to the answer given to the first question, it is not necessary to answer the second, third and fourth questions. Costs Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the referring court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable. On those grounds, the Court (Second Chamber) hereby rules: Article 1 and Article 10a of Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a system for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC, as amended by Directive (EU) 2018/410 of the European Parliament and of the Council of 14 March 2018, read in the light of recitals 5, 7 and 20 of Directive 2003/87, as amended, must be interpreted as precluding national legislation which specifically imposes on an economic operator receiving significant free allocations of greenhouse gas emission allowances under the system for greenhouse gas emission allowance trading within the European Union the payment of a tax on the allowances in respect of CO2 emissions from its product benchmark and/or process emissions installation, where that legislation has the effect of neutralising the compensatory effect of allocating such allowances and runs counter to the objectives of preserving competitiveness and preventing carbon leakage. [Signatures] * Languages of the case: French and Hungarian. © European Union The source of this judgment is the Europa web site. The information on this site is subject to a information found here: Important legal notice . This electronic version is not authentic and is subject to amendment. BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII