The National Allocation Plans (NAP) determine the total quantity of CO2 emissions that Member States will grant to energy-intensive industrial plants. This means each Member State must ex-ante decide how many allowances to allocate in total for the first trading period 2005 to 2007 and how many each plant covered by the Emissions Trading Scheme will receive. The idea is that Member States limit CO2 emissions from the energy and industrial sectors through the allocation of allowances, thereby creating scarcity, so that a functioning market can develop later and overall emissions are then really reduced.
Each Member State had to prepare and publish a NAP by 31 March 2004 (1 May 2004 for the 10 new Member States).
The Commission's task is to scrutinise the plans against eleven allocation criteria listed in the Emissions Trading Directive. The most important criteria provides that the proposed total quantity of allowances must be in line with a Member State’s strategy to reach its Kyoto target. This means that a Member State should make sure that the allocations that they grant their plants will allow it to meet its Kyoto target.
This means that in practice their leeway is limited. If a Member State were over-generous in issuing allowances, not only would the plan probably be failing to comply with some of the allocation criteria, but the Member State would also miss out on the opportunity to use the Emissions Trading Scheme as a tool to help it comply with Kyoto. And if too many allowances were issued, there would be no scarcity so no market would develop.
In addition, there are criteria that seek to ensure non-discrimination between companies and between the different sectors as well as compliance with the EU's competition and state aid rules. Other criteria relate to provisions in the plan for new entrants, the accommodation of early reduction efforts and clean technology.
The Commission may accept a plan in part or in full. If it accepts a plan unconditionally, the Member State can take a final allocation decision. If the Commission finds that a plan is not in line with the criteria and the EU Treaty it can, in part or in full, reject it.