UK exits the EU (EU ETS)

Background 

The EU ETS is the European Union Emissions Trading System (carbon). Large polluters such as power companies and industrial firms are obliged to pay for their carbon dioxide emissions by buying carbon permits called EU Allowances. Britain is the EU’s second-largest emitter of greenhouse gases and its utilities are among the largest buyers of carbon permits. 

Article 19(1) of European Directive 2003/87/EC requires that all emission allowances issued from 1 January 2012 onwards must be held in a central Union Registry on accounts managed by the European Union Member States.

The EU system of emission allowances registries has been operational since January 2005 and provides a standardised and secure system of electronic registries which tracks the issuance, holding, transfer and cancellation of all allowances issued under the EU ETS. Initially each EU Member State had its own emissions alllowances registry. In 2012, these registries were replaced by the single Union Registry, which provides a harmonized basis to transfer allowances across the EU.

This single registry is operated and maintained by the European Commission, and national registry administrators in all 31 countries participating in the EU ETS remain the point of contact for the representatives of more than 20,000 accounts (companies or physical persons). 31 countries participate, a few more than the EU28. 

Also the allocation processes in phase 3 of the EU ETS are performed centrally in the Union Registry, both for the allocation of allowances to stationary and aircraft operators for free and for the auctioning of allowances through the common and two ‘opt-out’ auction platforms.

The legal instrument providing specific rules on the Union Registry is the Commission Regulation (EU) No 389/2013. This Regulation applies to allowances created for the EU ETS third trading period commencing on 1 January 2013 as well as for subsequent periods, annual emission allocation units and Kyoto units. It also applies to aviation allowances to be auctioned that were created for the trading period from 1 January 2012 to 31 December 2012.

Change

Known as the EU ETS Registry Regulation, Commission Regulation (EU) No 389/2013 will be amended (by EU Regulation) to Brexit safeguard the EU ETS system during the third trading period (2013-2020). The change was agreed by the European Parliament in October, and Reuters reports yesterday it is now agreed by EU Member States. The proposal document is here

The change will provide for marking and restricting the use of allowances issued by the United Kingdom as of 1 January 2018. The proposal is that marking should distinguish United Kingdom issued allowances from other allowances. The marked allowances would then no longer be able to be surrendered in order to meet compliance obligations under the EU ETS. In essence, any carbon permits (EU allowances) issued by the UK will be void from 1 January 2018

The proposed measures apply to the auctioning of ETS allowances, the issue of free allocation by the United Kingdom and the exchange of international credits for allowances, as of 1 January 2018.

A European Commission FAQ document is issued, here

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