As was reminded also in the accompanying documents to the MIFiD Directive recent review, the legal classification of emission allowances is not uniform in EU Member States. The said documents observed that some Member States consider emission allowances as property rights, whereas others consider them personal rights.

The nature and characteristics of these allowances (certificate giving the right  to emit 1 metric tonne of CO2) could lend themselves to be classified as an intangible asset or a physical commodity. Emission allowances themselves are not classified as financial instruments under MiFID. On the other hand, derivative contracts on these allowances (and other environmental credits) are financial instruments under MiFID under the same criteria as derivatives on commodities.


This interesting theoretical, but burdened also with multiple practical implications, discussion have moved recently into other continents with the spreading of cap-and-trades.



If somebody wish to add further variety to the already wide spectrum of different views on the issue it would be appropriate to mention that Romania has classified EUAs as financial instruments and on the website of the registry administrator in Austria ( ) there was available information that according to the § 22 Emissionszertifikategesetz (EZG) in Austria emission allowances were classified as commodities (Die Emissionszertifikate haben den Rechtscharakter einer Ware ...).


Above comments are only of a character of the casual remarks – and not the exhaustive list of all qualification possibilities.


EU emission allowances (EUAs) are an instrument created by the Emissions Trading Scheme Directive. But regulators in other countries give their own views on the legal character of the emission units they create. Hence, the July 2011 Discussion Draft for the California cap-and-trade scheme (Subchapter 10 Climate Change, Article 5, Sections 95800 to 96022, Title 17, California Code of Regulations, Article 5: CALIFORNIA CAP ON GREENHOUSE GAS EMISSIONS AND MARKET-BASED COMPLIANCE MECHANISMS Source: expressly states that a compliance instrument issued by the California scheme ‘does not constitute property or a property right’.


California design:

‘Each compliance instrument issued by the Executive Officer represents a limited authorization to emit up to one metric ton in CO2e of any greenhouse gas specified in section 95810, subject to all applicable limitations specified in this article. No provision of this article may be construed to limit the authority of the Executive Officer to terminate or limit such authorization to emit. A compliance instrument issued by the Executive Officer does not constitute property or a property right’ (§ 95820 (c)).

At the other extreme the Australian ‘Exposure Draft of the Clean Energy Bill 2011, Commentary on Provisions’ of 28 July 2011 in some sort of provocative way in the very heading (on the page 96) announced that ‘A carbon unit is a property right’. The Australian draft legislative text further explains in points 3.49 and 3.50 that, ‘A carbon unit issued by the Regulator is personal property and, subject to the requirements of the mechanism, transmissible by assignment (that is, as a result of some form of agreement to transfer the units to another person), by will (that is, as part of a deceased person‘s estate) and by other forms of transfer permitted by law. ...

3.50 This will promote confidence in the integrity of carbon units and reduce uncertainty for their holders, and further promote confidence in the development of the market for carbon units.’



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