Legal possibilities to create security rights over emission allowances issued and traded under the rules of the European Union Emission Trading Scheme (EU ETS) is currently not harmonised at the EU level.
The European Court of Auditors in the Special Report No 6 "The integrity and implementation of the EU ETS" (Publications Office of the European Union, 2015) in July 2015 recommended the European Commission to analyse the benefits of treating allowances as property rights across the EU and consider how to provide an express registration mechanism for security interests (para 92 of the Report).
The study "Interplay between EU ETS Registry and Post Trade Infrastructure" (Publications Office of the European Union, 2015) analysed, among others, the possibility to register or enforce a security interest over emission allowances.
The paper of the Financial Markets Law Committee of October 2009 (Issue 116 – Emission Allowances: Creating legal Certainty) argued that the legal nature of an allowance would be relevant in determining, which law should govern the creation, transfer and cancellation of emission allowances, and whether (and how) security rights could be created over allowances.
The Directive 2002/47/EC of the European Parliament and of the Council of 6 June 2002 on financial collateral arrangements (FCD) does not currently extend its legal protections to financial collateral arrangements relating to the provision of emission allowances as collateral.
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Legal nature of emission allowances