No guarantee is given that the operation of the EU ETS, as originally established (the supply of emission allowances including), will remain unchanged or can be modified only at the end of a trading period.



The practical issue, maybe obvious, but I would like to know for certain: do SFTR apply to title transfer collateral arrangements in emission allowances?



Judgment of the Court of Justice of the European Union of 28 April 2016 (C‑191/14, C‑192/14, C‑295/14, C‑389/14 and C‑391/14 to C‑393/14) creates dual system of the CSCF's application within the same, third trading period of the EU ETS, as both legal frameworks - the invalidated, and the new one - will be binding, however, for different years.





Every self-respecting EU legislative act must possess its own numerical thresholds, each of them of critical importance.


In order not to be monotonous, let's mention only few of them: MiFID II ancillary exemption threshold, EMIR collateral threshold, clearing threshold.


In this context it should not surprise anybody, the new Market Abuse Regulation (MAR) also operates with this technique, and what is particularly interesting for this website, MAR thresholds influence heavily emissions market.



8 countries only (DE, ES, FR, HR, IS, IT, SI, UK) use the possibility to exclude small installations and hospitals from the EU ETS in in third trading period (2013-2020).


This may appear surprising, given heavy criticism sometimes targeted on multiple EU ETS  bureaucratic requirements. 


The draft Directive, however, gives those absent the second chance to revise their carbon politics and, consequently, to update lists of excluded installations or, even - for Member States currently not making use of this option - to do so at the beginning of each trading period.


Hence, the implementation of new politics in this regard can start as from 2021.





Serious concerns that New Entrant Reserve (NER) will be used-up early and not sufficient to cover the needs of new entrants to the EU ETS, as well as installations' capacity increases, occur not to materialise.


NER is governed by the rule "first come, first served", hence the threat was, in principle, grounded.


However, as follows from data published recently by the European Commission, until July 2015, only 91.3 million allowances have been reserved for 369 installations for the entirety of phase 3 (i.e. untill 2020) and expectations are a significant number of allowances from the NER will remain unallocated.





Numerous changes, but the basic architecture maintained. The European Commission revealed its draft amendment to the EU ETS Directive delineating rules for the EU ETS fourth trading period (2021-2030).


What are business models ramifications? Among wide spectrum of elements of the EU post-2020 low carbon framework the fact that EUAs issued from 1 January 2013 onwards will be valid indefinitely (and not replaced - as before) does not represent a qualitative change since these are rather technical details. 


No doubt, point deserving to take a closer look in the first place is modified design for products benchmarks.



MiFID II does not contain specific exemption for firms specialising in professional emissions trading on own account.
It may be interesting to exemplify practical effects of this incoming regulatory switch...



As opposite to OTC derivative contracts between EU branches of non-equivalent third countries (which are proposed by ESMA to be subjected to EMIR) OTC derivative contracts between the EU branch of a non-EU entity and another non-EU entity is not captured. Such an approach seems to be lacking in systemic cohesion.



It is probable new emission allowances appear in the medium perspective on the European carbon market. The arguments that supported the creation of distinct carbon units for aviation sector (EUAA) are present also for the maritime sector. 


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Market forces have verified legal assumptions for the creation of the California Allowance Price Containment Reserve (APCR). Subsequent sales from this vehicle do not attract any participants. Does this mean that the Reserve works as initially predicted or something has failed?



There are doubts regarding the necessity to verify carbon leakage list merely two years after its adoption. It seems that this period is too short to assess whether there are serious threats to the competitiveness of branches covered by the actual list. Moreover, the current level of carbon prices makes all assessments strictly hypothetical and vulnerable to change. Nevertheless, given legal obligation imposed, the verification is inevitable. The significant report likely to influence future decisions on the issue is now available.



It is highly probable that effective January 1, 2014, covered California or opt-in entities will have the possibility to use compliance instruments issued by the Government of Quebec to meet their compliance obligation.

However, linking may provide some regulatory mess as to which jurisdiction applies to entities trading in both: Quebec and California emission allowances.



A single unified track for joint implementation projects, standardized baselines and positive lists of project types that would automatically be deemed additional as well as the introduction of 15 calendar days as the maximum average time between the receipt of a submission and the commencement of the completeness check are among main points recommended to streamline processes in the second commitment period of the Kyoto Protocol.



ERUs prices recently experience sharp movements. It is hard to imagine any commodity evenly exposed to regulatory tensions. The new legislative draft for the Registry Regulation implements provisions reflecting complex regulatory situation on CERs and ERUs units which emerged after 1 January 2013.



Linking does not necessarily mean a merger. Technical compatibility seems far more feasible option. What are the consequences of this limited approach?



'Borrowing' is commonly denoted as the use of compliance instruments from future vintage years for current compliance.

Such an option enhances compliance flexibility, cost-effectiveness and foster carbon price stability. However, borrowing provides an incentive to delay mitigation actions and thereby potentially weakens future targets.



Compliance flexibility can be enhanced by the option of saving credits/allowances to future periods (banking). This option enhances cost-effectiveness and foster carbon price stability. In addition, banking provides incentives for early action, but also involves increasing risks of over-allocation of allowances/credits in subsequent periods.


Analysing emerging emission trading schemes like California and Australia as well as an relatively old one - EU ETS, a general thesis can be posed that banking of allowances between periods becomes now a common rule. Sparse exceptions cover the EU ETS first trading period in the years 2005-2007 and the Australian fixed charge phase which will last till 1 July 2015.



The position limits will be counted in California for each future vintage separately – according to the draft law. Also under the Australian framework the controlling corporation of a group must notify the Clean Energy Regulator if the group has a significant holding of carbon units.