Pursuant to the Article 37(2) of the EU ETS Registry Regulation ‘no law, regulation, rule or practice on the setting aside of contracts and transactions shall lead to the unwinding of a transaction that has become final and irrevocable under this Regulation’. Article (37(1) stresses that ‘holding an allowance or Kyoto unit in the Union Registry shall constitute conclusive evidence of the account holder's ownership of the allowance or Kyoto unit. Transfer of an allowance or Kyoto unit in the Union Registry shall constitute conclusive evidence of the change of ownership of the allowance or Kyoto unit’.

The one of the sparse exceptions relates to a transaction completed after a relevant judicial or administrative authority has handed down a decision opening insolvency proceedings in respect of the account holder initiating the transaction (as regards other above-mentioned limited exceptions to the said rule see: ‘The surrender of allowances initiated in error - the only reversible transaction pursuant to the draft of the Commission Regulation establishing a Union Registry of emission allowances’).

It would be appropriate to recall that the recital (12) in the preamble to the EU ETS Registry Regulation underlines that allowances and Kyoto units exist only in dematerialised form and are fungible, so their ownership should be established by their existence in the account of the Union Registry in which they are held. Moreover, to reduce the risks associated with the undoing of transactions entered in a registry, and the consequent disruption to the system and to the market that such undoing may cause, it is necessary to ensure that transactions cannot be reversed, revoked or unwound, other than as defined, after a moment set out by the rules of the registry. EU ETS Registry Regulation makes the reservation that it shouldn’t prevent an account holder or a third party from exercising any right or claim resulting from the underlying transaction that they may have in law to recovery or restitution in respect of a transaction that has entered a system, e.g. in case of fraud or technical error, as long as this does not lead to the reversal, revocation or unwinding of the transaction.

The Californian emission allowances registry rules do not seem to apply equivalent principles. The general conditions for effecting transfers, pursuant to the Section 95921 (titled: Conduct of trade) require that the accounts administrator will not register a transfer of compliance instruments between accounts into the tracking system until:

(A) The two parties to the transfer submit a request for the transfer to the accounts administrator within three calendar days of settlement of the transaction agreement; and

(B) The Executive Officer has determined the transfer request and the transaction meet the requirements specified in the Final Regulation Order.


When the deficient transfer requests are at issue the following provisions in the Californian cap-and-trade scheme apply:


1) If the accounts administrator detects a deficiency in a transfer request before it is recorded into the tracking system:

- The accounts administrator will inform the entities submitting the request and the Executive Officer of the deficiency;

- The entities submitting the transfer request may resubmit the request with the deficiency corrected within the time limit of three calendar days of settlement of the transaction agreement; and

- If the entities fail to submit an acceptable transfer request within the time limit, then they must either withdraw the transfer request or submit a new request for transfer.


2) If the accounts administrator detects a deficiency in a transfer request after it is recorded into the tracking system the rules described at the beginning are binding (with the possible reversal of  transfer recorded already in the tracking system).


Taking into account the far-reaching legal consequences of the potential applicability of the finality of transfer rule in the emission allowances registry regime, the above-described divergences could, to my view, be one of the obstacles in possible future linking of both schemes. Notwithstanding this, in the meantime, so different legal regimes will influence on possible divergent juridical verdicts in analogous factual circumstances.



After placing this post on the website I found in the Final Regulation Order another instance which in my opinion causes serious legal uncertainty when it comes to trading in California emission allowances. The problem relates to the Holding Limit provided for in Section 95920(b)(4) of the Final Regulation Order which stipulates that if the Executive Officer determines that a reported transfer request not yet recorded into the tracking system would result in an entity’s holdings exceeding the applicable holding limit, then the Executive Officer shall not approve the transfer request. If the violation is, however, not discovered until after the transfer request is recorded, then the transfer request may be reversed and penalties may be imposed. Hence, the situation at issue (and potential problems for acquirers of the allowances concerned at subsequent levels of circulation) is analogous to the above-described procedure for handling deficiencies in transfer requests.