New provisions of the registry regulation entered at last into force. They significantly reduce the risk of questioning the legal title to emission allowances transferred into the buyer account.


This protection was so far considerably weaker and the Union legal framework did not protect these transactions to the sufficient extent, which was reflected in legal problems originated in thefts of allowances from registries, which, in turn, subsequently shrank the liquidity of the EU ETS spot market.


The Regulation on the Union Registry (which also amended the provisions on registry rules applying already in the second trading period) will in that regard play a fundamental role with respect to the trading in emission allowances.



It is appropriate to refer to the issue signaled in the article “The draft of the Commission Regulation establishing a Union Registry – the finality of transfers rules and other details for the new security measures revealed” (see point 4) when the whole matter was on the stage of the initiation of the legislative process.


The new European Commission Regulation No 1193/2011 of 18 November 2011 (hereinafter referred to as “Regulation”) in its definite shape significantly elaborated on these issues in, first of all, Article 37.

When it comes to the scope of the new Regulation, it concerns allowances created for the trading period of the Union emissions trading scheme commencing on 1 January 2013 and subsequent periods, however, it also concerns aviation allowances to be auctioned that were created for the trading period running from 1 January 2012 to 31 December 2012.


The Regulation makes also amendments – analogous to the ones foreseen in Article 37 - to the earlier legal instrument regulating the functioning of the registries in the second trading period namely Regulation No 920/2010 – see: Article 89 of the Regulation No 1193/2011 adding to the Regulation No 920/2010 new Article 32b).


In reaction to the above-mentioned thefts of allowances from registries that impaired the confidence in the integrity of the scheme (on the issues of questioning the legal title to emission allowances acquired see other publications, in particular “Legal complications with the recovery of the stolen allowances”) the Regulation puts weight on enhanced measures for safeguarding the registries.

The Article 37(4) of the Regulation should in that regard be the subject of particular attention.

This provision stipulates that a purchaser and holder of an allowance or Kyoto unit acting in good faith shall acquire title to an allowance or Kyoto unit free of any defects in the title of the transferor.

Such a rule can be qualified as an equivalent to the functioning in national legal orders regimes for the protection of good faith acquirers of the moveable thing or immovable property. Taking into account that emission allowances hardly can be classified as the two above-mentioned categories of “things” (at least at the national level the differences in interpretation may arise as regards this issue) it would be appreciated that the European Commission decided to adopt specific provisions applying strictly to the emission allowances, which thus can be applied irrespectively of the specific qualification on the level of the national legal order.


As the European Commission observed in the recent MiFID Directive consultation review,  emission allowances are an instrument created by the Emissions Trading Scheme Directive and 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 currently classified as financial instruments under MiFID (the situation may change with the adoption of the so-called MiFID II Directive – for consequences see “MiFID II and emissions – consequences under preliminary investigation”, on the other hand, however, derivative contracts on these allowances (and other environmental credits) are financial instruments under MiFID under the same criteria as derivatives on commodities.

It the said MiFID consultation document the Commission also confirmed that currently the legal classification of emission allowances is not uniform in the Member States. Some Member States consider emission allowances as property rights, whereas others consider them personal rights. Romania has classified them as financial instruments.


Returning to the issue of the legal protection of the good faith acquirer, on an acquis level attention should be drawn to the elaborations of “Principles, Definitions and Model Rules of European Private Law, Draft Common Frame of Reference (DCFR) Outline Edition” prepared by the Study Group on a European Civil Code and the Research Group on EC Private Law (Acquis Group), edited by Christian von Bar, Eric Clive and Hans Schulte-Nölke (avaliable at which in VIII. – 3:101 and VIII. – 3:102 contain the proposition for the European regulation of, respectively, good faith acquisition through a person without right or authority to transfer ownership and good faith acquisition of ownership free of limited proprietary rights.


The DCFR understands the good faith premise in the way that the transferee neither knew nor could reasonably be expected to know that the transferor had no right or authority to transfer ownership of the goods at the time ownership would pass. The facts from which it follows that the transferee could not reasonably be expected to know of the transferor’s lack of right or authority have to be proved by the transferee.


It should be noted, however, that in principle the DCFR foresees some additional legal premises for effective acquisition in the said situation.


According to the DCFR, where the person purporting to transfer the ownership (the transferor) has no right or authority to transfer ownership of the goods, the transferee nevertheless acquires and the former owner loses ownership provided that, among others, that the transferee acquires the goods for value.


Article 37(4) of the Regulation does not expressly refer to such requirement, it uses the phrase “purchaser and holder of an allowance or Kyoto unit” and I, personally, have doubt whether it could be inferred from such a formulation that also the acquisition for value is the necessary point for good faith protection for the purposes of emission allowances registry. It seems that the intention and ratio legis for the whole amendment to the existing registry provisions have been the safeguarding proper functioning of EU ETS, so reading this provision in the context of the entire Article 37 and, in particular, point 12 in the preamble to the Regulation, it follows that consideration shouldn’t be the conditio sine qua non of the good faith protection in this issue. The theme remains, however, ambiguous and probably will be definitely solved by judicial judgments.

From the formulation “purchaser and holder of an allowance or Kyoto unit” which contains a conjunction “and” also flows a less contentious conclusion that the both constituents must be present: “purchase” of emission allowances as well as the “possession” thereof.


The DCFR, however makes a reservation that where the transferee is already in possession of the goods, good faith acquisition will take place only if the transferee obtained possession from the transferor. There may arise doubts whether such reservation should also apply to the interpretation of the Article 37(4) of the Regulation).


Another interesting provision of the DCFR is that good faith acquisition does not take place with regard to stolen goods, unless the transferee acquired the goods from a transferor acting in the ordinary course of business. As in previous instances the question arises as to the applicability of such formulated rule to the interpretation of the Article 37(4) of the Regulation. It seems, however, that the Regulation, in the interest of the efficient functioning of the EU ETS and the certainty of the emission rights circulation should not be interpreted as imposing such a additional requirement.


Other features of emission allowances’ character determined by Article 37 of the Regulation (dematerialisation, fungibility) are of equal importance and they deserve a separate analysis.

The Regulation, furthermore, applied a proper solution determining in recital 12 in the preamble of the Regulation that the said legal measure  doesn’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. In such a way the disputes of a civil law character have been allocated not impairing the integrity of legal titles to emission allowances held in the accounts in the registry.


The said modifications in the legal regime for the functioning of emission allowances registries could have a great impact on the spot market liquidity. The risk of legal title to allowances acquired and held in the acquirer account in the registry to become questionable has been in this way significantly reduced (and to some extent even eliminated).


Apart from that the practical effects of the described fundamental changes can be the increased integrity of the emission registry and thus the entire EU ETS as well as the reduction of risk of disputes regarding legal title to emission allowances transferred into the buyer account. Finally, the amendments at issue also lessen the role of initiatives taken up lately by some of the spot emission trading venues, consisting in verification by the trading venue of the whole chain of legal titles to emission allowances back to the initial allocation. Considering the new provisions protecting good faith of the acquirers of emission allowances, legal significance of such verification can be decreased and not so needed as before.