Poland is preparing a new system of emission trading of sulphur dioxides (SO2) and nitrous oxides (NOx).


According to the draft of the new statute, financial institutions won’t be admitted to the market (as well as traders and brokers).


But why the new law restricts the emissions market also as regards the range of possible types of civil contracts?

 


A new bill is now in the procedure of ministerial consultations. The version of July 17 of the draft of the bill is available at web pages of the Polish Ministry of Environment (ustawa o systemie bilansowania i rozliczania wielkości emisji dwutlenku siarki (SO2) i tlenków azotu (NOx) dla dużych źródeł spalania – the law on the system of balancing and settlement of  sulphur dioxides’ (SO2) and nitrous oxides’ (NOx) emissions from a large combustion plants).


Several assumptions for the new system of emission trading have been made.


The first is, that the trading will be available only for operators of installations (see art. 14 para. 1 of the draft of the bill: “Contracts of sale of emission allowances can be entered into only by the operators of large combustion plants”).


Such a concept - to restrict access to the market to compliance entities alone - can be assessed as a controversial issue. It is obvious, that the said provision will have immediate, direct and disadvantageous influence on the liquidity of the new market. It is also probable, that the elimination from the market of important players – financial institutions, traders and brokers - will result in higher price of emission allowances.


Forcing above mentioned institutions away from the market, will consequently restrict access of emitting entities to broader financing.


Prohibiting financial institutions, traders and brokers (dealing on own account) from participating in the market make also that market devoid of hedging tools – which are so useful and common in other markets.


Unfortunately, official substantiation of the bill (attached to the version of the draft of July 17) does not consider above mentioned arguments. The said document does not state any reasons for a such severe restrictions of trade.


So, it is worth considering, that all potential participants have access to SO2 and NOx markets. It seems, that the proposed solution would contribute to the development of the market and its liquidity and stability.

 



The second problem with the draft of the new bill – in area of emissions trading – is that the new regulation makes a simple and rather obvious error restricting types of possible contracts (relating to the disposal of allowances).


We have cited above the exact wording of the article 14 para. 1 of the new statute.


It follows from the literal interpretation of the said provision, that only contracts of sale are permissible in relation to SO2 and NOx emission trading.


And what about, for instance, the contract of donation? Is it possible the exchange of SO2 and NOx allowances? The draft bill is silent about these questions, but if we stand on a literal wording of the text, only the contract of sale is explicitly mentioned in article 14 of the draft.

Furthermore, the draft of the bill doesn’t mention any issues of emission trading in other articles.


Leaving aside donations of allowances, there is much more serious legal problem relating to treating allowances as a security (collateral). The new draft bill isn’t also helpful in answering the question, whether SO2 and NOx allowances can be used as a collateral (lien, for instance).


And a small change would be sufficient to manage all this mess – to substitute in the draft bill the word “sale” with the word: “disposal”.

 

 

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The new SO2 i NOx emissions market in Poland – some issues are controversial

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