It should be considered that the responsibility for the timely surrendering of emission allowances be accounted for at a level of a group of affiliated companies.



When an entity covered by the emission trading scheme misses the deadlines for surrendering emissions allowances (which may differ as regards concrete dates, depending on the specific scheme), it runs the risk of triggering enforcement procedures.


The EUETS Directive provides in this field for 100 EUR penalty for each tonne of carbon dioxide equivalent emitted for which the operator has not surrendered allowances (which shall not release the operator from the obligation to surrender an amount of allowances equal to those excess emissions when surrendering allowances in relation to the following calendar year). In addition to this penalty there is also “name-and-shame sanction (see box – Article 16(2) of the Directive 2003/87), but generally the Directive leaves to the Member States discretion with respect to the detailed design of the rules on enforcement measures.


Article 16 of the EUETS Directive:


1. Member States shall lay down the rules on penalties applicable to infringements of the national provisions adopted pursuant to this Directive and shall take all measures necessary to ensure that such rules are implemented. The penalties provided for must be effective, proportionate and dissuasive. Member States shall notify these provisions to the Commission and shall notify it without delay of any subsequent amendment affecting them.

2. Member States shall ensure publication of the names of operators and aircraft operators who are in breach of requirements to surrender sufficient allowances under this Directive.

3. Member States shall ensure that any operator or aircraft operator who does not surrender sufficient allowances by 30 April of each year to cover its emissions during the preceding year shall be held liable for the payment of an excess emissions penalty. The excess emissions penalty shall be EUR 100 for each tonne of carbon dioxide equivalent emitted for which the operator or aircraft operator has not surrendered allowances. Payment of the excess emissions penalty shall not release the operator or aircraft operator from the obligation to surrender an amount of allowances equal to those excess emissions when surrendering allowances in relation to the following calendar year. ...

Consequently, in addition to the above-cited laconic provisions of the Directive, the national legal orders should be scanned to learn about enforcement provisions in place in the European Union Emissions Trading Scheme (what is rather problematic for an individual trader without an extensive legal support).


Interesting regulatory measure is considered in that context in the Californian cap-and-trade. It seems that a small regulatory gap is filled in this way.


According to the draft Regulation Order published by the Californian Air Resources Board (ARB) the covered entity’s compliance obligation for untimely surrender is calculated as four times the entity’s excess emissions (the quantity of excess emissions being the difference between the compliance obligation and any compliance instruments timely surrendered by the covered entity). In this point both trading schemes (EUETS and Californian) seem similar, the amount of the penalty excepting.


It should be added in passing that under the Californian emissions trading scheme three fourths of the said penalty are returned back to the pool of allowances in the scheme through the Allowance Price Containment Reserve (specific measure for the Californian cap-and-trade); and only one fourth is retired.


Important enforcement procedure that seems to be lacking in the EUETS Directive is that upon determining that a covered entity has excess emissions, the Californian ARB prevents any transfers of compliance instruments from the allowances account controlled by the covered entity and exercises quasi “compulsory” surrender (by transferring any remaining allowances from the holding account controlled by the covered entity with excess emissions to its compliance account) until the retirement obligations of this section are met.


If the ARB is unable to retrieve sufficient allowances using the above process, it provides the deficient covered entity 30 days to secure the allowances needed to cover its untimely surrender obligation. Under the Californian cap-and-trade the moment of the said notification is the last warning for the deficient company parents, daughters and sisters which had mutual business relations in the field of emissions trading.


If the covered entity fails to transfer allowances equal to the untimely surrender obligation to its compliance account within the said period ARB:


1) identifies holding accounts controlled by affiliates of the deficient covered entity to which the covered entity has transferred compliance instruments during the compliance period for which a compliance obligation remains unfilled; and


2) prevents transfers from the identified holding accounts, and retrieves allowances from those accounts to meet the untimely surrender obligation.


In order to have removed the restrictions on transfers from the holding accounts controlled by the covered entity and affiliated entities they must meet surrender obligations.


The above-described measures seem reasonable. In the absence of analogous system protections in the EUETS Directive the enforcement procedures may turn out to be less effective. There are already precedents as regards the attitude that the group of the affiliated companies should be treated for some purposes as a single economic unit. The company legal autonomy is infringed in this way on the ground of many legal procedures. If such a measure were introduced in the EUETS, the compliance obligation under the emission trading scheme wouldn’t be an exception in this field.