Under Regional Greenhouse Gas Initiative Model Rules the Regulatory Agency of the RGGI (or its agent) records a CO2 allowance transfer by moving each CO2 allowance from the transferor account to the transferee account within 5 business days of receiving a CO2 allowance transfer.


Is this a right remedy for the EUETS recent weaknesses?


The contemplated registry security measures


ECCP stakeholder meeting on ETS registry security and stolen allowances scheduled for 15 March 2011 will seek to find the right answers to the issues of differentiation of account categories in ETS registries, potential disclosure of serial numbers of (allegedly) stolen allowances and whether to display serial numbers of allowances in ETS registries,


Another important topic tabled by the Commission is the contemplation of possible introduction of delivery delay mechanism in ETS registries. As the Commission recalled, current registry rules allow for the almost immediate transfer of allowances between registry accounts to facilitate the spot market in carbon allowances, while not all exchanges offering spot trading require this feature. The problem under consideration is a potential introducing in the forthcoming amendment of the Registries Regulation a delivery delay mechanism applicable in the single registry in the sense that ‘transfers of allowances between registry accounts are not executed immediately but after a certain time delay has expired’. The intention of the afore-mentioned change would be to increase the likelihood that fraudulent transfers of allowances can be stopped before execution and even in case of a fraudulent transfer the allowance can not be delivered further to a third party as rapidly as under current circumstances.


RGGI design


The answer whether to introduce a certain delay in effecting transfers of allowances from the registry accounts is not easy. It would be useful to consider this issue as well as the concrete time-limits for the said delay in a wider context of emission trading schemes functioning in the world.


Under Regional Greenhouse Gas Initiative Model Rules 12/31/08 (XX-7.2 Recordation) the Regulatory Agency of the RGGI (or its agent) records a CO2 allowance transfer by moving each CO2 allowance from the transferor account to the transferee account within 5 business days of receiving a CO2 allowance transfer (the prerequisites for recordation are that the transfer is correctly submitted under established rules and that the transferor account includes each CO2 allowance identified by serial number in the transfer).


Furthermore, under the point XX-7.3 of the said Model Rules the Regulatory Agency of the RGGI (or its agent) notifies each party to the transfer within 5 business days of recordation of a CO2 allowance transfer.


In the case of non-recordation authorized account representatives of both accounts subject to the transfer are notified within 10 business days of receipt by the Regulatory Agency of the RGGI (or its agent) of a CO2 allowance transfer (non-recordation occurs when the transfer fails to meet the requirements of the Model Rules). The said notification includes a decision not to record the transfer, and the reasons for such non-recordation.

 



It consequently follows from the said Model Rules that under RGGI rules:


1) the participants of the said emission trading scheme have 10 business days period of uncertainty after concluding agreement relating for instance to the sale of RGGI allowances (under the EUETS rules the transfer is immediate),


2) the recordation is subject to the specific requirements and the Regulatory Agency of the RGGI (or its agent) assess whether they are met as regards a specific transaction within the above-cited periods (under European Union Emission Trading Scheme participants generally immediately know whether transfer they made is effected or not).


The immediate effectiveness of transfers in the European Union Emission Trading Schemes is really valuable feature which probably contributed significantly to the creation of European liquid spot markets in emission allowances. It nevertheless facilitates committing crimes of the sort occurred recently under the EUETS rules, such as VAT fraud or the theft of allowances from the registries. This feature also makes recovering of stolen allowances difficult for the right owners in the face of the speed of potential multiple transfers subsequent to the theft.

But it seems that introducing delays in effecting transfers of allowances (like the above-mentioned provisions of the RGGI model) would mean creating a market of a different sort – maybe safer but nevertheless lacking certain features to which EUETS participants are already accustomed and take them for granted.