The Discussion paper in view of a European Climate Change Programme (ECCP) stakeholder meeting on carbon market oversight organised by the Commission services Brussels, 4th May 2011 considers the implications of classifying emission allowances and other EU ETS compliance units as financial instruments under MiFID. It seems, however, not probable taking into account arguments of many participants of various market sectors and branches in their responses to the MiFID review consultation.


According to the European Investment Bank all sales of CO2 allowances from the new entrant reserve (NER300) will be of a forward nature for settlement in December 2013 at the earliest. The options for the monetisation method are: auctions, on an exchange and over the counter.

It follows from the Cooperation Agreement between European Commission and the European Investment Bank on the implementation of Commission Decision C(2010) 7499 that the main elements of the monetisation method including the defined monetisation period and the expected total volume of monetisation should be published on the EIB's website but it has not been done yet.

This publication is impatiently awaited because there are some ambiguities as regards important for EUETS participants features of monetisation.


Does the ICE Futures Europe Circular 11/038 of 10 March 2011 mean that the trader that was delivered by the Clearing House and the Exchange “prohibited” emission allowances has no legal remedies against the seller? Such a rule would be difficult to accept from the position of legal interests of the buyer as a party to the agreement. It seems that in the said document there are also other points that should be carefully considered.


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?


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.



In the European cap-and-trade the cap is established on the volume of allowances and, unfortunately, not on the price. But as the experience shows there are interesting concepts, how to mitigate not only the impact of climate change, but also the price risks inherent in the scheme. Direct quarterly sales of allowances from the Allowance Price Containment Reserve and the fixed Auction Reserve Price cause (providing that the Reserve won’t be prematurely exhausted) that in the California cap-and-trade the regulatory-fixed price range from 10$ to 75$ per metric ton of CO2 can be specified in the perspective 2012 – 2020 (with appropriate modifications in each year of the period).


Are the individual characteristics of transactions in emission allowances, which are entered into registries, publicly available? If yes, under what conditions and to what extent? What is the relation between the Registry Regulation and the Directive 2003/4/EC of the European Parliament and of the Council of 28 January 2003 on public access to environmental information and repealing Council Directive 90/313/EEC (OJ 2003 L 41, p. 26)? Does the Registry Regulation provide for the specific rules in this field or the said Directive is nevertheless binding as regards requests for making publicly available trading data (dates, volumes, parties to the transactions, prices etc.)? All these, vital for young emission market, questions are decided in the recent judgment. But we go a little further and make some classifications as regards the subject-matter.


Imagine hypothetically that the stolen allowances were entered into circulation and were subject to the transactions for the sale (or other disposal) of allowances between the parties in different Member States.


Recently announced „Proposal for a Regulation of the European Parliament and of the Council on energy market integrity and transparency {SEC(2010) 1510} {SEC(2010) 1511}” subjects wholesale energy products traded on the spot market to the safeguards currently present mainly on the financial market. The issue obviously regards inter alia the prohibitions on insider dealing and market manipulation.



The draft of the Law on the system of balancing and settlement of  sulphur dioxides’ (SO2) and nitrous oxides (NOx) emissions from a large combustion plants scheduled to enter into force as from 1 January 2011 introduces in Poland a trading scheme that can be classified as cap-and-trade system rather than baseline-and-credit.


Article 11a(9) of the Directive 2003/87/EC is these days “hot topic” among emission traders and compliance buyers of CERs.


The issue is really worth considering - the very wording of the said provision sounds mysterious, may potentially be capacious and constitute a legal basis for many interesting structures. But nobody likes to be surprised – especially when big money is at stake.


EUA’s and CER’s Daily Futures Contracts traded on ECX are physically deliverable within two trading days - are they spot contracts or financial instruments triggering regulatory framework of MIFID?



There are very few decisions of the IASB and FASB on the accounting standards for emissions allowances so far and even those already adopted are tentative only.

Despite an extensive variety of provisions relating to the status of CER units in the post-2012 legal framework of the Directive 2009/29/EC (aiming generally at securing stability of the long-term green investments), at least one of these provisions should be of particular concern to the CER buyers and investors.


It seems rather improbable that parties to the IETA agreement don’t make choice as regards the jurisdiction applicable to the contract in respect of the sale of emission greenhouse gas allowances. This is because the IETA Master Agreement (ETMA v. 3.0) is governed by and is to be construed in accordance with English law unless otherwise expressly provided for in the Part 1 of the Schedule 2 (Elections) to the Master Agreement (clause 14.7).


But there are also trades where other contract documentation is applied, and this documentation sometimes is restricted to, for instance, two pages only (without any master agreement). It is also theoretically possible (and sometimes occurs in practice) that there is no documentation at all – only transfer in the registry (the agreement is concluded orally and not confirmed in writing).


The question may arise in the said situations as to the law applicable to the contract.


The Regulation No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I) is helpful in these ambiguities and the findings on jurisdiction are the first problems, which are to be resolved in any legal analysis relating to such contract.


The Community guidelines on State aid for environmental protection, which were adopted in 2008 (OJ C 82, 1.4.2008, p.1. – hereafter the Environmental State Aid Guidelines) are not yet adapted to a climate-energy legislative package, in particular to the Directive 2003/87/EC (as amended by the Directive 2009/29/EC).

Some of the State aid measures foreseen by the Directive 2009/29/EC are not covered by the existing Guidelines and thus the interpretation of these measures on the basis of State aid rules can raise several questions.

Someone wishing to bank emission allowances from second to third trading period can be surprised by the relevant provisions of some national laws of the Member States.

Take for instance the Articles 28 and 29 of the Polish bill on the GHG and other substances emission allowances trading.

Despite unambiguous Community law and the European Commission’s guidance, the Polish law provides for additional legal preconditions for banking of emission allowances. Some authorizations are also required.

The MIFID Directive does not regulate, in general, the legal requirements for spot markets in  CO2 emissions allowances. The legal base for such a view is the Article 38 of the Commission Regulation No 1287/2006 of 10 August 2006 (subject to conditions described in detail in the said provision).


On the other hand, taking into account the economic side of the issue, it is often pointed out, that spot trading of EUA, CER and ERU serves, in principle, commercial purposes (and not the speculative ones).


So, in general, in most cases, the commodities spot markets have different, in relation to markets in financial instruments, national legal schemes.


It applies also to Poland, where the Commodity Exchanges Act of 24 October 2000 sets particular requirements as regards CO2 brokers wishing to trade in spot CO2 markets on the Polish Power Exchange.


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?