Registries

The registries for the EU Emission Trading System (EU ETS) record the holding of emission allowances and the transactions concerning those allowances, like any banking system does for money. The main types of transactions are: creation of allowances, free allocation, auctioning, trading, surrendering of allowances for compliance and their deletion. The registries also record installations and aircraft operators surrendering sufficient allowances to cover their verified emissions.

The Registries Regulation was modified in 2010, to prepare for the inclusion of aviation in the EU ETS and the switch from national registries to the single Union Registry in 2012.

New provisions for the EU ETS registries were needed in order to set up the infrastructure for the third trading period of the EU ETS (2013-2020), in particular with regard to auctioning and free allocation of allowances, following the adoption of the respective implementing acts.

At the same time this amendment offered the opportunity to introduce enhanced registry security measures in the wake of the cyber-attacks witnessed earlier in 2011.

The Commission adopted on 17 November 2011 the Regulation, which has entered into force upon its publication in the Official Journal.

The Regulation contains some provisions that will already apply in 2011 and 2012, notably those related to security, early auctions and the NER300 funding programme (see question 8). The other new rules will apply from 2013, the start of the third trading period.

The security of the registries has become a priority as a result of the fraud with emission allowances in 2010 and 2011. In early 2011 the Commission took immediate action by temporarily suspending all national registries until they fulfilled minimum security requirements. The new measures will bring the security of the Union Registry into line with state-of-the-art security measures used in the financial sector.

The main security measures and their applicability are summarised in the table below. Most provisions will apply when the single Union Registry will become fully operational. A few measures have been effective since the entry into force of the Regulation, i.e. on 30 November 2011 and some can be implemented only by mid-2012.

A good or a commodity is "fungible" when individual units can be substituted by any other unit of the same good or commodity, like a kilogram of sugar. The fungibility of allowances foreseen by the draft Regulation implies that the claim – for instance in case of theft, breach of contract or insolvency of the account holder – cannot be directed at a specific allowance. This rule does not exclude claiming back the same amount of allowances or credits of the same kind or claiming damages, for example. Transactions in the Union Registry that became final are thus irrevocable and cannot be unwound.

No, the Regulation does not harmonise the ownership of allowances. However, apart from laying down that the allowances are fungible, it protects holders or buyers of allowances that are in good faith. Indeed, these persons will acquire full entitlement to the allowance. The interpretation of the term "good faith" is left to national law.

In early 2011, lists of serial numbers of allegedly stolen allowances were disclosed. That caused confusion in the carbon market, as in some jurisdictions stolen allowances identifiable through their serial numbers may have to be returned, which rendered trading more risky. To avoid such confusion in the future, the Regulation expressly prohibits the disclosure of the serial numbers of stolen allowances. Moreover, in the single Union Registry serial numbers of allowances would not be visible to users, only to registry administrators, which may provide them on request to the competent national authorities. These measures are complemented by the fungibility of allowances and the protection of the buyer in good faith. Together this ensures that stolen allowances and the fraudsters involved can ultimately be tracked down for the purposes of a criminal or civil law procedure, but at the level of users trading is not disrupted.

In case of Kyoto units (e.g. Clean Development Mechanism credits), only the unique part of the unit identifier will not be displayed: information on the unit type, the project number, etc. will remain visible.

NER300 is an EU funding programme for the demonstration of innovative renewable energy technologies and carbon capture and storage (CCS) technologies. It is so named because the funding will come from the sale of 300 million allowances held in the new entrants' reserve of the third trading period. To enable the European Investment Bank to start monetising these allowances before the single Union Registry becomes fully operational, the Regulation enabled the Commission to open the appropriate account(s) and create the allowances thereon immediately following the entry into force of the draft Regulation.

The Regulation ensures that the EU ETS registry can function seamlessly and independently of decisions taken on the Kyoto Protocol. It will remain possible to hold Kyoto units on accounts in the Union Registry. The Regulation does not include provisions to implement the rules in the revised ETS Directive on the use of Kyoto units for compliance in the third trading period and the use of the registries for the purposes of the Effort Sharing Decision. These issues will be the subject of a later amendment.

Apart from the future amendments mentioned in the previous question, the Regulation may have to be reviewed to reflect the outcome of the work on market oversight and in the light of the experience gained with the security measures.

From 30 January onwards, aircraft operators can open accounts in the Union registry. Account requests and all required supporting documentation shall be verified by the relevant national administrator. Aircraft operators with an open account will be able to receive free allocation as determined by their administering Member State.

All aircraft operators covered by the EU ETS have to open an account in the Union registry. Based on a benchmark published by the Commission in September 2011 Member States calculate the amount of allowances to be allocated for free to each aircraft operator in accordance with the rules set out in the EU ETS Directive. Aircraft operators will receive the first annual batch of free allowances credited on their registry account by 28 February 2012 or as soon as their account is opened. In total, approximately 181 million aviation allowances will be handed out to airlines for free in 2012.

Aircraft operators covered by the EU ETS will also have to complete a number of steps in the registry to ensure that they comply with the EU ETS. These include a requirement to enter verified emissions in the registry by 31 March of each year after 2012 (e.g. by 31 March 2013 they will have to ensure that verified emissions for 2012 are entered in the Union registry) and a requirement to surrender by 30 April of each year a sufficient number of aviation allowances, general allowances and/or international credits to cover their emissions from the previous year(s) (e.g. by 30 April 2013 they will have to surrender units covering emissions from 2012).

Aircraft operators will neither be able to transfer their aviation allowances, received on their accounts in the Union Registry, nor to receive general allowances or international credits in the Union Registry before full activation. In the meantime, aircraft operators who wish to trade general allowances and international credits can open an account in a national registry. Furthermore aircraft operators can enter into futures contracts for the delivery of allowances and units at a future date. After the full activation of the Union registry, aircraft operators will be able to transfer allowances and international credits with other participants in the EU ETS.

The ETS Directive does not allow the use of allowances from the second trading period for compliance in the third trading period. However, it ensures the banking of allowances from the second trading period, to the third trading period.

The banking of allowances is carried out, as foreseen in article 57 of the Registry Regulation (No. 920/2010), through the deletion of phase 2 allowances and simultaneous creation of an equal amount of phase 3 allowances on the same registry accounts.

No, the banking of emission allowances applies to all holdings of phase 2 allowances in a registry account.

The process of banking the emission allowances from the second trading period to the third is automatic and is expected to take place by end June 2013.

Article 57 of Regulation No 920/2010 provides for the banking of allowances from the second trading period to the third.

No, the Commission is not considering any changes related to the ability to bank allowances between phases. In the Registry Regulation we may simply provide more clarity related to the technical details of this automatic operation. The possibility of banking of allowances is central to price formation and a long-term price signal to drive investment in less carbon-intensive capital stock and innovation.

The revised ETS Directive allows for CERs and ERUs to be exchanged into allowances up to the limit defined for the use of these units. The detailed modalities for this exchange will be developed in the forthcoming amendment of the Registry Regulation. Exchanges of eligible credits up to the allowed limit are guaranteed until 31 March 2015.

The limit on the use of international credits pursuant to Article 11a(8) of the EU ETS Directive will be established by a separate Commission Regulation.

According to the Kyoto Protocol, Parties may choose to bank CERs and ERUs (process called carry-over in the Kyoto Protocol) up to a level equal to 2.5% of a Party's initial assigned amount for CERs and 2.5% for ERUs. This limit on carry-over under the Kyoto Protocol is a limit applied at the Party (i.e. Country) level. In other words, this is an entitlement given to Member States. The extent that this entitlement to carry-over is granted to private entities by a Member State is a matter for national consideration, subject to general principle of EU law on non-discrimination between entities on the basis of nationality.