The European Commission announced on 6 August that the EU Community independent Transaction Log (CITL) and the registries of the EU Member States will be connected to the UN International Transaction Log (ITL) before December 2008 at the latest. This announcement, which means that EU Member States should be in a position to issue EU Allowances (EUAs) for the first year of Phase 2 (2008-2012) of the EU Emissions Trading Scheme before the end of the year, is one that will impact on the risk positions of operators subject to the EU ETS as well as stakeholders involved in the trading of both EUAs and UN-based emission credits.
The linking of the registers is crucial, as it will enable operators to transfer CERs (as well as other types of UN-based credits) into the accounts they have to maintain at the national registries of their Member State. The link would also expand the EU's emissions trading market and would ensure operators have access to a wider supply of carbon credits in order to meet their emissions allowance targets. In addition, the establishment of the link between the CITL and ITL is important, as most Member States have been waiting to obtain their greenhouse gas emission entitlement under the Kyoto Protocol (in the form of so-called "Assigned Amount Units") prior to issuing EUAs in Phase 2 of the EU ETS, which cannot happen until the link between the ITL and CITL has been established.
Two systems, one goal
The CITL registry records electronically the issuance, transfer, cancellation, retirement and banking of allowances issued pursuant to the EU ETS. It is mandatory for each Member State to have a national registry in addition to being connected to the CITL.
The ITL is also an electronic registry keeping track of the various types of UN credits issued to countries that are signatories to the Kyoto Protocol, and this currently includes in particular certified emissions reduction credits (CERs) issued under the Clean Development Mechanism (CDM) projects.
The CDM allows countries with no emission reduction commitments under the Kyoto Protocol to set up CO2 emission reduction projects which will earn CERs, each CER being equivalent to one tonne of CO2. These CERS can then be sold on to countries subject to emission reduction commitments under the Kyoto Protocol or to companies in these countries subject to emission reduction commitments. CERs can be counted by countries towards meeting Kyoto targets and can also be used by operators of relevant installations in the EU to offset emissions under the EU ETS.
While the CITL and ITL systems will control and track transactions jointly, following the interconnection of these 2 registers, each Member State's registry will only be connected to the ITL. Each transaction involving an EU Member State will be passed on to the CITL for recording and checking purposes.
The European Commission, Member States and the United Nations Framework Convention on Climate Change Secretariat (UNFCCC Secretariat) have previously carried out two rehearsals to test the technical procedures and interface. The initial test-run (15 - 30 May 2008) involved five Member States, while the second test-run (18 July - 4 August 2008) involved all Member States and non-EU registries in Russia, Japan and New Zealand. The successful completion of the tests means the European Commission and the
UNFCCC Secretariat are currently working to set an official connection date, which will be announced shortly.
During the connection procedure, all registry operations will be suspended for a maximum of 7 calendar days.
To read our previous law-now on the EU ETS Phase II UK auction rules, please click here.
To read our previous law-now on the proposed Phase III EU ETS amendments, please click here.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 07/08/2008.