|Legal complications with cross-border collateral EUAs arrangements after recent Registry Regulation amendment|
|Thursday, 03 May 2012 13:42|
Page 1 of 2
It appears that the regulatory work has stopped half way. Since the critical determination whether a trade has been performed in good faith would still be done in accordance with national laws it could be presumed that problems with enforcement of property rights will persist.
Even though the recent registry regulations amendments (Registry Regulation No 1193/2011) have substantially improved legal certainty with respect to the cross-border circulation of emission allowances, there is still left a wide scope for intervention.
For a careful observer of the carbon market it is clear that the weaknesses of this business line in 2010-2011 were, at least partly, caused by the non-harmonised legal status of emission allowances across the EU and problems with enforcement of property rights and pursuit of damages claims in a situation of divergent national laws applying at the same time.
Thus the need for stable and predictable legal framework in that regard can’t be overestimated.
Article 37 (2) and (3) of the Registry Regulation No 1193/2011 has acknowledged dematerialised nature and fungibility of allowances and Kyoto units in the EU regulatory environment and Article 37(4) has expressly stipulated that ‘A purchaser and holder of an allowance or Kyoto unit acting in good faith shall acquire title to an allowance or Kyoto unit free of any defects in the title of the transferor.’
As the services of the European Commission underlined in one of the tender documents, ‘The new EU ETS Registry rules protect holders or buyers of allowances that are in good faith and the same rules introduce the principle of irrevocability of transfers) most key aspects are still left to national discretion (e.g. critical determination whether a trade has been performed in "good faith" would still be done in accordance with national law).’
Considering the above observation it appears that the regulatory work has stopped half way.
Since the ‘critical determination whether a trade has been performed in "good faith" would still be done in accordance with national law’ it could be presumed that problems with enforcement of property rights will persist. The direct legislative cause for such a contention sticks probably in Article 10(5) of the Commission Regulation No 1193/2011. This provision foresees that ‘Accounts shall be governed by the laws and fall under the jurisdiction of the Member State of their administrator and the units held in them shall be considered to be situated in that Member State’s territory.’