The European Commission asserted that the EU ETS Market Stability Reserve would both address the surplus of emission allowances that has built up and improve the system's resilience to major shocks by automatically adjusting the supply of allowances to be auctioned. 


But the operation of the reserve is based only on the volumes of allowances in circulation, which seems the fundamental shortcoming.



If the operator is planning the capacity reduction in an installation covered by the EU ETS scheme and there are, for technical reasons, the two options as regards the implementation date for this decision: for instance 15 December of the year "n" and 15 January of the year "n+1", which of the two dates indicated is more advantageous for installation's operator for the free allocations' purposes? 



As a result of the delay, until the Commission's communication of 5 September 2013 European industrial installations eligible to be granted free carbon permits were not cognizant of the exact volumes of the allocation under Article 10a of the Directive 20013/87/EC.



EU ETS carbon leakage list applies for the years 2013-2014. It is interesting that while additions are possible before 2014 (and are in fact occuring in yearly intervals), sectors included cannot be removed from the list before that date.

Such carbon leakage list unidirectional design is in the climate policies turmoil among the last safeguards that give certainty to the European industry. 


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Although applying holding limits as well as auction purchase limits in cap-and-trade schemes sometimes meet with criticism, the absence of such limits in the EU ETS current design, particularly when the concept of backloading failed, brings important risks for the system.



Without entering into specific polemic with certain parts of the Court's reasoning, in any case a general conclusion comes to mind, namely that when designing any emission trading scheme such an important determination like the choice of reference fuel for the benchmarks-setting process should be done in primary legislation, and not in implementing acts. Such an approach would better serve democratic procedures.



Given the slight majority of votes, the preliminary character of the debate and legal challenges for the overall context of the problem, any optimism when it comes to the conclusions contained in point 91 of the resolution appears premature.


In times of economic crisis many economic operators temporarily cease production in order to withhold the slowdown. When the stoppage relates to production line covered by EU ETS some additional legal circumstances are to be considered.


The issue of a crucial financial weight is for how long the installation can be stopped so that the free emission allowances were not put at risk.



Another point for the carbon market revamp: interlinkages between the current valuation of carbon permits and the tiers monitoring framework.



Analyses for risk are as from 2013 a new mandatory element in the EU ETS emissions monitoring framework.



The administrative burden involved in the ensuring that the monitoring plan reflects accurately all legally required points depends on the assessment of the significance of the potential change as well as the way the procedures in the monitoring plan are described.



M&R Regulation applies a constant allowance price of 20 € as an input for important business estimations and assessments. Another regulatory document, the European Commission’s Guidance on the optional application of Article 10c of Directive 2003/87/EC (2011/C 99/03) adopted the relevant price levels between 14.5 € (years 2010 - 2014) and 20 € (2015 – 2020).

What are the effects of the above assumptions considering the background of current market prices for carbon?



The absence of stating the reasons for the current delay in allocation of emission allowances in 2013 as well as the lack of the concrete new date when the allocation will be possible are among the main shortcomings of the European Commission's communication on the issue.



The fundamental change in the rules of the EU ETS as from 2013 consisting in the allocation of free emission allowances to the heat-benchmark sub-installations principally for the consumption of the heat (and for the production thereof in exceptional cases only) necessitates the careful examination of technical connections in the context of the allocation rules.



Changes in heat flows between installations made after 30 June 2011 may significantly impact the level of free allocation of permits and, pursuant to the rules governing the EU ETS as from 2013, it may be sometimes effected in quite surprising way.



Installation's capacity reductions need always be considered in the context of potential EUAs allocation. 



The basic need is the acknowledgment whether the extent of the engagement falls within the scope of the verifier’s accreditation. This should done with the help of Annex I to the V&A Regulation which specifies the relevant codes of activity groups for the scope of accreditation for verifiers.



The propositions of the European Commission tabled on 25 July 2012 for fixing the seemingly ailing EU ETS price-setting mechanisms reveal the hidden truth (somewhat unpleasant for the creators of the EU ETS original legal documentation), namely the fundamental flaws consisting, among others, in ex-ante method of cap-setting, insensitive to any subsequent macro-economic changes, the current deep financial and economic crisis including. How the EU ETS carbon price could be capable to stimulate investment in hi-tech green know-how, while the overall allowances cap is unresponsive to fluctuations in real economy?

The fundamental contradiction appears to be intrinsic to EU ETS scheme methodology – either the system is market-based with the free interplay of the supply and demand for the benefit of the environment or the higher-ranking purpose of the whole thing justifying market intervention is to stimulate structural industrial change. The absence of the clear determination as regards priorities causes the current efforts appear schizophrenic.


Whilst the Commission asserts that its proposal is not a market intervention, these contentions are not convincing in light of the assessment of the overall documentation tabled.



Determining the second carbon leakage list of sectors and subsectors exposed to significant list of carbon leakage will in the coming months be an important process, interested parties should not overlooked. At the outset of the said procedure it may be useful to briefly summarise the basic legal environment for the issue.