Availability second phase EUAs

Although Climex is pleased with the achievement of having traded second phase EUAs the on the first day they became available, the second phase does not only have a positive outlook. Only Austria and Denmark have so far met the deadline on Thursday 28 February 2008 to allocate permits to emit carbon dioxide to their industry.

28 February 2008 was the European Commissions’ deadline for all EU member states to allocate EUAs to over 10,000 European energy-intensive installations in 2008. (2008 is the first year of the second phase of the EU emissions trading scheme from 2008-12.) This delay will have a negative effect on the 2008 carbon spot market.
While the Commission decided which EUA quotas each state is allowed to give its industry, it was clear on Thursday that most affected companies would not receive these permits by the deadline of 28 February. Thirteen countries have submitted the necessary information to the Commission regarding allocation, but only five have received Commission approval to issue and just two countries have met the deadline. Of the remaining three, Britain and the Czech Republic have said they will not allocate EUAs, while the Commission said it was unsure about Finland's plans.
Britain said that it would not issue EUAs until the European Commission announced when its EU emissions trading scheme would link with a separate carbon trading scheme under the Kyoto Protocol on global warming, which the Commission has previously said may not happen before 2009. The UK Ministry of the Environment said that the UK Government believes the (Kyoto-linked) carbon trading registry system must be established before November at the latest.
The failure of the EU Emissions Trading Scheme (ETS) to connect to the UN-administered International Transaction Log (ITL) is going to lead to a complicated reconciliation process later on, posing a logistical nightmare for registry operators, it has emerged. Some member states, notably Germany, the largest emitter in the EU, have expressed concern over-issuing 2008 vintage EU allowances (EUAs) in the absence of a link to the ITL. This is because EUAs effectively become Kyoto Protocol ‘Assigned Amount Units’ (AAUs) from 2008 to 2012, which are tracked by the ITL. In the absence of a link to the ITL, the Kyoto registry cannot track trades within the EU ETS, as intended.

The European Commission, in response, has said that “member states can, and should, issue” their EUAs, once the installation-level plans are complete, and reconcile later once the EU is connected to the ITL. This reconciliation process will see every issued EUA matched up with a corresponding AAU, and every transaction done prior to the ITL link will have to be redone.
The lack of an ITL connection is due to the European Commission’s community independent transaction log (CITL) not being ready to link. The Commission is testing the CITL’s connection to the ITL and the Commission has not yet announced when this will be finished.
Another option is that member states can hold off on issuing their allowances until the EU is linked to the ITL – but this would then potentially leave them open to infringement proceedings by the Commission. However, whether the Commission would pursue a lengthy legal process is doubtful according to some.