Emissions trading group asks EU to clarify ERU-EUAA rules
More clarity is urgently needed on the practical impact of new proposed rules governing the use of Emission Reduction Units (ERUs) in the EU emission trading system (ETS) to avoid price volatility and confusion within the market, the International Emission Trading Association (IETA) warned on Wednesday.
The European Commission last week submitted a long-awaited proposal to the Climate Change Committee to restrict conditions for ERUs to be kept in the Union registry.
The restrictions apply to ERUs issued under the Joint Implementation (JI) from 2013 onwards by countries without legally binding emissions targets for the period 2013-2020, such as Russia (see EDCM 11 January 2013). The proposed amendments which will be voted on 23 January featured some less stringent rules compared with previous announcements, which has pressured ERU prices in recent sessions.
"The EU needs to restore confidence in the ETS, and any changes to existing rules needs to be presented in a transparent and predictable manner," Sarah Deblock, IETA's EU policy director said in a letter to EU climate officials.
"The proposal released on 10 January has changed the conditions under which market participants are willing to trade. As long as interpretation and implementation uncertainties remain, the proposed text creates significant risks for market participants dealing in ERUs, with knock-on implications on the whole market in EU ETS eligible instruments," Deblock wrote.
Issues to clarify
The group said the proposals raise new interpretation issues, on which more clarity is needed "as a matter of priority" ahead of the vote.
First, it asked for full legal clarity that the use of ERUs issued until the end of 2012 will not be affected.
The second issue relates to clarification over how ERUs issued for projects in countries without legally binding emissions targets for the period 2013-2020 will be certified.
The Commission in the draft amendment said that the validity of these ERUs can be certified either if they are issued in accordance with the JI track-2 procedure; or, if this is not possible, if they are certified as corresponding to emission reductions before 31 December 2012 by an independent entity accredited by the JI Supervisory Committee (JISC).
IETA said this is not clear enough. "In which circumstances will verification under track-2 be deemed 'not possible'? What would 'certification' by an independent entity accredited by the JISC entail?," it questioned.
According to Jefferies Bache's carbon analyst Matthew Gray, the verification procedure will likely prove economically unfeasible, given current secondary prices for ERUs. "Consequently, many projects will simply be abandoned and this supply will be unavailable in Europe and therefore valueless," he forecasted on Tuesday in a note.
IETA also said that doubts remain on the practical implementation of the proposed measures, considering that the issuance date of ERUs is not publicly available and serial numbers are hidden from market participants.
"How can operators wishing to buy or sell ERUs today provide or receive assurance that they have been issued before the end of 2012?," the group said.
IETA also expressed its fears regarding proposed changes to the rules concerning aviation allowances (EUAAs), which it said will be no longer carried over to phase III as general EUAs under the proposal.
In particular, the group was concerned over how this amendment was submitted and the lack of assessment of the impact on the forward market, especially given the fact that the new rules will apply without any transition period.
"No explanation was given on the reasons why such late changes to previously well-established rules were deemed necessary... Changes made in this way increase the concerns of EU market participants that they may be exposed to further discretionary regulatory changes," Deblock wrote. SM
Other Related Stories