Reed Smith Client Alerts

The precise manner of the UK’s withdrawal from the EU remains unclear. A number of scenarios could apply to the UK’s continued participation in the EU Emissions Trading Scheme (EU ETS) depending on whether (i) the UK parliament accepts the terms of the draft Withdrawal Agreement (WA) (as endorsed by EU leaders at a special meeting of the European Council on 25 November 2018) in the upcoming parliamentary session, resulting in an orderly departure of the UK from the EU, including providing a transition period ending 31 December 2020 (a Soft Brexit), or (ii) the UK parliament rejects the WA and no legally binding and enforceable replacement arrangements are put in place (a Hard Brexit) before 29 March 2019 (the Brexit Deadline).

This uncertainty has led to confusion among EU ETS market participants and we have received a number of similar enquiries from clients in this regard. In this client alert, we thought it would be helpful to identify and provide answers to some of the most common questions we have received.

For the purposes of this alert, we refer to EU allowances (EUAs) issued by the UK before 1 January 2019 as ‘UK Pre-2019 EUAs’ and to EUAs issued by the UK from (and including) 1 January 2019 to the end of Phase 3 as ‘UK-2019+ EUAs’. Unless otherwise specified, references to EUAs include a reference to aviation EU allowances issued under Chapter II of the EU ETS Directive.1 In addition, we refer to allowance accounts that are subject to the supervision of the UK national administrator in the Union Registry as ‘UK Registry Accounts’, and allowance accounts subject to the supervision of other EU member states, as ‘Member State Registry Accounts’. Please note the scope of this alert is limited to Phase 3 of the EU ETS and does not consider issues that would be relevant to Phase 4 (i.e., 2021-2030). Please note that, although other scenarios are possible (e.g. a people’s vote ahead of the Brexit Deadline), the scope of this client alert is limited to only the Soft Brexit and Hard Brexit scenarios. Furthermore, the content below should not be considered legal advice as, the facts and circumstances of each person are likely to be different and therefore, the views expressed here can only be provided generically.