Reed Smith Client Alerts

A new registry regulation for Phase IV of the EU emissions trading system (ETS) has been published recently, and will replace the current registry regulation from 1 January 2021. Among other changes, the new registry regulation will accommodate allowances originating from the Swiss Emissions Trading Scheme, recognise EU allowances as financial instruments, and make administrative changes to account management. We expect that these changes may have an impact on operations and trading documentation of market participants, and these should, accordingly, be reviewed.

Authors: Peter Zaman Matthew R. Yeo Nicholas Rock Adam Hedley

The European Commission published a new registry regulation for Phase IV of the EU ETS this summer (New Registry Regulation)1. The publication of the New Registry Regulation appears to have hardly been noticed.

The New Registry Regulation came into force on 22 July 2019. It partially amends Commission Regulation (EU) No. 389/2013 (the current Registry Regulation) (effective immediately) and, from 1 January 2021, will entirely replace the current Registry Regulation in respect of EU ETS transactions.

The main drivers for the introduction of the New Registry Regulation can be summarised as follows:

  1. Facilitating the linkage between the EU ETS and the Swiss Emissions Trading Scheme (the Swiss ETS) under Article 25 of the EU ETS Directive
  2. Hardwiring provisions to deal with EU member states that trigger Article 50 of the Treaty on European Union to withdraw from the EU (an Art. 50 Notice)
  3. Recognising the consequences of EU allowances as ‘financial instruments’ under MiFID II2 and making necessary consequential changes to address that
  4. With the hindsight of experience, it was appropriate to simplify certain rules governing the Union Registry to reduce the administrative burden of national administrators
  5. Updating the requirement associated with handling of data and information by national administrators in light of the General Data Protection Regulation (GDPR)3, and
  6. Since Phase IV of the EU ETS does not allow Kyoto units for compliance within the EU ETS, the removal of references to the Kyoto Protocol and its relevant units in the registry regulation

These changes will, from 1 January 2021, have an impact on both the manner in which operations in respect of the EU ETS are managed, as well as, due to the start of the Swiss-EU ETS linkage from 1 January 2020, trading documents (including the EFET4, ISDA5 or IETA6 forms) on which EU allowances and EU aviation allowances are traded for both Phase III and Phase IV.