UK: The EU Emissions Trading Scheme - Uncertainty Ahead?

Last Updated: 17 November 2009
Article by Neil Amner

On 16 October 2009 the Bank of England's Financial Markets Law Committee (the "Bank of England Committee") published a legal assessment of perceived gaps and uncertainties in respect of the carbon market.

Legal Basis

The basis of the EU Emissions Trading Scheme ("ETS") is Directive 2003/87/EC (as amended) which itself was created in order to carry out a number of the EU's obligations under the Kyoto Protocol.

What is the EU ETS?

The ETS is an EU-wide scheme for the trading of carbon allowances between scheme participants. Participation is compulsory for operators of installations carrying on processes that fall within the scheme's scope and these are listed at Annex I to the Directive ( Amendment of the original Directive means that as of 2nd February 2010 the UK is obliged to bring laws into force that will bring aviation activities within the scope of the ETS.

The ETS is currently in its second phase (Phase II), which runs from 1st January 2008 until 31st December 2012. The basis for UK implementation of Phase II of the ETS is the UK National Allocation Plan ("NAP"). The NAP comprehensively narrates Phase II as it applies to the UK and it is not necessary to try to summarise it in this article. The document can be viewed here

The ETS Directive doesn't provide for regulation of, or even a market in, allowance trading. Instead operators can choose how they wish to trade allowances – directly with each other or via one of a number of third parties.

On 1st January 2013, Phase III will commence and this will see some significant changes to the ETS:

  • National Allocation Plans will end and there will be an EU-administered, EU-wide cap on emissions. This cap will reduce on a yearly basis by 1.74% of 2005 emissions to a level in 2020.which will be 21% of the 2005 level.
  • There will be an increase in the quantity of allowances acquired by auctioning rather than free allocation by member states. The number of allowances to be allocated will increase over time until 2020. For the power sector, all allowances will be auctioned in the UK although there are some parts of the EU where 100% auctioning will not occur until 2020 to encourage improvements to energy infrastructure.

Question marks over the legal standing of emissions allowances?

In particular, the Bank of England Committee's assessment highlighted uncertainty over fundamental legal principles that underpin that market and which provide its participants with the security they require in order to commence and maintain their participation.

Specifically, the assessment highlighted the following issue – "that nothing in the ETS provides any indication of the legal nature of emission allowances. Emission allowances have aspects of both administrative grants or licences and of private property..." As emissions allowances have the properties of both licences and private property, the assessment goes on to state that different interpretations of the legal status of allowances might occur in various member states of the EU and that there are indications of this having already occurred.

The potential consequences of this ambiguity are uncertainty over "which law properly governs the creation, transfer and cancellation of [an] allowance, and whether (and how) security rights can be created over that allowance". The assessment also refers to uncertainty over the tax and accounting treatment of allowances, their disposal following a registered holder's insolvency, whether allowances should be subject to regulation as an investment and whether allowances can be stolen.

The assessment notes that the EU ETS is just one of a number of carbon trading schemes and that there are others, some of which operate outside of the Kyoto framework. The apparent scale and diversity of the carbon market highlights the potential for its disruption by the issues raised in the assessment.

The Bank of England Committee recommends that these issues are addressed by the EU Commission, specifically the Directorate General Internal Market and Services with input and advice coming from the Directorate General Environment. Specifically, the Bank of England Committee suggests three solutions, the most feasible of which appears to be:

A "partial harmonisation" of the relevant aspects of substantive law such as:

  • "whether emission allowances constitute a form of property or a personal right, and, if the latter, against whom (e.g. the relevant national registry);
  • the effect on third parties of assignment/transmission including any necessary formal and substantive requirements to create a valid proprietary interest in emission allowances;
  • the possibility of creating security, or other limited proprietary interests, in emission allowances, including any necessary formal and substantive requirements;
  • the registerability of security interests in emission allowances; and
  • priorities between competing claims to emission allowances"

To view the full text of the Bank of England Committee's assessment click here

Pending clarification by the EU Commission or judicial interpretation, it appears that an element of uncertainty will remain over the EU ETS.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.