Should the EU delay EU ETS compliance?
The coronavirus pandemic continues to spread its tentacles into every corner of human life, causing lockdowns, the closure of public amenities and increasingly the shutdown of non-essential industry.
The tightening grip on social interaction means that any business that relies on physical presence is being strangled: retail is the chief victim, but commercial activities and even industrial production is being halted as workers and consumers are required to stay at home.
One upshot of this is very likely to be that many installations covered by the EU ETS may not be able to complete their reporting and verification requirements, thereby missing the reporting deadline of March 31.
Now, there are two caveats to issue here: firstly, many installations can probably get their emissions verified remotely. Data can be shared with verifiers, though confirming that measuring instruments are correctly calibrated may need to be done in person. Nevertheless, there are probably some installations that don’t have the luxury of remote data logging or a sophisticated IT system.
A second caveat is that the largest installations and companies in the EU ETS may already have done all their whole monitoring, verification and reporting for 2019. So this problem may not be as big as all that.
However, Germany has announced that it will look leniently upon any company or plant that cannot meet the reporting or compliance deadlines, as long as it can prove that the coronavirus is to blame for the delay.
“If it can be proved that deadlines cannot be met in individual cases as a result of the current exceptional situation, we will take this into account in the further implementation of the European Emissions Trading Scheme,” according to the German emissions trading regulator DEHSt.
“This will apply in cases such as the unfulfillment of a payment obligation (penalty) due to the violation of a duty to pay a levy or the imposition of fines due to administrative offences and if it can be proved that any obligations were not fulfilled in time due to, among other things, the illness or absence of employees as a result of the Sars-CoV-2 pandemic.”
Last week, the Swiss emissions trading regulator suspended access to the country’s registry and postponed its compliance deadline indefinitely.
I’m sure other national regulators have said similar things, or will shortly do so. But the risk here is that some don’t, and to treat installations differently in what is an EU-wide market is unfair.
The EU hasn’t said anything at all related to EU ETS compliance so far, and time is running out for it to offer any respite to companies that are still struggling to finish their 2019 reporting.
If there is to be any delay, or leniency, it needs to be done across the whole market, in the same way that the rest of the EU ETS applies across all member states. Germany and Switzerland have simply upped the pressure on Brussels to act.
But while a simple delay to the compliance deadline may seem reasonable, it hides a much bigger issue. The Commission uses verified emissions data for the previous year to calculate the Total Number of Allowances in Circulation, which in turn informs the size of the annual Market Stability Reserve withdrawal.
Any delay in the reporting of data (if not the actual compliance) means that the TNAC may be delayed and in turn that the new MSR withdrawal that will start in September is also postponed.
And in a market which is already under extreme pressure from the economic fallout of the pandemic, a delay to the MSR could be a major event in terms of market confidence.