High Court of England and Wales Rules Emissions Allowances to be Treated as Property


Following a decision of the High Court of England and Wales in Armstrong DLW GmbH v Winnington Network Ltd [2012] EWHC 10 (Ch) the legal status of European Union Allowances (EUAs) traded under the EU Emissions Trading Scheme (EU ETS), has now been clarified, with the Court holding that EUAs should be classed as intangible property under English law.

The Trading Scheme and Allowances

Under the EU ETS, all operators within the European Union that own an installation that emits a certain level of carbon dioxide, must participate in the EU ETS.  Each participating operator is given an annual allocation of EUAs, credited into the company’s account.  All operators must have enough EUAs to meet their compliance obligations, with each EUA representing the right to emit one metric tonne of carbon dioxide into the atmosphere.  Operators are fined €100 for each tonne of carbon dioxide for which it has not surrendered an allowance.

Any surplus EUAs may be carried forward by the operator, retired by arrangement with the relevant national administration entity, or traded with other operators or registered EUA traders.  EUAs are entirely electronic and, unlike shares for example, they are not evidenced by a title document.  Each EUA has a unique identifier number and when it is bought and sold it is moved from one registry account to another registry account.  The trading of EUAs may take place very quickly several times a day.

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