Member Article

In the midst of the COVID-19 waves, the EU Commission rejected the delay proposals on the Emission Trading Scheme (ETS)’s mandatory annual deadlines.

EU companies, whose activities fall under the ETS Directive and haveinstallations included in the European Stationary Installations Registry, must still comply with the classical established deadlines set out for the ETS Scheme: (i) the already passed 31 of March 2020 for submitting the verified annual reports, declaring the carbon dioxide (CO2) and CO2 equivalent emissions emitted in 2019 and (ii) the fast approaching 30 of April 2020 for surrendering the correspondent emission allowances for each tone of CO2 or CO2 equivalent emitted.

Despite several EU member states’ requests for postponement of these deadlines, the EU Commissionissued on 26 of March a statement on the dedicated ETS page, reminding the deadlines in place and pointing out that applicable EU law includes some means which could be used by companies in order to fulfill their standing obligations, even in COVID-19 lockdown.

The EU Commission indicated that the verification of the companies’ reports related to the annual CO2 and CO2 equivalent emissions may be performed also through a simplified procedure, according to Regulation No. 2018/2067. While the regular verification procedure includes a site visit performed by an authorized verifier at the premises of the monitored installations, which in the COVID-19 lockdown is risky or even impossible, such site visit is not necessary in the simplified procedure.

The simplified verification procedure is not connected to the emergency state or other related COVID-19 event, but is a standard procedure which may be pursued by companies at all times, provided that the installations meet specific technical criteria, as provided under to Regulation No. 2018/2067. Furthermore, for companies to pursue it, they would have to obtain the prior authorities’ approval, usually the competent Environmental Protection Agency („EPA”).

The simplified verification procedure of the annual reports mentioned by EU Commission in the statement may have been unachievable. This is since on one side, not all installations are eligible for the simplified verification procedure, and on the other the EPAs work and availability is also impacted by the current COVID-19 lockdown.

The stake of the ETS deadlines’ postponement was and continues to be very high.

As no delay was even considered by the EU Commission, the companies (i) should have already submitted the verified annual report until 31 of March and (i) be on the way to finishing the emission allowances surrender until the 30 of April 2020, correspondent for each tone of CO2 equivalent emitted during 2019.

On 15 of April 2020, the EU Commission published on thededicated ETS sitethe 2019 report of the verified emissions based on the companies’ verified annual reports submitted. The 2019 report indicates which companies did not submit the annual report and the amount of CO2 and CO2 equivalent emitted by the companies which submitted it. On the basis of these numbers the companies are expected to surrender by 30 of April the emission allowances. In early May 2020 EU Commission shall publish a new report, which shall contain information also on the status of the emission allowances surrendered by companies.

In case a company did not submit the verified annual report until 31 of March, the competent EPA can make a conservative estimate of the emissions on the behalf of the company, according to Regulation No. 601/2012, in the account of which the company shall have to surrender the correspondent emission allowances by 30 of April 2020.

Companies that have yet to secure their allowances corresponding to their CO2 or CO2 equivalent emissions in 2029 now face two choices: (i) acquire such allowances on the market, which may be highly impacted by the COVID-19 and corresponding economic downturn, or (ii) fail to acquire and surrender the allowances and incur the corresponding penalty of EUR 100 per missing allowance. This penalty will come on top of the company still needing to surrender the missing allowances.

The EU Commission’s answer was foreseeable, especially in terms of the need to submit the reports on the 2019 emissions. One may also argue that the respective requirements to prepare the reports and surrender the allowances was known by companies well in advance and are set in the permits regulating the companies’ installations.

But the refusal to postpone the 30 April date for the surrender of emissions allowances may constitute an additional hit to companies that are already seeing their entire business plans suspended by the COVID-19 impact.

Added to the challenge is the fact that 2020 is the last year of the current (third) ETS phase. Starting from 2021, the 4^thphase will start, which means that companies have to obtain new greenhouse gas permits and meet far stricter requirements to cut emissions. The EU Comission’s established objective is that by the end of this 4th phase, the 2030 emissions from sectors covered by the EU ETS will be cut by43%as compared with the 2005 levels.

The question now is if these Commission’s plans will be revised once the COVID-19 lockdown ceases and the companies, EU member states and the Commission will be able to evaluate the actual impact of this crisis. As the focus starts turning to identifying measures to support industries and companies affected by the COVID-19 crisis, it is likely the topic of ETS will continue to be put on the agenda and developments are expected.