A recent case before the General Court of the EU, where a claim by a cement company for compensation for losses under the EU Emissions Trading Scheme was dismissed, raises some interesting issues for aggregates businesses.
This case relates to the confidentiality of transactions within the EU Emissions Trading Scheme and whether the Commission can be found liable for compensation for losses. Before looking at the details of this case, it is useful to understand how the EU Emissions Trading Scheme registries operate.
EU Emissions Trading Scheme registries
In the EU, greenhouse gas emissions are controlled through the EU Emissions Trading Scheme (ETS). The scheme, which applies to industries like the aggregates sector that use a lot of energy, requires operators to surrender an equal number of EU emission allowances (EUAs) as their annual total carbon dioxide emissions.
Before 2012 member states recorded the issue, transfer and cancellation of EUAs from operators in their country and every relevant operator held an EUA account on its member state’s EU ETS registry. In addition the European Commission maintained a separate Community independent transaction log (CITL) to record all EUA transactions.
This situation changed in 2012 to prevent EUA thefts and improve security. Now all EUA accounts are held in a centralised EU ETS registry (Union Registry) which is operated by the European Commission. This replaced the individual registries in member states.
European legislation requires confidentiality in both the member state’s EU ETS registries and the new single Union Registry. The legislation applying to EU ETS registries also stated that the information must remain confidential for five years.
A Romanian cement company, Holcim (Romania) SA was subject to EU ETS and had an account with the registry in its home country. The case relates to alleged theft of its EUAs in 2010, when someone unlawfully accessed it’s EUA account in its home registry and transferred 1.6 million EUAs. The EUAs were transferred to accounts in Italy and Liechtenstein. The latter were recovered by the company, but the EUAs transferred to Italy, amounting to around EUR 15 million, were not recovered. From there it appears that the allowances passed through various registries including in the UK and France) before being sold on exchanges in Paris and Amsterdam.
Holcim notified the Commission and asked it to request the national registries freeze the stolen EUAs and block the accounts through which they had passed.
The European Commission declined this request on several grounds. First, that it could not block, suspend or refuse access to the relevant EU ETS registry accounts, as they continue to represent legally valid compliance instruments. Secondly, it stated that the recovery of any EUAs transferred fraudulently was a matter for national law and the relevant law enforcement authority of that country. Finally, it stated that the transaction was confidential for five years under European law.
Holcim was not satisfied with this response and applied to the General Court (EU), claiming that it was entitled to compensation of EUR 17.6 million for losses allegedly caused by the European Commission’s refusal to disclose information from the CITL regarding the stolen EUAs, as well as its refusal to prohibit or block further trading. Holcim also applied to the court on the basis that the Commission was subject to strict liability and should therefore pay damages.
The case was heard in September 2014 and the General Court dismissed Holcim’s claim for compensation. The court agreed with the European Commission that it did not have the power to block or suspend the EUA accounts. The General Court found that the Commission was required to notify member states of irregularities in EUA transactions, in its role as the central administrator of CITL. However, the court went on to find that it was for each member state to decide whether or not to register such a transaction.
Finally, the General Court found that the Commission was not subject to strict liability in this case because the damage was not proved to be unusual and special.
Implications of this decision
Although the registry system changed in 2012 this case is still relevant because it establishes that the European Commission is only required to disclose information on EUA transactions in very limited circumstances, and then to investigating authorities, rather than operating companies themselves. The case also shows that it is unlikely that the European Commission will be found liable for losses caused by a theft from an operators EUA account, even at the new central Union Registry. It is therefore hoped that the Union Registry lives up to its billing as a more secure system, reducing the chance of fraud and thefts like those suffered by Holcim.
Simon Trahair-Davies is a partner in the mining and minerals team at Stephens Scown. The firm has more than 70 years’ experience representing mining and minerals clients and its specialist team has recently been recognised once again by independent guides to the law Legal 500 and Chambers. Simon can be contacted on +44 (0)1872 265100 or email firstname.lastname@example.org.
This article first appeared in the January/February 2015 issue of Aggregates Business Europe Magazine.