Emission News Practical Information for Emission Trading E dition

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1 CO2 Monitoring Concept and ETS Report Generation CO2 Registry-Services for enterprises CO2 Certificates Purchase/Sale EUA, aeua, CER, ERU CO2 Certificates Swap, Spot- and Forward Trading CO2 Portfoliomanagement and consulting For Information using the Freecall Emission News Practical Information for Emission Trading E dition EUA DEC Source: ECX London Climate Change Conference in Warsaw failed terribly - Commission tightened emissions trading for airlines The climate conference having taken place in Warsaw last week can be regarded as spectacularly failed. The interests of the coal lobby - particularly those of the host country Poland - blocked all approach for an agreement on a new global climate accord. On the other hand, it was only natural that the host country with its large dependency on coal for its citizens must continue to lobby for affordable heat and electricity. As the Polish Environment Minister then lost his job and on the penultimate day, all the NGOs left the conference because no more movement was visible in the negotiations, it became obvious how hopeless the current situation of climate change efforts currently is. Irrespective of that situation, European emissions trading for airlines will be continued in order to secure the so-called "climate-results" of the IACO Conference in Montreal by the EU Commission. To this end, a new proposal is on the table, which should be implemented by March The aforementioned subjects as well as the judgment of the European Court of Justice on the delayed or incomplete delivery of emission allowances and resulting penalties will be reported in our Emission News At the Warsaw World Climate Conference COP19, held on Nov you could witness a show run of the coal lobby that emphasized the pos- sible efficiency of coal-fired power plants. The head of the World Coal Association, Mr. Catelin calculated at a conference, which took place simultaneously in the Polish Ministry of Economy that in a global, possible efficiency level of 40 % of modern coal-fired power plants, as many emissions could be saved, as the country India would emit per year. In these kinds mind games of the coal lobby which took place in parallel to the Climate Change Conference in Warsaw it became obvious that that the host Poland sat on the climate conference apparently between the chairs and could therefore for the benefit of the global climate not perform small and certainly not perform great deeds. Quite the contrary: the interests of the citizens had to be represented; in the coal rich country Poland which is dependent on affordable electricity and heat. Climate versus standard of living For many years and especially for the industrialized nations the question arises on this COP19 in Warsaw, of whether climate change should come more to the forefront in relation to the preservation of living standards, or based only on Poland if coal dependency and climate change can be discussed together at all. This question - cannot be explained in this issue here and is because it is absolutely fundamental in nature was also on the minds of the Greenpeece activists who hung a huge poster on the first day of 1

2 the World Climate Summit at the facade of the Ministry of Economy. Poster on the facade of the Polish Ministry of Economy In this the provocative question was asked who actually ruled the country, the coal industry or the Polish population? It s not as simple as that, giving the blame to the coal industry, as it always is a matter of standards of living in a country to make such a decision. Anyone who knows Poland closer and who knows that in this country there was still a large number of more or less poor segments of the population deriving its heat from municipal heat supply utilities on partially dilapidated district heating networks, knows that the change to climate protection cannot be taken in a few years. This is not possible because in Poland there are also many citizens who do not have the luxury to decide between climate protection and standard of living because they would rather simply have to fight just to their own existence in terms of affordable heat and electricity. If a country has no water power and little wind but owns large coal reserves that can be mined for a relative cheap wages it cannot be seriously expect that a country like Poland excels as host of a world climate summit. All the more bizarre it seems then, when the Polish Prime Minister Tusk Donad dismisses his Environment Minister towards the end of the climate negotiations from office, who had led the World Summit. Generously Tusk allowed the minister to protrude the conference and to finish it in a clean organizational fashion. NGOs leave the climate conference On the penultimate day all NGOs (nongovernmental organizations) left the conference under protest. It was denounced the passivity and egoism of the industrialized nations and emerging economies. According to the Greenpeace - boss Kumi Naidoo climate change is a reality, but in Warsaw is no progress could be seen. "This conference should be an important step forward, but nothing, absolutely nothing has come out so far". It was an expression of solidarity, to leave the world climate conference. This was particular true, because of the solidarity with the victims of climate change, Harjeet Singh of Action Aid International was cited. He also said, that at some point the talk has to stop and "show me the money on the table" if you really want to do something about climate change. The financial commitments of developed nations failed to appear so far. So it is understandable if the NGOs no longer want to just watch and do not want to be part of this farce. Infobox Validity of ERUs from 15/11/2013 On the morning of 15/11/2013, a new version of the Union Registry is online. From 12h noon time each account holder with ERU on his EU account or KP account could verify if these ERUs were issued before 2013 had changed their status. Here then it was interesting, whether any existing, previously classified as "floating" emission reductions are valid and have kept their status for a usage in the Union Registry. Account holders who still continue now have ERUs that have not been approved for release or are pending, but which have been issued before 2013, may turn to the Commission under CLIMA-Credits- Inquiries@ec.europa.eu. Since invalid CER+ERU must be removed from the EU accounts over the coming months, the Commission will announce details on 20. December 2013 on its website. In every case Emissionshändler.com buys floating and non-valid ERUs from customers Contact us! ======================================= Since the Montreal IACO assembly in early October suggested a climate deal for aviation from 2016, the EU can be seen in increasing the pressure slightly in attempt to get a better negotiation position in relation to IACO. The 191 countries of the international aviation organization ICAO had decided in a first step, that by 2016 an international agreement should be worked out and that from 2020 onwards the CO2 emissions should be regulated for all of air transport. 2

3 The airlines would then have to surrender CO2 certificates or licenses on an annual basis for the CO2 produced during the previous year. This measure would be the incentive to reduce CO2 emissions and thus protect the global climate against ever-rising emissions from aviation. One other option for airlines would be to purchase fuelefficient aircraft, the latest design, which would have an equivalent effect on the environment. Under the current ETS scheme, only flights within Europe (take-off and landing) are affected by the provisions of the EU Commission, as the entire flights where the take-off or landing would be outside of Europe have been excluded for one year except (as by the Stop-the-Clock directive). This has just been implemented by the EU, so an undisturbed, global agreement could be negotiated by ICAO. In the opinion of Climate Commissioner Connie Hedegaard absolutely no result would have occurred without the pressure from the EU to the International Civil Aviation Organization ICAO. Extension of EU flights Well, now after the realization by the Commission that the current regulations on aviation ETS (only intra-european flights are subject to emissions trading) will not result in any significant CO2 reduction from in international air transport by 2020 the EU decided to tighten the reins again. In a paper published on 28/10/2013 the Commission describes a proposal as to how emissions trading in aviation for Europe will be expanded in relation to the current status. The 16-page paper with the name: "The Commission proposal for a European Regional Airspace Approach for EU emissions trading for aviation" can be found under eraa_en.pdf. In essence, the proposal boils down to is that EU flights do now include the entire European Economic Area (EEA ), including Norway and Iceland, and most of the marine areas in Europe. Excluded from the emissions trading remain all flights taking off and landing outside Europe. But included after the presentation of the Commission and affected by emissions trading are now the following types of flights: All flights whose take-off and landing is located within the EU-28 countries All flights whose take-off or landing is located in Norway, Liechtenstein and Iceland and their take-off or landing is located within the EU-28 countries Flights over maritime areas of states that belong to the members of the European Economic Area (Norway, Liechtenstein, Iceland and EU-28) are partially included Source: EU Brussels Excluded are flights over the Atlantic, Greenland, Switzerland, Azores and Canary Islands and all states of the former Yugoslavia as long as these countries are not already in the EU. One can assume that the European regulators, Council of Ministers and the Parliament will approve this proposal or possibly even slightly weaker variant in March 2014, so there still can be a corresponding recalculation of the free allocation April 2014 for the period of The German EU parliamentarian and an expert on aviation in emissions trading Peter Liese, however, has the view that it may possibly be quite different. In his opinion, not the wording of the IACO Resolution is crucial but the Commission's view, whether the goal is realistic to reach a global climate agreement for the aviation industry until Should this goal until April 2014 not be achievable, it is his opinion, the European Parliament will not agree to the above-mentioned proposal and then return to an all inclusive ETS (all take-off and landing in Europe with the intercontinental flight segment as well). This would be an official ending of the "stop-the-clock" phase. And this in turn would mean higher security an economic war. 3

4 Consequences of not completed certificate surrendering obligations (airlines/plant operators) On , the European Court of Justice European Court of Justice in Luxembourg made a sensational judgment on the consequences of noncompletion of certificate surrendering obligations for ETS. Alone in Germany fines were imposed so far for a total of around 23 million against 88 plant operators in Euro and the names of those operators were published. Essentially, Luxembourg debated over the question of whether a penalty may be waived if noncompliance was caused by either minor negligence or by gross negligence and there is no force majeure. The judges came to the conclusion that the operator also for minor negligence - must pay the fine of 100 euros per tonne of CO2, which had been ruled by the courts in Germany, up to this point, differently. Whether now the German Federal Administrative Court as the highest authority will follow this EU ruling yet has to be seen, but a facility operator or an airline should not be relied upon Germany to stand up against the EU high court decision. Minor negligence could for example be the case where the own emissions were calculated incorrectly, so that the annual report was not correct and as a result an insufficient number of certificates have been returned or that the operator failed to timely set up a register account (for new entrants such as airlines) and thus failed to meet the deadline of 30 April for surrendering of allowances. The risk of delayed delivery of certificates Many smaller airlines as well as some plant operators in Europe, who are new in emissions trading have not managed by April 2013 to set up accounts in the register on time and may not also complete this process by April The cause of this, especially in the German area of emissions trading, which is represented by the Ministry DEHSt might be that airlines have underestimated the thoroughness or legal complexity of processes in German or regarding the EU register. It may also be caused by the fact that created emission reports were not transmitted correctly or completely or because of failures made in the review by independent verifiers. In each of these cases a sanction procedures will now be initialized as well as a mandatory call to meet the (surrendering) obligation. In such cases it is often overlooked by the operators and airlines that a late surrendering - which is indeed done in each of these cases after has a significant impact regarding the following sanction. As previously explained, the fine of 100 euros per tonne of CO2 will also be collected for slight negligence by the EU. Whether there is slight negligence or force majeure is to be judged by the respective registry administrator of the administrating member state. If slight negligence can be documented by facts, for example, that the operator has had " insufficient time " when prompted to set up an account and a period of 4 weeks to set up a register account cannot be seen as "sufficient time", then the Authority has some leeway regarding sanctions. Now, if this described leeway is counteracted by the operator, through counter lawsuit threats and attorney letters against the Register Administrator, rather than simply to quickly provide the missing certificates, then the operator should not be surprised if the authority does not use the leeway at all and no longer agrees to discern any force majeure. Infobox Closure / termination of register accounts and certificates - remainders An increasing number of smaller plant operators is faced with the problem that they have indeed successfully passed out of emissions trading but they still have (eg by reducing their capacity < 20MW ) registered account. To close this now definitively these operators are asked by their competent national authorities DEHSt or KOBIZE. This, however, this must be completely empty of certificates of any kind such as EUA, CER and ERU. Because this technique will now affects smaller and smallest operators there exist in many cases only one authorized representative. As for transferring certificates a trust account must be established first, which including the participation of a second Authorized representative, this procedure is often hassle for the involved parties all the more letting the eventual economic success through sale proceeds vanish into the background. In addition, we must not forget that the correct write-off of stock certificates has to go correct from the perspective of a balance sheet and auditing perspective. Emissionshändler.com has developed for the aforementioned problem of residual stocks - even with just only an authorized representative - a solution that offers interested account holders quick and rapid relieve, and can be explained by phone and without obligation.call us at +49 (0) or send us a mail at info@emissionshaendler.com. 4

5 A late submission is no longer correctable A late submission by 30 April (for the previous year) of certificates, due to whatever reason is no longer correctable. This can be seen in the following example of a screenshot from a registry account, where the submitted emissions report a small airline in the First Commitment Period will be recognized with a total of 88 t (column Verified: Yes), however, regarding the question of the Compliance, the corresponding number is displayed with "-88" and awarded with the compliance status of a "C". Statement of registry period A C means "not satisfied." Thus, the compliance status is officially set and the operator is not getting away with it. Even if the operator will now supply the missing certificates after setting up its registry account in summer 2013 or after correction of a too small amount of CO2 annual report 2012, it does not help regarding its compliance status. As you can see in a subsequent screen of the Second Commitment Period , a recognition of the now surrendered 88 t is displayed in the column "Cumulative Surrendered Units", but the status remains the First Commitment Period at "C". All the more important is the fact that a resulting penalty - which will amount to 8,800 euros in the present case can be possibly avoided by an accommodating or understanding view of the administrating registry authority. No helpful in this example would be a behaviour by the operator, which results in long drawn out legal discussions about the timing and recognition of credit still for the year 2012or whether force majeure shall be enforced legally. Only the swift surrendering action by the operator could help to avoid a sanction. In this context, the regulation to surrender 15 % CER / ERU allowances for airlines in 2012 should be noted as not valid or possible, if after This means that a subsequent / late submission cannot be done with CER / ERU to 15% but instead is only possible with EEA or aeua. This naturally also applies accordingly for stationary plant operators. The reason for that inconsistency is that a conversion function of the register of CERs / ERUs in aeua or EEA as part of the register software is only functional possible in 2014 and that until then no ERU emission reduction certificates cannot be surrendered (and can not be issued retroactively). Disclaimer This letter is issued by the emission GEMB mbh and is for information only. The GEMB Ltd. is neither legal nor tax advice. If this impression, it is hereby clarified that this is neither intended nor desired. The GEMB mbh assumes no responsibility for the accuracy and completeness of the information or its suitability for a particular purpose, either express or implied, This letter is not written with the intention that readers make an investment decision, a purchase or sale decision regarding a CO2 product or market and / or a contract decisions in all other respects active. All price curves shown here are based on data from the ICE London, generated from a Reuters information system. Our offer Please contact us without obligation at +49 (0) or info@emissionshaendler.com as well as via mail or find out more about the Internet services under Statement of registry period

6 Kind emission regards Michael Kroehnert Responsible for content: Emissionshaendler.com GEMB mbh, Helmholtzstraße 2-9, Berlin HRB Amtsgericht Berlin Charlottenburg, USt-ID-Nr. DE Phone: +49 (0) , Fax: +49 (0) Web: Member of Executive Board Federal Association Emission Trading and Climate Protection BVEK In cooperation with ETS Verification, the verification body for aircraft operators ETS Verification GmbH Guido Harling, Altstadtparkplatz 3, D Tecklenburg Phone: Web: Mail: 6