Operators Struggle With Complexity of EU-ETS Compliance

March 19, 2012

To say the European Union’s Emissions Trading Scheme (EU-ETS) is wildly unpopular outside the EU would perhaps be an understatement. Still, NBAA Members are working through the particulars of compliance and finding that, in many cases, the process is very difficult.

Nowhere is that more true than in the establishment of a carbon registry account.

“Operators are wading into a completely new and foreign process of opening a carbon registry account,” said Adam Hartley, a regulatory services team supervisor at Universal Weather and Aviation.

The carbon registry account is very much like a bank account, with deposits and withdrawals. Instead of cash, the currency is carbon credits, purchased on the open market. In fact, the price for these credits is established on the open market.

Aircraft operators who fly into and out of EU countries must open carbon registry accounts within their member states. With the assistance of commodities brokers, flight operators deposit carbon credits (called EUAAs or European Union Aviation Allowances) needed to pay for offsetting their emissions. Each year, operators must submit to their Member States verified reports of the previous year’s carbon emissions. In most Member States, the deadline is March 31st. However, the deadline in Spain is February 28th. In the Czech Republic, the deadline is March 15th. Based on the verified emissions reports submitted to Member States, operators then must pay out of their carbon accounts the required amount of carbon credits. The actual amount paid can vary, since the price of each EUAA is determined on the open market. Credits will be traded beginning in August 2012.

The EU encourages operators to set up registry accounts before the end of June, in order to receive their free allowances accorded by participating in the benchmarking process. But the process of establishing the account is often difficult, both within the operator’s own company and in its dealings with the designated Member State to which it reports.

“Operators I talk to wonder about the information required to set up the registry account and who within the company will administer it,” said John Benjamin, who flies for a U.S. company and is considered an authority on EU-ETS compliance.

“Since the registry account allows operators to buy and sell carbon credits, the information required is the same that you would submit to a bank when you’re opening an account there,” he explained.

That could include the names and signatures of an officer of the company, articles of incorporation, company charters and more. Company representatives even must submit to a criminal background check and forward the results to the designated Member State. Other items likely to be requested in the course of application for a carbon registry account include the names of the representatives, a color copy of their passports, drivers’ licenses or other acceptable proof of residency, phone numbers, email addresses and private bank account statements. In some cases, a notary isn’t enough. Instead, documents have to be authenticated or “legalized,” often by a government official.

The effort of gathering and certifying that information is, to say the least, a challenge.

“I’ve already engaged my corporation’s legal department for several hours just in setting up our registry account,” Benjamin said. At first, his legal department rejected outright the notion of releasing so much of the company representatives’ personal information. But an operator’s designated representative must submit to this intense examination. Without it, Member State regulators will have no choice but to reject the operator’s application for a registry account.

Only after discussions with the company’s legal office in the EU did the lawyers finally capitulate, Benjamin said.

There are also internal issues that accompany efforts to comply with EU-ETS. Benjamin said his company is struggling to decide who will actually administer the program internally.

“It’s a turf war that nobody wants to win,” he chuckled. “It took us a month and a half of meetings just to establish who internally will own this account.”

NBAA has tools aimed at helping Members make the best possible decisions regarding compliance. Review NBAA’s EU-ETS compliance resources.