General GHG emissions regulation

Regulation of emissions

Do any obligations for GHG emission limitation, reduction or removal apply to your country and private parties in your country? If so, describe the main obligations.

Emissions control

Under the German Emissions Control Regulations and the Technical Instruction on Air Pollution, limit values are set for certain emissions of industrial plants at defined measurement conditions. If such limits are violated several times or regularly the emissions control authority can enforce compliance and impose sanctions on the operator.

 

European Union Emissions Trading Scheme

Further, the duties under the European Union Emissions Trading Scheme (EU ETS) apply to certain listed industrial activities releasing GHG emissions. The installations performing such activities require an amount of allowances corresponding to their GHG emissions. Upon application, the Emissions Trading Agency allocates a number of cost-free allowances to the industrial activities for the relevant trading period. Since the number of available cost-free allowances is progressively reduced the operators must either invest into CO2-reducing technologies or acquire the missing allowances.

 

Reduction of cap

The allowances available EU-wide are reduced every calendar year, for example in the trading period 2021–2030 by 48 million allowances each year (the EU-wide cap, thus, decreasing from 1.8 billion certificates in 2021 to 1.3 billion certificates in 2030).

GHG emission permits or approvals

Are there any requirements for obtaining GHG emission permits or approvals? If so, describe the main requirements.

Emissions control permit

The operator first needs a permit for the industrial activities under the Emissions Control Act containing overall emissions limits. With regard to GHG emissions the operator must have a GHG emissions permit which is, for old existing plants the (same initial) permit under the Emissions Control Act.

 

GHG emissions permit

For newer installations a separate permit under the Emissions Trading Act is required. The operator must submit, together with the permit application, a description of the activity, location, type and scope of activity and applied technologies. Also, the sources and quantities of emissions and the commissioning date have to be provided. In the case of complex installations additional (technical) documentation on the relevant parts, process steps and ancillary installations is to be submitted.

Oversight of GHG emissions

How are GHG emissions monitored, reported and verified?

Each year in March, operators of installations subject to the EU ETS determine their total GHG emissions of the previous year. They submit the data for verification to acknowledged bodies and the verified data to Emissions Trading Agency, which transfers them to the EU registry. In April, the operators surrender the required allowances for their emissions of the previous year, which is shown in their account in the EU registry.

GHG emission allowances (or similar emission instruments)

Regime

Is there a GHG emission allowance regime (or similar regime) in your country? How does it operate?

Allowance regime

The aim of the European Union Emissions Trading Scheme (EU ETS) is to cost-effectively reduce GHG emissions. In the third trading period an overall EU cap with the allowances then allocated to single EU member states was established. This cap is reduced every year so that by 2030 a total reduction by 43 per cent compared with 2005 levels is reached. As a result, the costs for GHG emissions are expected to rise, while emissions decrease. For each tonne of CO2 that a company emits, it has to surrender one emission allowance. Some operators receive a limited number of allowances cost-free. If operators emit more GHGs than covered by allowances, they have to purchase allowances from other operators, in auctions or on the spot market. This results in a trading price for CO2 as an always scarcer commodity on the market and a general incentive to reduce emissions through technology.

 

Validity

Emissions allowances are allocated to activities or installations by an administrative decision, which, according to precedents of the European Court of Justice, can be corrected by the Emissions Trading Agency (DEHSt), also retroactively within a trading period. The German courts in most cases decide in favour of DEHSt since even retroactive withdrawals of allowances serve the overarching objective of reducing GHG emissions.

Registration

Are there any GHG emission allowance registries in your country? How are they administered?

Union registry

In the third trading period (2013–2020) of the EU ETS a ‘Union registry’ was established. It is the central register for GHG emission allowances of all 31 countries that participate in the EU ETS. All allowances issued under the EU ETS are precisely recorded in this registry.

 

National registries

In addition, national registries exist, which, in Germany, are administered by DEHSt. Allowance trading can only be done on the level of national registries.

 

Mechanism

Each year in March, operators of installations subject to the EU ETS determine their total GHG emissions of the previous year. They submit the data for verification to acknowledged bodies and the verified data to DEHSt, which transfers them to the Union registry. In April, the operators surrender the required allowances for their emissions of the previous year, which is shown in their account in the Union registry.

Obtaining, possessing and using GHG emission allowances

What are the requirements for obtaining GHG emission allowances? How are allowances held, cancelled, surrendered and transferred? Can rights in favour of third parties (eg, a pledge) be created on allowances?

Allocation

Emissions allowances are allocated to existing installations upon application by DEHSt for the following trading period according to applicable regulations. The application deadline for the fourth trading period was the end of June 2019. For new installations an application has to be submitted before they become operational. The operator must provide relevant descriptions and verified data regarding the relevant installation, processes and technologies, raw and other materials releasing GHGs, emissions, their sources and planned measures for monitoring and reporting. In its allocation decision DEHSt delimitates the activities performed and emissions of the installation, sets out the monitoring plan, conditions for reporting and the obligation to surrender a number of allowances corresponding to the emissions generated in the previous year and states, where applicable, further duties or conditions.

 

Administering allowances

Emissions allowances are held in the operator’s account at the national registry. They are transferable by a purchase of rights contract, but the transfer must also be entered in the national registry. Without the latter the transfer is not effective. An entry in the German registry is presumed to be correct (like the land registry). Allowances are now also fully transferable to the next trading period. Surrender of allowances occurs via reporting to the Emissions Trading Agency and leads to their expiry. Pledges can be created on allowances but must also be entered into the German registry.

Trading of GHG emission allowances (or similar emission instruments)

Emission allowances trading

What GHG emission trading systems or schemes are applied in your country?

There is no regulatory scheme for emissions trading; the trade occurs based on contracts regulating numbers, price, duration and further stipulations.

Trading agreements

Are any standard agreements on GHG emissions trading used in your country? If so, describe their main features and provisions.

There are more and more contract models for trading emissions allowances – either specific contracts for emissions trading or general contracts with appendices tailored to emissions allowances. Examples are the English Agreement for the Sale and Purchase of Allowances on the one hand and the ISDA Agreement with the ISDA Allowances Appendix (similarly the EFET Allowances Appendix) or the Emissions Trading Master or the Emission Allowances Single Trade Agreement for the EU Scheme of the 20-year old IETA on the other hand. In Germany a Master Agreement for Financial Derivative Transactions is available combined with an Annex for Commodities Transactions (including emissions allowances) used between banks and with additional clauses for non-bank purchasers. Single transactions can be agreed orally, but are usually confirmed in writing. The master agreement can only be terminated for cause, which extends to the individual transactions (‘single agreement concept’).

Law stated date

Correct on

Give the date on which the above content is accurate.

11 August 2020.