Frequently asked questions
Frequently Asked Questions on emissions trading
In addition to European and international treaties, regulations and protocols, the Austrian Act on Emissions Allowance Trading (Emissionszertifikategesetz – EZG), which entered into force in 2004, is the legal basis of emissions trading in Austria. On 1 January 2005, the EU Emissions Trading Scheme entered into operation. In 2008, when international emissions trading under the Kyoto Protocol will start, not only companies will be able to trade emissions, but also countries. The purpose of the following FAQs is to answer open questions on the emissions allowance market.
Who may participate in emissions trading?
The main players on the emissions trading market in Austria are installation that are obliged to participate in emissions trading according to the Austrian Act on Emissions Allowance Trading (Emissionszertifikategesetz – EZG). For every installation there has to be an operator account in the registry. Apart from operators of installation, every natural person or legal entity is entitled to open a person holding account in the registry and may consequently participate in emissions trading. Person holding accounts are used for example by allowance traders or exchanges. Both for an operator and a person holding account fees will arise.
What is the difference between the different tradable units?
For the Kyoto commitment period starting in 2008 the following types of Kyoto units can be distinguished:
- EU Allowances (EUAs): EUAs are the emissions allowances that are traded in the European Emissions Trading Scheme. In 2005, EUAs were allocated to companies for the first time on the basis of the National Allocation Plan.
- Assigned Amount Units (AAUs): AAUs are the tradable units of the Assigned Amount (AA), which a country with a reduction commitment (Annex B country) gets allocated. AAUs may only be traded by countries or by persons who have been entitled to do so by countries.
- Removal Units (RMUs): RMUs are Kyoto units which Annex B Parties can generate e.g. through national afforestation and other sink projects. RMUs may only be traded by countries or by persons who have been entitled to do so by countries
- Emissions Reduction Units (ERUs): ERUs are Kyoto units which are generated by Joint Implementation projects. The host countries, in which projects are carried out, convert a number of AAUs or RMUs (depending on the specific projects from 2008) into ERUs. Then, these units are transferred from the registry in the host country to the registry in the investor’s country and are credited to the investor’s account.
- Certified Emissions Reductions (CERs): CERs are Kyoto units which are generated from Clean Development Projects. All CERs are handled through a specific CDM registry, which is operated by an executive board. There are two subtypes of CER: tCER and lCER, which have a limited validity and stem from afforestation projects in countries without reduction target (Non-Annex I countries).
Downloads
Kyoto Protocol
First Meeting of the Parties to the Kyoto Protocol in Montreal - Decisions
1-8/CMP.1
First Meeting of the Parties to the Kyoto Protocol in Montreal - Decisions
9-15/CMP.1
First Meeting of the Parties to the Kyoto Protocol in Montreal - Decisions
16-27/CMP.1
Links
International emissions
trading
What does an emissions allowance look like?
Article 22 of the Austrian Act on Emissions Allowance Trading (Emissionszertifikategesetz – EZG) defines an emissions allowance as a commodity. One allowance represents the emission of a certain quantity of carbon dioxide equivalent within a certain period. Emissions allowances do not exist as physical securities, but only in electronic form in the registry. Each emissions allowance is identified by a unique serial number that contains the following information:
- Identification of the compliance period
- ISO 3166 code of the country of origin
- Type of allowance (AAU, EU Allowance, CER, ERU, RMU)
- An identification number for every block. Every block can be broken down into individual allowances. In addition, CERs, ERUs and RMUs must include the project number of the project under which they have been generated.
How do I obtain a permit to emit greenhouse gases?
The application for a permit to emit greenhouse gases must be submitted to the same authority that is responsible for the issuance of the permit for the installation itself. Like the permit for an installation, the permit to emit greenhouse gases according to the EZG is issued individually to every single installation.
How do operators of installations open an account in the registry?
All operators of installations which are listed in the National Allocation Plan shall submit to ECRA a registration form for an operator holding account, a copy of the extract from the companies registry, a copy of the IDs of the users and a copy of the installation’s permit to emit greenhouse gases. After checking these documents, ECRA will open the account for the operator and will send the information on how to access the registry to the users. When the account has been established, the registry administrator (Umweltbundesamt) can transfer allowances to the operator’s account according to the National Allocation Plan.
Links
Registration
and accounts
What information is needed to open an account?
The following information has to be submitted:
- Registration form (original copy)
- Copy of the extract from the companies registry (not applicable to private persons)
- ID of the account users
- Permit to emit greenhouse gases (only applicable to operators of installations)
Links
Registration
and accounts
Which accounts does an operator need in the registry?
For every installation an operator holding account has to be established in the registry. This account is comparable to an online banking account and shows the number of allowances that have been transferred to the installation’s account according to the National Allocation Plan and – if applicable – the number of allowances that have been purchased.
In addition, operators of installation may open a person holding account. Carrying out all purchases and sales transactions on a separate person holding account is simpler and gives the operator a better overview of all transaction than if they are carried out on an operator holding account.
Natural persons and legal entities wanting to participate in emissions trading but are no emitters themselves, may only open a person holding account. The legal basis for the Austrian registry is the directly applicable EU Registry Regulation 2004/2216/EC, its amendments according to Regulation 2007/916/EC and the Austrian Registry Ordinance (Registerstellenverordnung) BGBl. II Nr. 308/2004.Links
Registration and accounts
How are emissions allowances allocated?
According to Article 17 of the Austrian Emissions Allowances Trading Act (Emissionszertifikategesetz – EZG) emissions allowances are allocated by transferring them to the accounts of the relevant installations. The total number of allowances allocated to operators in each compliance period is determined in an ordinance that is based on the National Allocation Plan. Therefore, a petition for the revision of this ordinance can only be lodged with the Constitutional Court. Such revision is governed primarily by the Emissions Allowance Trading Act.
The Emissions Allowances Act stipulates that operators of installations must be informed of any draft proposal for such an ordinance and must be granted six weeks time to submit a statement on the draft.
Download
Zuteilungsverordnung (Allocation ordinance) 2005-2007 BGBl. II Nr. 18/2005 (only
in German)
Zuteilungsverordnung (Allocation ordinance) 2008-2012 BGBl. II Nr. 279/2005 (only
in German)
How do I buy or sell emissions allowances?
Transactions can only be performed via the registry. The registry checks all transfers and ensures that only existing emissions allowances are traded. Since an emissions allowance is defined as a commodity, its transfer is subject to the general rules for the transfer of commodities. When agreement is reached between the seller and the buyer on the commodity and the price and both the registry and the CITL and/or ITL have approved the transfer, the transaction is booked to the accounts of the concerned parties in the form of an addition or a deduction of allowances. In other words, any agreement between seller and buyer is contingent on the approval of the registry. Only after the transaction has actually been booked by the registry, the emissions allowance is effectively transferred and the buyer becomes the new owner.
Links
Current version of the Austrian Act on Emissions Allowance Trading
(Emissionszertifikategesetz - EZG) (only in German)
How are emissions allowances surrendered?
The emissions data of every installation must be verified by an independent verifying body. This verifying body communicates the emissions per installation to the competent body and to the registry by the latest at the end of March of every year by entering the emissions data in tonnes into the registry. After the competent body has checked the data, owners of installations are obliged to surrender the number of allowances required to cover the installation's emissions by transferring the allowances from their accounts to the national holding account.
What happens if I do not surrender a sufficient number of allowances in order to cover my emissions?
Article 28 of the Emissions Allowance Trading Act (Emissionszertifikategesetz – EZG) stipulates that if operators do not surrender a sufficient number of allowances or Kyoto units in order to cover their emissions from the previous year, they have to pay a fine. During the pilot phase of the EU emissions trading scheme from 2005-2007 this fine amounts to 40 Euro per missing allowance. From 2008 onwards the fine increases to 100 Euro per missing allowance.
In a case of non-compliance ECRA will immediately block the relevant account so that no more allowances or Kyoto units can be transferred from the account. However, the account is not blocked for incoming transfers of allowances or Kyoto units.
At the same time, the competent authority is informed about the blocking of the operator account and the procedure to impose the fine is launched. Paying the fine, however, does not release the operator from the obligation to surrender allowances to cover the excess emissions. In addition, the names of the operators who are non-compliant are published on the website of the Austrian Federal Ministry of Agriculture, Forestry, Environment and Water Management according to Article 28 of the Austrian Emissions Allowance Trading Act.When do I have to include the allowances into my books?
The transfer of economic ownership determines the time when allowances should be included into a company’s bookkeeping. Therefore, allowances that are allocated for free or purchased must only be entered into a company’s books when they have been transferred to its operator or person holding account in the registry. Consequently, the National Allocation Plan does not have any significance for a company’s bookkeeping.
Please note that under certain circumstances it is not compulsory to include allowances that are allocated for free in the books. See next question.Download
AFRAC: Reporting of CO2-Allowances (only in German)
Do the allowances allocated free of charge have to be entered into the books?
There are two valid alternatives of dealing with allowances that are allocated for free:
- At the time when the allowances are transferred to the account in the registry they have to be entered into the books under the item "Other current assets". At the same time, a special item has to be added on the liabilities side. This special item is released according to actual CO2 emissions.
- A valid alternative if operators expect that the number of allowances allocated for free will fall short of their emissions is not to enter the allowances as assets. In this case, however, the operator has to include all relevant information that is also given under alternative 1) in the annex to the balance sheet.
Download
How is an allowance allocated free of charge valued?
Provided that allowances allocated for free are entered in the books, the value of the allowances is determined by the market value at the time when the allowances are booked to the operator’s account in the registry.
Download
AFRAC: Reporting of CO2-Allowances (only in German)
Which bookings do I have to make when preparing the balance sheet?
Provided that allowances allocated for free have been entered into the books, the following bookings have to be made:
In the preparation of the balance sheet, it is necessary to determine how many allowances must be surrendered for the emissions of the past business year. This value is to be reported in the profit and loss account as an expense and in the balance sheet as a liability. If a company has justified concerns that it will have to pay a fine, then provisions in the amount of the expected fines have to be created. In the event of a business year that deviates from the calendar year, those allowances relating to the subsequent business year must be deferred.Download
AFRAC: Reporting of CO2-Allowances (only in German)
How are allowances to be reported in the balance sheet?
As allowances are allocated in annual tranches and must also be surrendered annually, allowances will usually not remain in the company for longer than 15 months (allocation in February, surrendering in April of the following year). Therefore, they have to be entered into the balance sheet under “Other current assets”. If allowances are acquired for trading purposes, the quantities held are deemed inventories (also current assets).
What do I have to book when surrendering allowances?
Do I have to pay taxes on income earned onthe allocated allowances (income or corporation tax)?
How do emissions allowances influence my cost accounting?
Since allowances have a market value, they have to be included in the cost accounting as part of the production costs. The allowances allocated free of charge represent opportunity costs in the amount of their market value because they could be sold if the company were to avoid emissions. Soon a company’s sales revenues will not only have to cover the raw material costs, actual production costs and overheads, but also the price of the emissions allowances which the company needs.