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09 September 2019
Mutual recognition of CO2 emission allowances
Transfer of CO2 allowances
Public Emissions Trading Registry
Offset against Switzerland's CO2 reduction target
Fossil-fuel thermal power plants
The CO2 Agreement between Switzerland and the European Union and the corresponding partial revision of the Swiss CO2 Act will enter into force on 1 January 2020. The CO2 Agreement aims to link the Swiss and EU emissions trading systems (ETSs) to allow energy-intensive industries which currently participate in only the Swiss ETS to access the more dynamic EU emissions market. The new law will enable industrial plant and aircraft operators participating in the EU ETS, aircraft operators located in Switzerland and other admitted companies located in the European Economic Area to auction emission allowances in both ETSs.
Since 2011, Switzerland has been negotiating with the European Union to link their respective systems for greenhouse gas emissions trading. The overarching aim of this link is, among other things, to strengthen the Swiss ETS as a climate policy and market-based tool and enable energy-intensive industries to reduce greenhouse gas emissions at a lower cost.
In November 2017 Switzerland signed an unlimited CO2 Agreement with the European Union to link their respective ETSs. In essence, the agreement stipulates that:
In particular, the agreement sets out requirements for industrial plants, aviation, registries, accounts, transaction protocols, security mechanisms and procedures as well as auction platforms and activities. It also establishes a joint committee of Swiss and EU representatives, which will administer and further develop the CO2 Agreement in view of the new commitment period (ie, 2021 to 2030).
In March 2019 the Swiss Parliament adopted the CO2 Agreement – along with the amendments to the CO2 Act – and it is awaiting ratification. The partially revised CO2 Ordinance, the consultation period of which ended on 2 July 2019, will enter into force on 1 January 2020 along with the CO2 Agreement and the partially revised CO2 Act. The key aspects of this CO2 regulatory package are summarised below.
The mutual recognition of CO2 emission allowances, which can be used to fulfil emission commitments, is a key aspect of the regulatory package. It will enable industrial plant and aircraft operators obliged to participate in these systems to use CO2 emission allowances from both the Swiss and EU ETSs to cover their emissions.
The inclusion of industrial plants in both ETSs is mutually recognised based on essential criteria. Operators of industrial plants that perform activities in accordance with Annex 6 of the current CO2 Ordinance will have to continue participating in the Swiss ETS. In future, industrial plant operators newly obliged to participate in the Swiss ETS will be entitled to apply for an exemption with immediate effect if they permanently emit less than 25,000 tonnes of CO2eq per year.
Each year, participating operators will receive a portion of the emission allowances in both ETSs free of charge, with the remaining part being sold by auction. Swiss operators will be entitled to apply for access to both Swiss and EU auctions. The auctions will take place in an open, transparent, regular and non-discriminatory manner, whereby competition should be maintained between not only auction participants, but also platforms.
The Federal Office for the Environment will be responsible for auctioning 15% of the maximum available quantity of emission allowances for aircraft in addition to the emission allowances for industrial plants subject to payment. For industrial plants, the annual auction will be limited to a maximum of 10% of the upper limit of the previous year. The auction will take place in a competitive procedure, which essentially corresponds to the current procedure. The non-competitive procedure will be abolished.
Auctioneering entities are selected by a procedure based on EU or national procurement law. They must, among other things, implement security measures such as arrangements for the identification and resolution of conflicts of interest and risks, implement a customer review processes, establish fair and orderly auctioning and provide sufficient financial resources. Further, auctioneering entities must ensure that auction prices do not deviate significantly from the relevant price for certificates on the secondary market during the auction period.
The direct transfer of emission allowances between the Swiss and EU ETSs will be achieved by linking the EU Transaction Log with the Swiss Supplementary Transaction Log. The competent administrative authorities will cooperate closely on several fronts (eg, combating fraud and harmonising procedural regulations).
The Public Emissions Trading Registry will be operated by the federal government and enable the storage and transaction of emission allowances, attestations and emission reduction certificates. The requirements for opening, managing and closing accounts will be tightened, on account of the prospective electronic link between the Swiss and EU registers.
If the CO2 emissions of all operators in the Swiss ETS exceed the maximum available quantity of Swiss emission allowances for industrial plants and are covered by EU emission allowances, the latter are offset against the Swiss reduction target, but only if the Swiss reduction target would not be achieved without taking them into account.
The CO2 Agreement adopts the essential principles of the EU ETS concerning the inclusion of aviation, in particular its scope, coverage of flights, the maximum amount of emission allowances available and allocation rules. Flights from Switzerland to the European Economic Area are subject to the Swiss ETS, while flights from the European Economic Area to Switzerland will be covered by the EU ETS.
As in the European Union, the Swiss ETS also provides for exceptions for aircraft operators, including for special flights (eg, military, rescue and research) and certain threshold values. Further, the calculation of the maximum amount of emission allowances available for aviation, their issuance and the reporting are regulated in detail in the CO2 Ordinance.
As under the current regime, the CO2 tax on fuels will be reimbursed to plant operators participating in the Swiss ETS at their request. A new exception applies to so-called 'fossil-fuel thermal power plants'. Under this exception, reimbursement will be granted only to the extent that the CO2 price exceeds a minimum price. The minimum price will depend on the mean value of the external costs to be borne by the general public minus the auction costs of the emission allowances issued.
The current compensation obligation of such power plants, according to which the CO2 emissions caused are to be fully compensated and a maximum of 50% can be offset by emission reduction certificates, will be abolished.
For more information please contact Marcel Meinhardt or Patrick Sattler at Lenz & Staehelin by telephone (+41 58 450 80 00) or email (email@example.com or firstname.lastname@example.org). The Lenz & Staehelin website can be accessed at www.lenzstaehelin.com.
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