On 16 October 2008, the European Commission, Member States and the United Nations Framework Convention on Climate Change (UNFCCC) Secretariat completed the live connection between the UNFCCC International Transaction Log (ITL), the European Union (EU) Community Independent Transaction Log (CITL) and 26 EU greenhouse gas (GHG) emissions trading system (EU ETS) registries.
This development will impact the operators subject to the EU ETS and of stakeholders involved in the trading of both EU Allowances (EUAs) and UN-based emission credits.
The Purpose of the CITL-ITL link
The link:
- enables operators to transfer certified emissions reduction credits (CERs) (and other types of UN-based credits) into the accounts they have to maintain at the national registries of their Member State
- expands the EU’s emissions trading market and ensures operators have access to a wider supply of carbon credits in order to meet their GHG emission allowance targets and
- enables Member States that have been waiting to obtain their GHG emission entitlement under the Kyoto Protocol (in the form of so-called “Assigned Amount Units”) prior to issuing EUAs in Phase 2 of the EU ETS (2008 - 2012)
Following the successful linkage of the CITL and ITL, governments and other stakeholders will be able to exchange and use emissions rights on a global scale, while taking advantage of credits stemming from the Clean Development Mechanism (CDM) and Joint Implementation (JI) flexibility mechanisms of the Kyoto Protocol.
Joint operation of the two systems
Each EU Member State must have a national registry and be connected to the CITL. The CITL registry records electronically the issuance, transfer, cancellation, retirement and banking of allowances issued pursuant to the EU ETS. The ITL is an electronic registry that tracks the various types of UN credits issued to countries that are signatories to the Kyoto Protocol; such UN credits currently include in particular CERs issued under the Clean Development Mechanism (CDM) projects.
While the CITL and ITL systems now jointly control and track transactions, each Member State’s registry is only connected to the ITL. Each transaction involving an EU Member State is passed on to the CITL for recording and checking purposes.
Significance of the CITL-ITL link
According to a UNFCCC press release on 14 October, the link finalises the infrastructure required for successful operation of all flexibility mechanisms under the Kyoto Protocol. It expands the market size of carbon allowances in industrialised countries from about 24 billion tonnes of carbon dioxide (CO2) equivalent to almost 50 billion; in addition, the CDM is expected to soon add another 100 million credits to the market.
The carbon market appears to have already felt the effect of the CITL-ITL link. The price differential between EU allowances (EUAs) and secondary CERs is reported to have reduced during the lead up to the link on 16 October and traders reported an increase in EUA-CER swaps, especially from certain industrial sectors.
Next Steps
The CITL has been offline since 6 October to enable the ITL link. EU Member State registries are expected to gradually come back online following the successful completion of the CITL - ITL link.
The UNFCCC secretariat plans to link the registries of Iceland, Liechtenstein, Norway, and the Ukraine later in October or November this year. By then, almost all industrialised countries with emission reduction targets under the Kyoto Protocol will have full access to the implementation of market-based mechanisms.
To read our previous law-now entitled ‘UN carbon credit registry connection issues to be resolved’, please click here.
