Emission News Practical Information for Emission Trading Edition

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1 CO2 Monitoring Concept and ETS Report Generation CO2 Data Collection and Allowance Application CO2 Certificates Purchase/Sale EUA, aeua, CER, ERU CO2 Certificates Swap, Spot- and Forward Trading For Information using the Freecall Daily QCFI2Z3 Line, QCFI2Z3, Last Trade(Last) 18/01/2013, /09/ /01/2013 (LON) Price EUR Emission News Practical Information for Emission Trading Edition EUA DEC bis Source: ECX London Allocation decisions expected soon - chance for correction of applications may have been possible -Airlines before decision The notification of the allocation decisions for is imminent in the coming weeks. Because of already published in May 2012, provisional allocation lists (in Germany "NIMs InstData-List") were at least German and Polish operator ever seen, which estimated allocation they will receive in Here, in some cases, companies were downright shocked if the small number of certificates, which had provided the authority for this. The estimated allocation amount was even less than half, of the company before even calculated worstcase scenario. In other cases, the company clearly only due to the allocation list, the economic consequences if not approved by a CL-status (NACE code not on the carbon leakage list) enters a lack of free allowances. In other cases, companies with a service company get their energy in an indirect way, it became clear that the contractor obvious errors have occur in the allocation applications, which now (due to lack of free allowances) will be to increase the lead secondary energy prices through this. Since it now shows that in some of these cases corrections of past errors apparently still might be possible should inform affected operators quickly that corrections to the authority is necessary. More here in our Emission News , the airlines also provides assistance to a decision to what extent this should accept the offer of the national authorities to suspend reporting obligations and the surrender of allowances September 2012 October 2012 November 2012 December 2012 January 2013 Review of the application - NACE code and definition of useful heat were the sticking points The 3rd Trading period of emissions trading encompasses the years 2013 to With a term of 8 years, she is the longest period. This large multiplying effect made the decision on the number of emission allowances allocated free of charge so important. In addition, this effect is exceeded by three basic decisions that are formulated during the making of the allocation rules: 1. For CO2 emissions, resulting in the generation of electricity, there are no free allocation 2. The allocation is not based on historical emissions, but based on historical production levels or commercial quantities of useful heat or fuel consumption. 3. A distinction is made between the procedures of production, a) are at risk-cl, and thus a nearly wholly allocation over the entire third Trading period and receive such b) are not at risk- CL in the first year (2013) received a reduced allocation to 80%, which then will be reduced until 2020 to 30% (corresponding to a halving of the sections with the appropriate allocation of the purchase requirement of emission rights). The CL-term threat is called "carbon leakage" risks. It expresses, that products that are produced domestically

2 but in international competition, suffer from exposure to the acquisition of CO2 emission rights at a competitive disadvantage. This could lead to the entrepreneurial decision to move production to countries where there is no obligation to participate in emissions trading. Then the world's CO2 production would not decrease, but in Germany and Europe jobs were lost. To avoid this undesirable effect, the EU Commission published in December 2009, a so-called CL-list, on the productive sectors are listed, which were classified as CL-risk. This list refers to the numbers of the NACE classification in the 2003 version, with which the products are characterized in the report to the State Statistical Offices. However, compared with the currently used NACE numbers a translation back into the corresponding numbers of the 2003 version is required. This retranslation is not always clear and is sometimes a certain margin of discretion in its skilful use a reference can be made to the CL list. Because of the large financial impact consideration for CL threat had yes / no at the beginning of all the work to develop the allocation applications for the 3rd Trading period are. But it turned out later that the importance of this classification and the resulting discretions were not aware of all the applicants! The consideration of this effect during the application was aggravated by very detailed rules for the treatment of useful heat, although produced in applicants, but was forwarded by the latter to external consumers. Possible allocation scenarios for operators The normal case will be that the expected allocation roughly corresponds to the quantities requested. This is the simplest case, and immediate action is required. However, this applies only if the operator has a CLstatus. However, he has not received this, then he should be 100% sure that he has exhausted all the possibilities together with external consultants achieved by optimization of NACE codes not to the status of the CLrisk yet. It should not be forgotten that with respect to the provisional allotment amounts in any case still certain deductions (probably a few percent) to be made after the EU Commission has set its overall balance and the national registration authorities have sent the notices. Interestingly, it is now, if the anticipated allocation of the quantities requested not to purchase. Infobox CO2 exchange urgently recommended until April 2013 Many market participants have already registered: The CER-certificate price has reached at 0.40 EUR / t is a new record low. Thus, the spread (price difference) between EUA and CER since the beginning of January 2013 was extremely attractive and partly 5 Euro / t. But since the price of the EUA since the mid of the month also continually falls, all operators should quickly decide to CO2 exchange, which took advantage of their exchange rate of 22% is not in the current period Unfortunately, the first cases are already visible in which the operators have submitted up to no CER / ERU, now in 2012 have lower emissions than the allowable amount of CER / ERU exchange amount. Should then be still in a timely exit from emissions trading, the potential income have been given away for good. Note also that most of the outstanding CER / ERU are suitable in any case from for submitting more. To questions feel free to contact us without obligation at +49 (0) or Free phone and by at info@emissionshaendler.com The reasons may be many and varied - this is the first operator to rely on speculation about the reasons for the negative deviation from the requested allocation. The registers should refer any queries in such cases so far in principle to the expected allocation decisions by pointing out that even after the study of opposition may be filed. The deadline for lodging an objection after receiving the allocation decisions is given as expected 4 weeks. This period may prove to be too short, if due to the official argument for allocating a complex counter-factual reasoning must be developed, for which the operator is in most cases then consult outside expertise. Because of the diversity of local conditions can Emissionshändler.com not represent all specific situations. However, three typical types of application are presented and the possible sources of error and correction opportunity this represents. 2

3 The self-imposed allocation application of an operator The operator has created the allocation request for emissions from its plant itself. If in this case a discrepancy between the expected value and the allocation provided by asset allocation list occurs, then the example the following reasons: Reason 1 - not NACE codes optimized The applicant has forgotten that when using CLallotment elements without endangering the allocation amount in the first year 2013 is only 80% of the required allowances and then going down to 30% in 2020, the last year of the 3rd Trading period. Be checked if this was the case, then quickly whether in the choice of the NACE classification, which was used in the application, an error has happened and all other options have been exhausted. This may be a complicated process, because it for the selection of the relevant NACE codes for a specific company are no clear rules. Thus it is possible for companies that manufacture various products differentiated between a) the heat requirement for the preparation of products to which a NACE code can be assigned which is also included on the CL-list, so that this is the "heat emission value, CL-risk" may be used and b) the heat requirement for the preparation of products to which a NACE code must be assigned, which is not on the list CL, so this is the "heat emission value, not CL-risk 'must be used. In case a) the allocation for the entire duration of the third HP is 100% of the required allowances. In case b) the allocation is going down of 80 to 30% during the third HP is, therefore, only about half of the required amount, resulting in the requirement of the purchase of emission rights. These difficulties may come from the back-translation to the NACE code 2003 (see above), because the assignment of the current code number to a number in the list is not always clear, but sometimes several numbers come in question, of which some are on the CL list, but not others. In the course of handling the procedure with the NACE numbers regarding the decision CL endangered or not it has been found that this resolved for the EC-space approach is including an certain arbitrariness. NACE numbers were determined by purely statistical rules and have really no significance whether the CL criteria are met by the product more expensive purchase of CO2 emission rights and the international situation in the same way. Moreover, it has - at least from Emissionshändler.com supported projects - revealed that seen behind a product with a NACE number that is not on the list purely NACE production technology and respect of the international competition situation like features may be present, as for products with NACE numbers are on the CL list. In such cases, there is the very interesting question of how discrimination can be compensated. Reason 2 - Calculation of quantities of heat incorrect But it may also be that in the calculation of the possible allocated amounts of heat by the operator of methods have been used, which were not as accepted by the authority (for example, when calculating the boiler efficiency). In such cases, write the rules for the use of low fallback values, which then lead to a reduced allocation. Which can e.g. be the case if, for the past few years there were no direct reference measurements for the principle measurable amounts of heat, so that a calculation carried out on the basis of the fuel consumption had. If then a proportion of consumption for electricity generation was used and the boiler efficiencies have not been established clean, then there is room for a different calculation of the useful heat allocation enabled by the national authority. It should be noted here that in an opposition by better calculation example the boiler efficiency corrections can be achieved in the allocation amount. Again, this will generally require the use of external expertise. Reason 3 - Other errors and misunderstandings with the authorities It may be the grounds of the authorities of the reduced allocation also found that when the applications were part of the operator mistakes were made that led the national testing authority to misunderstandings. That can happen is not unlikely, because an operator who has developed applications for an allocation even in the absence of a knowledgeable advisor, hardly been possible to read all 500 pages of rules to find the ones that are relevant to him is. 3

4 One can assume that such self-developed applications were created largely in night and weekend hours because the existing staff through the tasks of the ongoing operation usually been totally busy. The indirectly asked "allocation application" of a company This rather common situation arises whenever an operator is not subject to emissions trading, but is powered by a service company (Energy provider) applies, which is subject to emissions trading and provides him with electricity, heat and / or coldness. In this case, set the service company the allocation application. It had to be indicated by this, whether the supply of energy goes to businesses, which is granted a carbon leakage risk or not. If this was not from the service company with the application procedure carefully and CL threat to individual energy customers has been resolved thoroughly with each client, then errors were easily available. This is mainly because the company has been advised by the energy service manager on the consequences of the melting of allocation not often in the absence of CL risk. Characterized now situations occur that, for a part of the heat is supplied only consumable allocation, though. Thorough analysis at a possible CL status could be detected, and thus the 100% allocation would have been achieved. In such a case, the service company will try to pass the cost for the acquisition of missing emission rights to the customer, even though it has caused by his lack of care these costs themselves. Here is any space given over a dispute between the partners and it will be useful, even before the official receipt of the allocation decisions reached by a corresponding correction to the CL status retroactively thus avoiding the purchase of allowances. The applicant is a Service-Company/Contractor This can either be a classic power companies (EVU) or can also be one of many in the last 10 years, newly formed company that takes in an "industrial park" this service function for all businesses in the park settled. The form of application addressed here is very strong on the organizational structure, for example, whether the heat was delivered directly to the contractors, or whether such supplies for a district heating network, from the households were, his own company is present. For the illustration of these cases very detailed regulations are in place, and it is not always evident how to apply them in specific cases. Especially in the use of coal or oil as fuel (relative to the much higher emission factor to the heat unit in comparison to emissions from gas combustion) were able to be applied for specific transitional arrangements, which brought a higher allocation than for gas combustion. The accepted regulations are including many pages. Here at an unexpected discrepancy between the proposed allocation amount and the amount of allocation decisions only helps the careful analysis of the individual case. Here, too, in general, the factual and critical analysis and reasoning will lead more than a purely legal objection form. Infobox Note on "Monitoring plans" It is noticed that certain objections or claims by DEHSt up to end of July 2012 submitted by the operators monitoring plans had a rather flat character. To save yourself unnecessary trouble in the supplementation or revision of the submitted monitoring plans, should the objections or additional claims are analyzed initially related very closely to the specific case before changes are made on a larger scale. It usually has a chance, with small additions or by appending an additional document to be from claims concerns without the text of the monitoring plan changes. This particularly applies to installations with annual emissions of less than 25,000 ton of CO2, because they require some proof-facilitation can. Also in this case the involvement of external expertise can save your own work. The special case: A company based remote coldness A special case is the situation where a non-eu ETS requiring operation of a subject to emissions trading a service company gets delivered not only remote heating, but also remote coldness. The district receives the delivered service companies an allocation that results from the specified thermal emission level. Therefore a clear rule exists. The situation is different in the remote coldness. For their consideration in the allocation in the 500 pages of rules, no allocation method is described! 4

5 The national authority DEHSt has designed for the operations of the refrigeration circuit own model. This is based on the definition absurd that this circuit introduces useful heat in the balance area of the service company, because the refrigerant is pumped back from external warmer than in the flow to the customer's. That they returned "heat" with such a low temperature arrives that you can eliminate them and discharges into the environment to raise additional energy needs, is not considered. So here can be no question of useful heat. In this case, by very knowledgeable argument against the authority, an adequate consideration of the remote coldness must be enforced. This is generally only on the basis of expertise of technically knowledgeable external point lead to success. A purely legal argument will not lead to an improvement in situational! Conclusion / Recommendations From the above cases, it is apparent that it can not give a recommendation for all individual cases containing the optimal approach. However, it is clear that in cases where an insufficient allocation is provisional amount to be seen for the system, we need to act. For relatively small deviations we will wait for the allocation notice and to analyze the existence of the situation and appeal if necessary contradiction. It will generally be recommended to the support of the opposition with external experts (legal and / or technical) voting or from the Services. For large, already discernible difference is to be expected that a correction to the national authorities can only be enforced by extensive (usually rather technical) expertise are presented. Since the opposition period for sound expertise with 4 weeks is too short there is the possibility to intervene earlier and aggressively reach out to the authority. In this case, this step should be supported by an appropriate specialized consultant who has experience in similar cases. Should accompany this process ideally want to be by the consultant in such cases included lawyer, because the administrative action against a "not yet present decision" carefully considered. If it is possible then that plant operators against DEHSt corrected by immediate action its previous allocation application before the official allocation notice will be sent by the end of March, then the chance of an improvement in the allocation are much higher than if still no action is taken and the Time for an appeal no longer enough. Attention! The new account number in the register of Emissionshändler.com : EU Major changes in the emissions trading for aviation The so-called "Stopping the Clock" proposal from the European Commission or to put it simply, flying to the suspension of the emissions trading scheme for non- European airlines and European airlines, destinations outside Europe or start from there on the way to the EU requires, by the airlines, a decision by 15 February To support the efforts of the International Civil Aviation Organization for a reduction of CO2 emissions and avoid further escalation with the Chinese, the Russians and Americans in the introduction of the European emissions trading scheme, the Commission is temporarily suspending certain provisions of Article 16 of the proposed EU Directive 2003/87/EC with regard to flights from third countries. The deviation from the Directive applies only to the emissions of Should it until the Assembly of the International Civil Aviation Organization (ICAO) 2013 indicate any disagreement, according to the EU Commission, the obligations revived in full, i.e. for 2013 would then have until verified emission reports and certificates will be issued till according to current law. The Commission proposal provides concrete before a suspension of sanctions against aircraft operators, the report for the year 2012 with their obligations to report emissions and surrender allowances for non-european, i.e. outbound flights from third countries do not fulfil (so-called intercontinental flights). The exact definition of the relevant flights was set in a joint letter to the national registration authorities, which was sent on as follows: "Aviation activities to or from airports in countries outside the European Union who are not EFTA countries, overseas territories or reserves of EEA 5

6 Member States and any countries that have signed an accession treaty with the EU" Expressed the other way round, this means that all flights between and within the EU and EFTA countries (Switzerland, Norway, Iceland and Liechtenstein) and Croatia remain in any case in the EU ETS system (socalled intra-eu flights). This now means that airlines operating flights to and from non-european launch or landing sites carry now have a choice how they wish to report for the year 2012 on its activities or if certificates are to be issued for this purpose or not. The deadline for the decision of whether the suspension system under the EU use is to be made by the authorities was the 15th February 2013 announced. Therefore must now decide that an aircraft operator to check: a) returns his share certificates of the calculated subset of non-european airline activities and thus gets its reporting obligations for 2012 only on intra-european flights, and in the case that the only flights take off or landing places outside Europe performs returns its entire certificate and thus completely can abstain from reporting. b) continue to want to keep in full its previous allocation and wants to report on its entire flight. Because from the perspective of a European airline in variant b) for all resulting emissions - whether intra-eu flights and intercontinental flights - for the resulting CO2 emissions certificates also need to be returned, it looks at first glance as if the advantage variant a), in a simpler or no reporting is produced, should be decisive. But it is not always as shown first internal calculations! In any case, an airline should know that the course of action in accordance with the aforementioned policy options a) and be) closer to investigate, as in the letter to the carrier, the actual emission allowances in the event of the return by the authorities in each of the airline resulting, individual subset have been differentiated. These subsets are: 1) Traffic (aviation activities) covered by the derogation (i.e., the "non-european flights / intercontinental flights") 2) Traffic (aviation activities) not covered by the derogation (i.e. the "intra-european flights / intra-eu flights") For sending the decision, the response forms are attached to the cover letter. Without a written notice to the national authority is assumed that the free emission allowances allocated for the calendar year 2012 in accordance with Article 1 of the proposal, will not be returned, and the respective carriers thus continue their surveillance, reporting and delivery requirements for all aviation activities in accordance with EU ETS Directive 2003/87/EC fulfil. However, if the operator decides to return the share certificates for the "affected by the proposed resolution aviation activities", then he should expect beforehand exactly which economic consequences this would have for him. What is the better option for the air carrier? Each air carrier must make this observation for themselves. Criteria, such as distribution of the flights to EU and third country flights and the number of allocated free allowance are needed for decision-making of real significance. An internal loss / gain calculation must make it clear, because there is a guided loss-/ gain analysis reference to the allocated and the necessary permissions and the type of flights should. A pros and cons for a return or a keep the certificates to define, is very difficult to portray, because each airline the factors may be very different. The simplified question arises here Case a) "Return" or in Case b) Keep As a simple rule of thumb for decision making can serve the following notes: If a surplus of certificates exist, then the Case b) are recommended Should a shortage of certificates exist, then the Case a) are recommended 6

7 You will be responsible only non-european flights, you should enter the Case a) are recommended If sufficient or insufficient allowances for non- European flights exist but a surplus for European flights, you should Case b) are recommended A benefit for the use of case a) always, the cost of reporting and verification is much smaller and reduces costs. After the airline has decided one of the alternatives up to the due date and responded according to its national authority ( in the case there is no answer given, the carrier will automatically selected as KEEP ), it will be informed separately about the more concrete process with a possible return of the certificates. By then, the aircraft operator shall not make restitution. Note: In this article, "Stopping the Clock" in part of the co-author Guido Harling participated. Our offer Please contact us without obligation at +49 (0) or Freecall , info@emissionshaendler.com as well as via mail or find out more about the Internet services under Kind emission regards Michael Kroehnert Responsible for content: Emissionshaendler.com GEMB mbh, Helmholtzstraße 2-9, Berlin HRB Amtsgericht Berlin Charlottenburg, USt-ID-Nr. DE Phone: +49 (0) , Fax: +49 (0) Web: Mail: nielepiec@handel-emisjami.pl, info@emissionshaendler.com Member of Executive Board Federal Association Emission Trading and Climate Protection BVEK Disclaimer This letter is issued by the emission GEMB mbh and is for information only. The GEMB Ltd. is neither legal nor tax advice. If this impression, it is hereby clarified that this is neither intended nor desired. The GEMB mbh assumes no responsibility for the accuracy and completeness of the information or its suitability for a particular purpose, either express or implied, This letter is not written with the intention that readers make an investment decision, a purchase or sale decision regarding a CO2 product or market and / or a contract decisions in all other respects active. 7