Case law >> Contracts and ETS compliance

17th July 2012


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Experts from LexisPSL analyse the High Court decision to award more than €4 million in compensation to a bank sold used EU ETS credits

In Deutsche Bank AG v Total Global Steel Ltd [2012] EWHC 1201 (Comm) the High Court held that the claimant was entitled to damages of €4,182,000 for the breach of four contracts for the delivery of certified emission reductions (CERs) under the EU emissions trading scheme (ETS).

CERs can be resold by ETS participants to third parties, such as investment banks, that participate in carbon markets through buying and selling EU greenhouse-gas emission allowances (EUAs) and other carbon credits, although they do not themselves have any obligations under the scheme.

Member states allocate EUAs to EU energy-intensive installations as part of the ETS, with each allowance equal to the emission of one metric tonne of CO2.

At the end of an ETS year, the operator of an installation must hold at least the same number of, or more, EUAs than the total volume of emissions from the facility. Companies with insufficient allowances can buy EUAs from those with a surplus to comply with their emissions limit.

To comply with its ETS obligations, a participating installation can also surrender other carbon credits – such as those offered through the UN’s Clean Development Mechanism and Joint Implementation projects.

In March 2010, Total Global Steel agreed four contracts to sell a total of 492,000 CERs to Deutsche Bank for €5,737,440. After realising that Total had delivered previously surrendered CERs, the bank wrote to the steel company stating that it had not performed the contracts properly because the delivered CERs could not be used for ETS compliance.

Deutsche requested that Total replace the surrendered CERs with ones that could be used for ETS compliance. Total did not deliver any further CERs.

Deutsche claimed that Total was obliged to deliver CERs that could be used for “compliance with emissions limitation commitments” in accordance with the ETS. Total disputed this.

The court calculated damages on the basis of the surrendered CERs’ value at 22 March 2012. This judgment will reassure the carbon markets and support the European Commission’s efforts to prevent surrendered CERs from being reused under the ETS.

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