Tag Archives: EU

Is 2017 the Time to Think About 2021?

This may sound like a US presidential election campaign, but thankfully it’s not. The EU conflict minerals directive is now final and reporting is required beginning January 1, 2021 – three and a half years from now. If you aren’t familiar with the upcoming EU conflict minerals due diligence and reporting obligations, take a moment to read what we think is a good, plain-language overview.

We have had many conversations about what the EU Directive means for companies right now. Below is a table of the more common discussion points that may be helpful to those grappling with whether to begin program development and implementation now or wait until the deadline is closer.

Pros

Cons

Third party service provider costs are low at this time due to maturity of conflict minerals reporting in US Program implementation costs and effort not yet necessary
Limited incremental costs for EU companies already reporting conflict minerals information to US customers or the SEC Program implementation costs and effort not yet necessary; regulatory uncertainty exists until member states adopt their own supporting mandates.
Flexibility in reporting Reporting format unknown at this time; regulatory uncertainty exists until member states adopt their own supporting mandates.
Potential competitive advantage may be gained with customers and corporate reputation Market awareness may be low currently, so investment now may not show a return
Acquire experience and correct program errors and gaps in advance of legal deadline, reduce risk of fines, penalties, customer pressure and reputational damage Further options and third party information sources likely to develop and improve over time, leading to better reporting at legal deadline

 

Feel free to contact us with any questions.

ALERT: European Parliament Announces Conflict Regulation for Finalization

In a press conference concluded minutes ago, Bernd Lange, Chair of the International Trade Committee, Iuliu WINKLER, rapporteur with Cecilia MALMSTRÖM, Member of the EC in charge of Trade and Council presidency and Ivan LANČARIČ, Ministry of Economy of Slovak Republic announced what is called “informal deal on a regulation” for the EU conflict minerals scheme. This action will be legally binding and is aligned with the June 2016 political understanding. The final text will be voted on by the member states on December 7, 2016, with a vote in the plenary expected in the first half of 2017.

Details are forthcoming, but what is known now is:

  • Due diligence is based on the OECD Guidelines.
  • The scheme is mandatory for importers of 3TG and applies to companies with more than 500 employees but small volume importers will be exempt from these obligations.  The “small” threshold was not provided in the public announcements. Previous reports place the threshold at 100kg for gold.
  • The regulation allows companies to become a responsible importer by declaring in writing to the competent authority in a member state that it follows the due diligence obligations set in the regulation. A list of these importers will be published by the Commission. The competent authorities will carry out checks to ensure that EU importers of minerals and metals comply with their due diligence obligations. Details about the checks were not provided in the public announcement.
  • The legal deadline for implementation is January 1, 2021 but the EP specifically invites voluntary early entry into the program by EU manufacturers and sellers not otherwise subject to the law.
  • The Commission will draft a handbook including non-binding guidelines to help companies, and especially SME’s, with the identification of conflict-affected and high-risk areas.

Press releases from the EP are available here and here.  A more detailed press release is here.

We will continue to follow these developments and will post updates as they are available.

ALERT: EU “Political Understanding” Reached on Conflict Minerals Law

Yesterday, the European Commission announced that a “political understanding” was reached on the European conflict minerals law.  As we understand it, this means that the relevant political entities have agreed upon high level legal principles for the conflict minerals requirements for covered businesses in Europe.  The technical and implementation details are to be developed in the future.

Video announcements are available here and here.  The most substantive information in the first video is presented at 13:30 – 14:50 and 16:50 – 19:50.  In the second video, substantive information is presented at 10:22 – 11:20 and 13:30 – 19:22.  We distilled this down to the following points we were able to extract:

  • Due diligence and disclosure are mandatory, not voluntary, for the covered supply chain actors
  • Due diligence is based on OECD, but is limited to 3TG at this time
  • It is global in scope, covering conflict-affected areas, not just DRC and adjoining countries as is Dodd-Frank
  • Requires due diligence for upstream actors, including smelters/refiners
  • Due diligence is also mandatory for importers of ores and processed metals, but manufacturers are not covered
  • Covers 95% of relevant European importers of ores and processed metals
  • Specific guidelines are to be developed for companies with more than 500 employees
  • Requires public disclosure by covered downstream actors, which will include a registry/database
  • A clause exists for the EU/EC to review/renegotiate the law in the future relative to covered downstream actors
  • Includes some form of on-going monitoring, possibly audits
  • Several exemptions have been agreed upon, including recycled materials, existing stocks of materials and by-products from processing. The details are to be worked out in additional trialogue technical negotiations

As we know more, we will continue to post updates.  Feel free to contact us with any questions.

 

EU Conflict Minerals Requirements May Be Shifting

In taking over the EU presidency for the current term, the Netherlands publicly stated one of their primary goals was to complete negotiations on the final EU conflict minerals law and get a final law on the books.  This has not happened and the Dutch presidency ends in June.  Joanna Sopinska of EU Trade Insights earlier this week provided an update (subscription required) on the negotiations.

According to Sopinska, the Dutch are now working toward a

mandatory certification method for importers of minerals and metals, whose annual imports exceed a certain threshold. The document [on the matter obtained by EU Insights] notes that the threshold/ thresholds will be determined on the basis of proposals by member states.

This indicates that while the scheme would be mandatory, fewer than the originally-estimated 800,000+ businesses may be affected based on the thresholds.  With member states establishing their own thresholds, they retain a significant amount of sovereign control over the impact of the requirements within their borders and economy – an approach that could hold enough appeal to be successful.

Talks continue next week concurrent with the OECD Forum and perhaps an announcement of some kind will be made.  We will post information and updates from the Forum as they become available.

Latest News from the European Commission Trade Directorate on EU’s Conflict Minerals Law

An excerpt from an article in Chemical Watch:

… last week, Signe Ratso, trade strategy and analysis director at the European Commission’s trade directorate, said discussions between the Parliament, Commission and Council of Ministers on the amendments should be concluded during the next EU Presidency, form [sic] 1 January to 30 June, which is held by the Netherlands. After that, she said, the trilogues – three-way talks between the institutions to finalise a law – will start.

So we have a while to go before the EU’s conflict minerals requirements will be finalized.

IPC, Others Issue Joint Industry Recommendations for EU Conflict Minerals Proposal

Earlier today, IPC – along with AmCham EU, the European Committee of Domestic Equipment Manufacturers (CECED), DIGITALEUROPE, the Japan Business Council in Europe (JBCE), the Japan Electronics and Information Technology Industries Association (JEITA), the Korea Electronics Association (KEA), Semiconductor Equipment and Materials International (SEMI), the Trans-Atlantic Business Council (TABC), and TechAmerica Europe – issued multi-industry comments and recommendations to the EU proposed conflict minerals legislation.

The recommendations support the March 2, 2015 report issued by MEP Winkler, the rapporteur for conflict minerals.

 

 

EU Trade Commissioner Offers Insights into EU Directive on Conflict Minerals

Comments from EU Commissioner for Trade Karel De Gucht published September 3 provide a glimpse into possible EU directive requirements for conflict minerals regulation, currently under review by the EU.

These comments outline six main points:

  1. That “trade is just one factor among many” and the EU initiative should be framed in a “wider context of a comprehensive approach to break the link between conflict and raw materials.”
  2. It will “build on existing obligations and approaches, rather than coming into conflict with them.”  This refers to OECD’s Due Diligence Framework and Dodd-Frank Section 1502.
  3. “… Avoid creating incentives for companies to stop sourcing minerals from conflict regions altogether” and will actually “provide incentives for companies – to work with primary producers in conflict regions”.
  4. It will be broader in geographic scope than simply the DRC and adjoining countries.  While no countries were named specifically, recent events suggest that Latin America and Indonesia are likely to be high on the list.
  5. It will provide “smelters – the narrowest point in the supply chain – with incentives to carry out due diligence on their upstream suppliers.”
  6. Another major goal is to “avoid any risk to security of supply for the European Union”.

Another Major EU Carbon Trading Fraud Under Investigation

Bloomberg.com reported that earlier this week, European authorities launched a major investigation of several large companies that are thought to have played a role in a system of fraud and tax evasion that may have impacted 7% of the total CO2 emissions trading market for 2009 in the EU.

Prosecutors and tax investigators yesterday searched Deutsche Bank, HVB Group and RWE AG in a raid on 230 offices and homes to investigate 180 million euros ($238 million) of tax evasion. The probe targeted 150 suspects at 50 companies…

Yesterday’s raids were the biggest related to a fraud that may have tainted an estimated 7 percent of European Union carbon trades in 2009…

About 400 million metric tons of emission trades may have been fraudulent last year, or about 7 percent of the total market, including futures transactions, according to estimates from Bloomberg New Energy Finance.

Europe lost about 5 billion euros in revenue for the 18 months ending in 2009 because of value-added tax fraud in the CO2 market, according to Europol, a European law-enforcement agency.

“Surprised and Concerned” About Illegitimate Government-Sponsored CER Trading?

Environmental Leader has reported

that the Hungarian government sold 2 million previously used CERs, the market became tepid. Then when prices fell from more than 12 euro per credit to less than one euro, trading was suspended on two exchanges, Bluenext and Nord Pool.

The NYT provided more details of the transaction, stating

The credits appear to be part of massive blocks of CERs awarded to Eastern European states and Russia after the collapse of Soviet-era industry.  This created a loophole used by Hungary to reintroduce used CERs back into the market…

Carbon traders said countries like Hungary were exploiting the loophole to earn more money from the carbon trading system than they could by selling the credits that they had previously earned under the Kyoto system…

The traders said at least one other E.U. member state had acted similarly earlier this year.

The EU said they were “surprised and concerned” about the situation.  BusinessWeek quoted others who expressed more urgency about the matter:

“The supply and demand dynamics have been changed,” said Paul Kelly, chief executive officer of JPMorgan’s EcoSecurities unit. While the scope of the problem has yet to be determined, buyers are “questioning the authenticity” of what they are buying.

Unfortunately, this isn’t the only recent development that may cause market participants concern.  This is just the latest in a barrage of credibility and financial damage for GHG emissions trading, including:

  • Last year swindlers robbed governments of about 5 billion euros in revenues — about $6.8 billion — by selling carbon credits and disappearing before paying the required Value Added Tax on the transactions.
  • In January, swindlers used faked e-mail messages to obtain access codes for individual accounts on national registries that make up the bloc’s Emission Trading System, and then used the stolen codes to gain access to electronic certificates that represent quantities of greenhouse gases.
  • In Australia, recent fraud enforcement involved forcing a green power company, Global Green Plan, to purchase carbon credits it had promised to buy on behalf of customers, but never did.  The government is currently pursuing action against carbon capture company Prime Carbon over allegedly misleading claims made by the firm.
  • In Belgium, authorities have charged three Britons suspected of value added taxes (VAT) fraud on CO2 emissions permits.

In the U.S.,  the Regional Greenhouse Gas Initiative (RGGI), a group of Northeastern U.S. states that have a cap-and-trade program for utilities, faced its own demons.

  • The New Jersey government reallocated about $65 million in funds raised in the RGGI auction. The funds were intended for use in developing renewable energy projects, but instead are going to the state’s general fund, Reuters reports.
  • Last year, New York similarly took $90 million from its carbon fund.

So Now What?

Companies with a major stake in the GHG emissions game must conduct a detailed risk assessment of their GHG programs, solutions and exposures.  Given what has developed in the trading market in the past six months, it would be wide to carry out exposure identification, failure analyses, contingency planning and desktop exercises.

Such analyses and assessments may be critical for publicly traded companies in the United States due to SEC’s recent announcement and the newly effective EPA rule requiring reporting of greenhouse gas emissions from fossil fuel suppliers and industrial gas suppliers, direct greenhouse gas emitters and manufacturers of heavy-duty and off-road vehicles and engines.

Lawrence Heim, Director of The Elm Consulting Group International’s Atlanta office, said

Close to 10 years ago, I began posing the question ‘what if the GHG emissions trading market collapses?’  Assuming cohesive legally-enforceable emissions standards existed, the cost proposition presented by emissions trading in comparison to capital expenditures for pollution control equipment was quite attractive.  The impact of a material failure of the trading framework was significant.  This line of thought became incorporated into client risk assessments even back then.

In the US, we can look at the pollution control expenditures related to EPA’s New Source Review (NSR) enforcement initiative to provide insight into GHG control equipment costs.  Of course, NSR enforcement involves pollutants for which there are well-established and commercially-viable emissions control technologies.  We don’t have that luxury with carbon dioxide, which will likely translate into dramatically higher costs.

Further erosion of the viability of GHG emissions trading could have a significant impact on your company.  Please contact us if you would like to understand more about climate business risk assessments and potential risk mitigation options.