Carbon Expert - What is The European Union Emission Trading System?

EU ETS

The European Union Emission Trading System (EU ETS) is the largest multi-national, emissions trading scheme in the world, and is a major pillar of EU climate policy.

Launched in 2005, the ETS currently covers more than 11,000 installations in 30 countries (the 27 EU Member States plus Iceland, Liechtenstein and Norway) with a net heat excess of 20 MW in the energy and industrial sectors which are collectively responsible for close to half of the EU's emissions of CO2 and 40% of its total greenhouse gas emissions. The EU ETS is a key tool for reducing industrial greenhouse gas emissions cost-effectively.

Under the EU ETS, large emitters of carbon dioxide within the EU must monitor and annually report their CO2 emissions, and they are obliged every year to return an amount of emission allowances to the government that is equivalent to their CO2 emissions in that year.

Companies that go over their allowance purchase credits to offset their emissions, creating large demand for these credits.

The EU ETS works on the "cap and trade" principle. This means there is a "cap", or limit, on the total amount of certain greenhouse gases that can be emitted by installations such as power stations, combustion plants, oil refineries and iron and steel works, as well as factories making cement, glass, lime, bricks, ceramics, pulp, paper and board.

Within this cap, companies receive emission allowances which they can sell to or buy from one another as needed. The limit on the total number of allowances available ensures that they have a value.

At the end of each year each company must surrender enough allowances to cover all its emissions, otherwise heavy fines are imposed. If a company reduces its emissions, it can keep the spare allowances to cover its future needs or else sell them to another company that is short of allowances. The flexibility that trading brings ensures that emissions are cut where it costs least to do so.

The number of allowances is reduced over time so that total emissions fall. In 2020 emissions will be 21% lower than in 2005.

Airlines will join the scheme in 2012. The EU ETS will be further expanded to the petrochemicals, ammonia and aluminium industries and to additional gases in 2013, when the third trading period will start. At the same time a series of important changes to the way the EU ETS works will take effect in order to strengthen the system.

The EU ETS has put a price on carbon emissions and shown that it is possible to trade in greenhouse gas emissions.

read more: http://ec.europa.eu

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