EU Emission Trading System

Under EU ETS, industries can trade carbon dioxide allowances in order to maintain an overall balance in GHG emissions

Industry

Copyright John Doheny

Under EU ETS, industries can trade carbon dioxide allowances in order to maintain an overall balance in GHG emissions
Copyright John Doheny

Under EU ETS, industries can trade carbon dioxide allowances in order to maintain an overall balance in GHG emissions

Industry

Copyright John Doheny

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The European Union Emissions Trading System (EU ETS) was introduced to try to combat high GHG emission levels within the EU. Launched in 2005 it is now in its third phase, running from 2013 to 2020. A major revision approved in 2009 in order to strengthen the system means the third phase is significantly different from phases one and two and is based on rules which are far more harmonised than before. The main changes are:

• A single, EU-wide cap on emissions applies in place of the previous system of national caps;
• Auctioning, not free allocation, is now the default method for allocating allowances. In 2013 more than 40% of allowances will be auctioned, and this share will rise progressively each year;
• For those allowances still given away for free, harmonised allocation rules apply which are based on ambitious EU-wide benchmarks of emissions performance;
• Some more sectors and gases are included.

The EU ETS covers more than 11,000 power stations and industrial plants in 31 countries, as well as airlines. Under the scheme, carbon dioxide emissions from large industries are capped, but trading of excess carbon dioxide allowances between industries is permitted. Any industry or company that is unable to keep within the tonnage limit of their carbon dioxide allowances has two options available to them:

1. They can buy the excess allowances of another company to achieve their targets;
   

2. They can invest in clean energy technology development in other regions of the world, and retain the GHG reductions achieved towards their own targets.

It is hoped that this will allow emission reductions to take place in a cost effective manner, thereby providing economic incentives for achieving target reductions. For the first time, the EU ETS puts a monetary value on a tonne of carbon dioxide.