carbon · renewables · Energy

the eu emissions trading scheme

The EU Emissions Trading Scheme has seen its fair share of challenges since its start in 2005. The recession fundamentally changed the demand-supply balance in Phase 2 and we have seen the European Commission take steps to rectify this in Phase 3, initially through the “back-loading” proposal and then with the Market Stability Reserve (MSR) planned for 2019. The current proposals for Phase 4 (2021-2030) see a further reduction in the EU ETS cap, plans for more auctioning, tighter benchmarks and fewer industry sectors receiving 100% free allocations.

All these changes will result in a greater impact of the EU ETS on operators both in terms of tougher targets and the likelihood of rising carbon prices. As such it is important for to keep up to date with policy developments and carbon market activity. Sign up to our monthly Carbon Report if you would like to be kept up to date with policy and market issues.

EU ETS sectors covered

As a cap-and-trade system, the EU ETS sets an emissions cap or limit on the total emissions allowed by all EU ETS operators. The scheme then allows participants in the EU ETS to buy and sell allowances as required through an open carbon market with prices driven by demand and supply. In addition, EU Aviation allowances (EUAAs) have been created to be used for compliance by airline operators. ​

The EU ETS legislation also allows participants to use credits from the Kyoto Protocol's Clean Development Mechanism (CDM) towards fulfilling part of their EU ETS compliance up to a limit set by the EC. The use of international credits can significantly reduce the cost of compliance for operators ​- see Carbon Trading for more details.

How it works

The EU Emissions Trading Scheme (EU ETS) is the main European Union policy tool to combat climate change and aims to reduce industrial greenhouse gas emissions cost-effectively. It remains the largest international scheme for trading emission allowances, covering more than 11,000 power stations and manufacturing plants in the 27 EU member states as well as Croatia, Iceland, Liechtenstein and Norway. From the start of 2012, aircraft flights within and between most of these countries are also covered. In total, around 45% of total EU emissions are covered by the EU ETS. 

- Carbon dioxide (CO2) from:​

  1. Power and heat generation
  2. Energy intensive industry sectors including oil refineries, steel works and production of iron, aluminium, metals, cement, lime, glass, ceramics, pulp, paper, cardboard, acids and bulk organic chemicals
  3. ​Commercial and private aviation

- Nitrous oxide (N2O) from production of nitric, adipic, glyoxal and glyoxlic acids

- Perfluorocarbons (PFCs) from aluminium

  1. A comprehensive ​understanding of EU ETS policy and the carbon market, including what drives prices and the different trading strategies to manage compliance.
  2. Updates of significant market developments and carbon prices.
  3. Briefings on key EU ETS policy, the carbon market and Phase 4 proposals.
  4. Analysis of your future compliance costs based on forecast emissions and EU allowance prices.
  5. Tailored workshops to help staff keep up to date with EU ETS policy, identify future compliance costs and understand trading.

Please contact us to find our more details about how we can help operators manage future compliance needs

our EU ETS advisory service provides operAtors with:

EU ETS Structural reform