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The European Union Emissions Trading System (EU ETS) is a "cap and trade" scheme where a limit is placed on the right to emit specified pollutants over an area and companies can trade emission rights within that area. It covers around 45% of the EUs greenhouse gas emissions.
Under the "cap and trade" principle, a maximum (cap) is set on the total amount of greenhouse gases that can be emitted by all participating installations.
EU Allowance
EU Allowances (EUA) are climate credits (or carbon credits) used in the European Union Emissions Trading Scheme (EU ETS). EU Allowances are issued by the EU Member States into Member State Registry accounts. By April 30 of each year, operators of ...
s for emissions are then auctioned off or allocated for free, and can subsequently be traded. Installations must
monitor
Monitor or monitor may refer to:
Places
* Monitor, Alberta
* Monitor, Indiana, town in the United States
* Monitor, Kentucky
* Monitor, Oregon, unincorporated community in the United States
* Monitor, Washington
* Monitor, Logan County, West ...
and report their emissions, ensuring they hand in enough allowances to the authorities to cover their emissions. If emission exceeds what is permitted by its allowances, an installation must purchase allowances from others. Conversely, if an installation has performed well at reducing its emissions, it can sell its leftover credits. This allows the system to find the most cost-effective ways of reducing emissions without significant government intervention.
The scheme has been divided into a number of "trading periods". The first ETS trading period lasted three years, from January 2005 to December 2007. The second trading period ran from January 2008 until December 2012, coinciding with the first commitment period of the
Kyoto Protocol
The Kyoto Protocol was an international treaty which extended the 1992 United Nations Framework Convention on Climate Change (UNFCCC) that commits state parties to reduce greenhouse gas emissions, based on the scientific consensus that (part ...
. The third trading period lasted from January 2013 to December 2020. Compared to 2005, when the EU ETS was first implemented, the proposed caps for 2020 represents a 21% reduction of greenhouse gases. This target has been reached six years early as emissions in the ETS fell to 1.812 billion (10
9) tonnes in 2014. The fourth phase started in January 2021 and will go until December 2030. The emission reductions to be achieved over this period are unclear as of November 2021, as the
European Green Deal necessitates tightening of the current EU ETS reduction target for 2030 of −43% with respect to 2005. The
EU commission
The European Commission (EC) is the executive of the European Union (EU). It operates as a cabinet government, with 27 members of the Commission (informally known as "Commissioners") headed by a President. It includes an administrative body o ...
proposes in its "Fit for 55" package to increase the EU ETS reduction target for 2030 to −61% versus 2005.
History
The EU-ETS was the first large greenhouse gas
emissions trading
Emissions trading is a market-based approach to controlling pollution by providing economic incentives for reducing the emissions of pollutants. The concept is also known as cap and trade (CAT) or emissions trading scheme (ETS). Carbon emission t ...
scheme in the world.
It was launched in 2005 to fight
global warming
In common usage, climate change describes global warming—the ongoing increase in global average temperature—and its effects on Earth's climate system. Climate change in a broader sense also includes previous long-term changes to E ...
and is a major pillar of
EU energy policy. As of 2013, the EU ETS covers more than 11,000 factories, power stations, and other installations with a net heat excess of 20
MW in 31 countries—all 27
EU member states
The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been des ...
plus
Iceland
Iceland ( is, Ísland; ) is a Nordic island country in the North Atlantic Ocean and in the Arctic Ocean. Iceland is the most sparsely populated country in Europe. Iceland's capital and largest city is Reykjavík, which (along with its s ...
,
Norway
Norway, officially the Kingdom of Norway, is a Nordic country in Northern Europe, the mainland territory of which comprises the western and northernmost portion of the Scandinavian Peninsula. The remote Arctic island of Jan Mayen and t ...
,
Liechtenstein
Liechtenstein (), officially the Principality of Liechtenstein (german: link=no, Fürstentum Liechtenstein), is a German-speaking microstate located in the Alps between Austria and Switzerland. Liechtenstein is a semi-constitutional monarchy ...
and
United Kingdom
The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and North ...
. In 2008, the installations regulated by the EU ETS were collectively responsible for close to half of the EU's anthropogenic emissions of
and 40% of its total
greenhouse gas emissions
Greenhouse gas emissions from human activities strengthen the greenhouse effect, contributing to climate change. Most is carbon dioxide from burning fossil fuels: coal, oil, and natural gas. The largest emitters include coal in China and lar ...
.
[Questions and Answers on the Commission's proposal to revise the EU Emissions Trading System](_blank)
, MEMO/08/35, Brussels, 23 January 2008 The EU had set a target for 2020 to cut greenhouse gas emissions by 20% compared with 1990, to reduce energy consumption by 20% compared to the 2007 baseline scenario, and to achieve a 20% share of gross final energy consumption from renewable energy sources—all of which was achieved. A 2020 study estimated that the EU ETS had reduced emissions by more than 1 billion tons between 2008 and 2016 or 3.8% of total EU-wide emissions.
The EU ETS has seen a number of significant changes, with the first trading period described as a "learning by doing" phase.
Phase III sees a turn to auctioning more permits rather than allocating freely (in 2013, over 40% of the allowances were auctioned); harmonisation of rules for the remaining allocations; and the inclusion of other greenhouse gases, such as
nitrous oxide
Nitrous oxide (dinitrogen oxide or dinitrogen monoxide), commonly known as laughing gas, nitrous, or nos, is a chemical compound, an oxide of nitrogen with the formula . At room temperature, it is a colourless non-flammable gas, and has a ...
and
perfluorocarbons
Fluorocarbons are chemical compounds with carbon-fluorine bonds. Compounds that contain many C-F bonds often has distinctive properties, e.g., enhanced stability, volatility, and hydrophobicity. Fluorocarbons and their derivatives are commerci ...
.
In 2012, the EU ETS was also extended to the airline industry, though this only applies within the
EEA.
[Limiting global climate change to 2 degrees Celsius – The way ahead for 2020 and beyond](_blank)
, Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions, Brussels, 10 October 2007. The price of EU ETS carbon credits has been lower than intended, with a large surplus of allowances, in part because of the impact of the recent
economic crisis
An economy is an area of the production, distribution and trade, as well as consumption of goods and services. In general, it is defined as a social domain that emphasize the practices, discourses, and material expressions associated with th ...
on demand.
In 2012, the
Commission said it would delay the auctioning of some allowances.
In 2015, the EU passed the decision (EU) 2015/1814
to establish a Market Stability Reserve that adjusts the annual supply of permits based on the permits in circulation in the previous year.
In 2018, the Market Stability Reserve was amended by Directive (EU) 2018/410
so that a certain amount of permits inside the reserve would be cancelled from 2023 onwards.
Mechanisms
The first phase of EU ETS was created to operate apart from international climate change treaties such as the pre-existing
United Nations Framework Convention on Climate Change
The United Nations Framework Convention on Climate Change (UNFCCC) established an international environmental treaty to combat "dangerous human interference with the climate system", in part by stabilizing greenhouse gas concentrations in th ...
(UNFCCC, 1992) or the
Kyoto Protocol
The Kyoto Protocol was an international treaty which extended the 1992 United Nations Framework Convention on Climate Change (UNFCCC) that commits state parties to reduce greenhouse gas emissions, based on the scientific consensus that (part ...
that was subsequently (1997) established under it. When the Kyoto Protocol came into force on 16 February 2005, Phase I of the EU ETS had already become operational. The EU later agreed to incorporate Kyoto flexible mechanism certificates as compliance tools within the EU ETS. The "Linking Directive" allows operators to use a certain amount of Kyoto certificates from flexible mechanism projects to cover their emissions.
The Kyoto flexible mechanisms are:
*
Joint Implementation Joint Implementation (JI) is one of three flexibility mechanisms set out in the Kyoto Protocol to help countries with binding greenhouse gas emissions targets (the Annex I countries) meet their treaty obligations. Under Article 6, any Annex I cou ...
projects (JI) defined by Article 6 of the Kyoto Protocol, which produce
Emission Reduction Unit
The emission reduction unit (ERU) is an emissions unit issued under a Joint Implementation project in terms of the Kyoto Protocol. An ERU represents a reduction of greenhouse gases under the Joint Implementation mechanism, where it represents one t ...
s (ERUs). One ERU represents the successful emissions reduction equivalent to one tonne of carbon dioxide equivalent (te).
* the
Clean Development Mechanism
The Clean Development Mechanism (CDM) is a United Nations-run carbon offset scheme allowing countries to fund greenhouse gas emissions-reducing projects in other countries and claim the saved emissions as part of their own efforts to meet internat ...
(CDM) defined by Article 12, which produces
Certified Emission Reduction
Certified Emission Reductions (CERs) are a type of emissions unit (or carbon credits) issued by the Clean Development Mechanism (CDM) Executive Board for emission reductions achieved by CDM projects and verified by a DOE (Designated Operational E ...
s (CERs). One CER represents the successful emissions reduction equivalent to one tonne of carbon dioxide equivalent (te).
* International Emissions Trading (IET) defined by Article 17.
IET is relevant as the reductions achieved through CDM projects are a compliance tool for EU ETS operators. These Certified Emission Reductions (CERs) can be obtained by implementing emission reduction projects in developing countries, outside the EU, that have ratified (or acceded to) the Kyoto Protocol. The implementation of Clean Development Projects is largely specified by the
Marrakech Accords
The Marrakech Accords is a set of agreements reached at the 7th Conference of the Parties (COP7) to the United Nations Framework Convention on Climate Change, held in 2001, on the rules of meeting the targets set out in the Kyoto Protocol.
The sep ...
, a follow-on set of agreements by the Conference of the Parties to the Kyoto Protocol.
The legislators of the EU ETS drew up the scheme independently but called on the experiences gained during the running of the voluntary
UK Emissions Trading Scheme The UK Emissions Trading Scheme (UK ETS) is the carbon emission trading scheme of the United Kingdom. It is cap and trade and came into operation on 1 January 2021 following the UK's departure from the European Union. The cap is reduced in line wit ...
in the previous years, and collaborated with other parties to ensure its units and mechanisms were compatible with the design agreed through the UNFCCC.
Under the EU ETS, the governments of the EU Member States agree on national emission caps which have to be approved by the EU commission. Those countries then allocate allowances to their industrial operators, and track and validate the actual emissions in accordance with the relevant assigned amount. They require the allowances to be retired after the end of each year.
The operators within the ETS may reassign or trade their allowances by several means:
* privately, moving allowances between operators within a company and across national borders
*
over the counter
Over-the-counter (OTC) drugs are medicines sold directly to a consumer without a requirement for a prescription from a healthcare professional, as opposed to prescription drugs, which may be supplied only to consumers possessing a valid prescr ...
, using a
broker
A broker is a person or firm who arranges transactions between a buyer and a seller for a commission when the deal is executed. A broker who also acts as a seller or as a buyer becomes a principal party to the deal. Neither role should be confu ...
to privately match buyers and sellers
* trading on the
spot market
The spot market or cash market is a public financial market in which financial instruments or commodities are traded for immediate delivery. It contrasts with a futures market, in which delivery is due at a later date. In a spot market, settle ...
of one of Europe's climate exchanges
Like any other
financial instrument, trading consists of matching buyers and sellers between members of the exchange and then settling by depositing a valid allowance in exchange for the agreed financial consideration. Much like a
stock market
A stock market, equity market, or share market is the aggregation of buyers and sellers of stocks (also called shares), which represent ownership claims on businesses; these may include ''securities'' listed on a public stock exchange, as ...
, companies and private individuals can trade through brokers who are listed on the exchange, and need not be regulated operators.
When each change of ownership of an allowance is proposed, the national
Emissions Trading Registry and the European Commission are informed in order for them to validate the transaction. During Phase II of the EU ETS, the
UNFCCC
The United Nations Framework Convention on Climate Change (UNFCCC) established an international environmental treaty to combat "dangerous human interference with the climate system", in part by stabilizing greenhouse gas concentrations in th ...
also validates the allowance and any change that alters the distribution within each national allocation plan.
Like the Kyoto trading scheme, EU ETS allows a regulated operator to use
carbon credit
A carbon credit is a generic term for any tradable certificate or permit representing the right to emit a set amount of carbon dioxide or the equivalent amount of a different greenhouse gas (tCO2e).
Carbon credits and carbon markets are a compo ...
s in the form of Emission Reduction Units (ERU) to comply with its obligations. A Kyoto
Certified Emission Reduction
Certified Emission Reductions (CERs) are a type of emissions unit (or carbon credits) issued by the Clean Development Mechanism (CDM) Executive Board for emission reductions achieved by CDM projects and verified by a DOE (Designated Operational E ...
unit (CER), produced by a
carbon project
Business action on climate change includes a range of activities relating to climate change, and to influencing political decisions on climate change-related regulation, such as the Kyoto Protocol. Major multinationals have played and to some ext ...
that has been certified by the UNFCCC
Clean Development Mechanism
The Clean Development Mechanism (CDM) is a United Nations-run carbon offset scheme allowing countries to fund greenhouse gas emissions-reducing projects in other countries and claim the saved emissions as part of their own efforts to meet internat ...
Executive Board, or Emission Reduction Unit (ERU) certified by the
Joint Implementation Joint Implementation (JI) is one of three flexibility mechanisms set out in the Kyoto Protocol to help countries with binding greenhouse gas emissions targets (the Annex I countries) meet their treaty obligations. Under Article 6, any Annex I cou ...
project's host country or by the Joint Implementation Supervisory Committee, are accepted by the EU as equivalent.
Thus one
EU Allowance
EU Allowances (EUA) are climate credits (or carbon credits) used in the European Union Emissions Trading Scheme (EU ETS). EU Allowances are issued by the EU Member States into Member State Registry accounts. By April 30 of each year, operators of ...
Unit of one tonne of , or "EUA", was designed to be identical ("
fungible
In economics, fungibility is the property of a good or a commodity whose individual units are essentially interchangeable, and each of whose parts is indistinguishable from any other part. Fungible tokens can be exchanged or replaced; for exam ...
") with the equivalent "
assigned amount units An assigned amount unit is a tradable "Kyoto unit" or "carbon credit" representing an allowance to emit greenhouse gases comprising "one metric tonne of carbon dioxide equivalent, calculated using global warming potentials".
Assigned amount units a ...
" (AAU) of defined under Kyoto. Hence, because of the EU decision to accept Kyoto-CERs as equivalent to EU-EUAs, it is possible to trade EUAs and UNFCCC-validated CERs on a one-to-one basis within the same system. (However, the EU was not able to link trades from all its countries until 2008-9 because of its technical problems connecting to the UN systems.)
During Phase II of the EU ETS, the operators within each Member State must surrender their allowances for inspection by the EU before they can be "retired" by the UNFCCC.
Allocation
The total number of permits issued (either auctioned or allocated) determines the supply for the allowances. The actual price is determined by the market. Too many allowances compared to demand will result in a low carbon price, and reduced emission abatement efforts.
Too few allowances will result in a high carbon price.
For each EU ETS Phase, the total quantity to be allocated by each Member State is defined in the National Allocation Plan (equivalent to its UNFCCC-defined carbon account.) The European Commission has oversight of the NAP process and decides if the NAP fulfills the twelve criteria set out in the Annex III of the Emission Trading Directive (EU Directive 2003/87/EC). The first and foremost criterion is that the proposed total quantity is in line with a Member State's Kyoto target.
Of course, the Member State's plan can, and should, also take account of emission levels in other sectors not covered by the EU ETS, and address these within its own domestic policies. For instance, transport is responsible for 21% of EU greenhouse gas emissions, households, and small businesses for 17% and agriculture for 10%.
During Phase I, most allowances in all countries were given freely (known as
grandfathering
A grandfather clause, also known as grandfather policy, grandfathering, or grandfathered in, is a provision in which an old rule continues to apply to some existing situations while a new rule will apply to all future cases. Those exempt from t ...
). This approach has been criticized as giving rise to
windfall profits, being less efficient than auctioning, and providing too little incentive for innovative new competition to provide clean, renewable energy. On the other hand, allocation rather than auctioning may be justified for a few sectors that face international competition like the
aluminium
Aluminium (aluminum in American and Canadian English) is a chemical element with the symbol Al and atomic number 13. Aluminium has a density lower than those of other common metals, at approximately one third that of steel. I ...
and
steel
Steel is an alloy made up of iron with added carbon to improve its strength and fracture resistance compared to other forms of iron. Many other elements may be present or added. Stainless steels that are corrosion- and oxidation-resistant ty ...
industries.
To address these problems, the European Commission proposed various changes in a January 2008 package, including the abolishment of NAPs from 2013 and auctioning a far greater share (ca. 60% in 2013, growing afterward) of emission permits.
From the start of Phase III (January 2013) there will be a centralized allocation of permits, not National Allocation Plans, with a greater share of auctioning of permits.
Competitiveness
Allocation can act as a means of addressing concerns over loss of
competitiveness
In economics, competition is a scenario where different economic firmsThis article follows the general economic convention of referring to all actors as firms; examples in include individuals and brands or divisions within the same (legal) firm ...
, and possible "leakage" (
carbon leakage
Carbon leakage occurs when there is an increase in greenhouse gas emissions in one country as a result of an emissions reduction by a second country with a strict climate policy.
Carbon leakage may occur for a number of reasons:
* If the emissi ...
) of emissions outside the EU. Leakage is the effect of emissions increasing in countries or sectors that have weaker regulation of emissions than the regulation in another country or sector.
Such concerns affect the following sectors: cement, steel, aluminium, pulp and
paper
Paper is a thin sheet material produced by mechanically or chemically processing cellulose fibres derived from wood, rags, grasses or other vegetable sources in water, draining the water through fine mesh leaving the fibre evenly distributed ...
, basic inorganic
chemicals
A chemical substance is a form of matter having constant chemical composition and characteristic properties. Some references add that chemical substance cannot be separated into its constituent elements by physical separation methods, i.e., wit ...
and
fertilisers
A fertilizer (American English) or fertiliser (British English; see spelling differences) is any material of natural or synthetic origin that is applied to soil or to plant tissues to supply plant nutrients. Fertilizers may be distinct from ...
/ammonia.
[ Leakage from these sectors was thought to be under 1% of total EU emissions. Correcting for leakage by allocating permits acts as a temporary subsidy for affected industries, but does not fix the underlying problem. Border adjustments would be the economically efficient choice, where imports are taxed according to their carbon content.][ One problem with border adjustments is that they might be used as a disguise for trade ]protectionism
Protectionism, sometimes referred to as trade protectionism, is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government regulations. ...
. Some adjustments may also not prevent emissions leakage.
Banking and borrowing
Within a certain trading period, banking and borrowing is allowed. For example, a 2006 EUA can be used in 2007 (banking) or in 2005 (borrowing). Interperiod borrowing is not allowed. Member states had the discretion to decide whether banking EUAs from Phase I to Phase II was allowed.
Members
The EU ETS operates in 30 countries: the 27 EU member states plus Iceland, Liechtenstein and Norway.
The United Kingdom left the EU on 31 January 2020 but remained subject to EU rules until 31 December 2020. The UK Emissions Trading Scheme The UK Emissions Trading Scheme (UK ETS) is the carbon emission trading scheme of the United Kingdom. It is cap and trade and came into operation on 1 January 2021 following the UK's departure from the European Union. The cap is reduced in line wit ...
(UK ETS) replaced the UK's participation in the EU ETS on 1 January 2021, but the UK government required organisations to continue to comply with their existing obligations under the 2020 scheme year, which ended on 30 April 2021.
Linking
The EU ETS is linked to the since 1 January 2020. Linking systems creates a larger carbon market, which can reduce overall compliance costs, increase market liquidity and generate a more stable carbon market. Linking systems can also be politically symbolic as it shows willingness to undertake a common effort to reduce GHG emissions. Some scholars have argued that linking may provide a starting point for developing a new, bottom-up international climate policy architecture whereby multiple unique systems successively link their various systems.
Phase I 2005–2007
In the first phase (2005–2007), the EU ETS included some 12,000 installations, representing approximately 40% of EU emissions, covering energy activities (combustion installations with a rated thermal input exceeding 20 MW, mineral oil refineries, coke ovens), production and processing of ferrous metals, mineral industry (cement clinker, glass and ceramic bricks) and pulp, paper and board activities.
Launch and operation
The ETS, in which all 15 Member States that were then members of the European Union
The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been des ...
participated, nominally commenced operation on 1 January 2005, although national registries were unable to settle transactions for the first few months. However, the prior existence of the UK Emissions Trading Scheme The UK Emissions Trading Scheme (UK ETS) is the carbon emission trading scheme of the United Kingdom. It is cap and trade and came into operation on 1 January 2021 following the UK's departure from the European Union. The cap is reduced in line wit ...
meant that market participants were already in place and ready. In its first year, 362 million tonnes of were traded on the market for a sum of €7.2 billion, and a large number of futures and options.
Prices
The price of allowances increased more or less steadily to a peak level in April 2006 of about €30 per tonne . In late April 2006, a number of EU countries (the Netherlands, the Czech Republic, Belgium, France, and Spain) announced that their verified (or actual) emissions were less than the number of allowances allocated to installations. The spot price for EU allowance
EU Allowances (EUA) are climate credits (or carbon credits) used in the European Union Emissions Trading Scheme (EU ETS). EU Allowances are issued by the EU Member States into Member State Registry accounts. By April 30 of each year, operators of ...
s dropped 54% from €29.20 to €13.35 in the last week of April 2006. In May 2006, the European Commission confirmed that verified emissions were about 80 million tonnes or 4% lower than the number of allowances distributed to installations for 2005 emissions. In May 2006, prices fell to under €10/tonne. Lack of scarcity under the first phase of the system continued through 2006 resulting in a trading price of €1.2 per tonne in March 2007, declining to €0.10 in September 2007. In 2007, carbon prices for the trial phase dropped to near zero for most of the year. Meanwhile, prices for Phase II remained significantly higher throughout, reflecting the fact that allowances for the trial phase were set to expire by 31 December 2007.
Verified emissions
Verified emissions showed a net increase over the first phase of the scheme. For the countries for which data was available, emissions increased by 1.9% between 2005 and 2007 (at the time all 27 member states minus Romania
Romania ( ; ro, România ) is a country located at the crossroads of Central Europe, Central, Eastern Europe, Eastern, and Southeast Europe, Southeastern Europe. It borders Bulgaria to the south, Ukraine to the north, Hungary to the west, S ...
, Bulgaria
Bulgaria (; bg, България, Bǎlgariya), officially the Republic of Bulgaria,, ) is a country in Southeast Europe. It is situated on the eastern flank of the Balkans, and is bordered by Romania to the north, Serbia and North Macedon ...
, and Malta
Malta ( , , ), officially the Republic of Malta ( mt, Repubblika ta' Malta ), is an island country in the Mediterranean Sea. It consists of an archipelago, between Italy and Libya, and is often considered a part of Southern Europe. It lies ...
).
Consequently, observers accused national governments of abusing the system
Gaming the system (also rigging, abusing, cheating, milking, playing, working, or breaking the system, or gaming or bending the rules) can be defined as using the rules and procedures meant to protect a system to, instead, manipulate the system ...
under industry pressure, and urged far stricter caps in the second phase (2008–2012). This led to a stricter regime in the second phase.
Phase II 2008–12
Scope
The second phase (2008–12) expanded the scope of the scheme significantly. In 2007, three non-EU members, Norway
Norway, officially the Kingdom of Norway, is a Nordic country in Northern Europe, the mainland territory of which comprises the western and northernmost portion of the Scandinavian Peninsula. The remote Arctic island of Jan Mayen and t ...
, Iceland
Iceland ( is, Ísland; ) is a Nordic island country in the North Atlantic Ocean and in the Arctic Ocean. Iceland is the most sparsely populated country in Europe. Iceland's capital and largest city is Reykjavík, which (along with its s ...
, and Liechtenstein
Liechtenstein (), officially the Principality of Liechtenstein (german: link=no, Fürstentum Liechtenstein), is a German-speaking microstate located in the Alps between Austria and Switzerland. Liechtenstein is a semi-constitutional monarchy ...
joined the scheme. The EU's "Linking Directive" introduced the CDM and JI credits. Although this was a theoretical possibility in phase I, the over-allocation of permits combined with the inability to bank them for use in the second phase meant it was not taken up.
On 27 April 2012, the European Commission announced the full activation of the EU Emissions Trading System single registry. The full activation process included the migration of over 30,000 EU ETS accounts from national registries. The European Commission further stated that the single registry to be activated in June will not contain all the required functionalities for phase III of the EU ETS.
Aviation emissions
Aviation emissions were to be included from 2012. The inclusion of aviation was considered important by the EU. The inclusion of aviation was estimated to increase in demand for allowances by about 10–12 million tonnes of per year in phase two. According to DEFRA, an increased use of JI credits from projects in Russia and Ukraine
Ukraine ( uk, Україна, Ukraïna, ) is a country in Eastern Europe. It is the second-largest European country after Russia, which it borders to the east and northeast. Ukraine covers approximately . Prior to the ongoing Russian inv ...
, would offset any increase in prices so there would be no discernible impact on average annual prices.
The airline industry and other countries including China, India, Russia, and the United States reacted adversely to the inclusion of the aviation sector. The United States and other countries argued that the EU did not have jurisdiction to regulate flights when they were not in European skies; China and the United States threatened to ban their national carriers from complying with the scheme. On 27 November 2012 the United States enacted the European Union Emissions Trading Scheme Prohibition Act of 2011 which prohibits U.S. carriers from participating in the European Union Emission Trading Scheme. China threatened to withhold $60 billion in outstanding orders from Airbus, which in turn led to France pressuring the EU to freeze the scheme.
The EU insisted that the regulation should be applied equally to all carriers, and that it did not contravene international regulations. In the absence of a global agreement on airline emissions, the EU argued that it was forced to go ahead with its own scheme. But only flights within the EEA are covered; international flights are not.
Other
Ultimately, the Commission intended that the third trading period should cover all greenhouse gases and all sectors, including aviation, maritime transport, and forestry. For the transport sector, the large number of individual users adds complexities, but might be implemented either as a cap-and-trade system for fuel suppliers or a baseline-and-credit system for car manufacturers.
The National Allocation Plans for Phase II, the first of which were announced on 29 November 2006, provided for an average reduction of nearly 7% below the 2005 emission levels. However, the use of offsets such as Emission Reduction Units from JI and Certified Emission Reductions from CDM projects was allowed, with the result that the EU would be able to meet the Phase II cap by importing units instead of reducing emissions (CCC, 2008, pp. 145, 149).
According to verified EU data from 2008, the ETS resulted in an emissions reduction of 3%, or 50 million tons. At least 80 million tons of "carbon offset
A carbon offset is a reduction or removal of emissions of carbon dioxide or other greenhouse gases made in order to compensate for emissions made elsewhere. Offsets are measured in tonnes of carbon dioxide-equivalent (CO2e). One ton of carb ...
s" were bought for compliance with the scheme.
In late 2006, European Commission
The European Commission (EC) is the executive of the European Union (EU). It operates as a cabinet government, with 27 members of the Commission (informally known as "Commissioners") headed by a President. It includes an administrative body o ...
started infringement proceedings against Austria, Czech Republic, Denmark, Hungary, Italy and Spain, for failure to submit their proposed National Allocation Plans on time.
In July 2020, The Environment Committee of the European Parliament voted to include emissions from the maritime sector in the European Union (EU) Emissions Trading System (ETS).
State allocation plans
The annual Member State yearly allowances in million tonnes are shown in the table:
Carbon price
The carbon price within Phase II increased to over €20/t in the first half of 2008 (CCC, 2008, p. 149). The average price was €22/t in the second half of 2008, and €13/t in the first half of 2009. CCC (2009, p. 67) gave two reasons for this fall in prices:
*Reduced output in energy-intensive sectors as a result of the recession
In economics, a recession is a business cycle contraction when there is a general decline in economic activity. Recessions generally occur when there is a widespread drop in spending (an adverse demand shock). This may be triggered by various ...
. This means that less abatement will be required to meet the cap, lowering the carbon price.
*The market perception of future fossil fuel prices may have been revised downwards.
Projections made in 2009 indicate that like Phase I, Phase II would see a surplus in allowances and that 2009 carbon prices were being sustained by the need to "bank" allowances to surrender them in the tougher third phase.[ In December 2009, carbon prices dropped to a six-month low after the Copenhagen climate summit outcome disappointed traders. Prices for EU allowances for December 2010 delivery dropped 8.7% to 12.40 euros a tonne.
In March 2012, according to the periodical ''Economist'', the EUA permit price under the EU ETS had "tanked" and was too low to provide incentives for firms to reduce emissions. The permit price had been persistently under €10 per tonne compared to nearly €30 per tonne in 2008. The market had been oversupplied with permits.
In June 2012, EU allowances for delivery in December 2012 traded at 6.76 euros each on the ]Intercontinental Exchange
Intercontinental Exchange, Inc. (ICE) is an American company formed in 2000 that operates global financial exchanges and clearing houses and provides mortgage technology, data and listing services. Listed on the Fortune 500, S&P 500, and Russe ...
Futures Europe exchange, a 61 percent decline compared with a year previously.
In July 2012, Thomson Reuters Point Carbon stated that it considered that without intervention to reduce the supply of allowances, the price of allowances would fall to four Euros. The 2012 closing price for an EU allowance with a December 2013 contract ended the year at 6.67 euros a tonne. In late January 2013, the EU allowance price fell to a new record low of 2.81 euros after the energy and industry committee of the European parliament opposed a proposal to withhold 900 million future-dated allowances from the market.
Phase III 2013–2020
For Phase III (2013–2020), the European Commission implemented a number of changes, including (CCC, 2008, p. 149):[
*the setting of an overall EU cap, with allowances then allocated to EU members;
*tighter limits on the use of offsets;
*limiting banking of allowances between Phases II and III;
*a move from allowances to auctioning;
*and the inclusion of more sectors and gases.
Also, millions of allowances set aside in the New Entrants Reserve (NER) to fund the deployment of innovative renewable energy technologies and ]carbon capture and storage
Carbon capture and storage (CCS) or carbon capture and sequestration is the process of capturing carbon dioxide (CO2) before it enters the atmosphere, transporting it, and storing it (carbon sequestration) for centuries or millennia. Usually th ...
through the NER 300 programme, one of the world's largest funding programmes for innovative low-carbon energy demonstration projects. The programme is conceived as a catalyst for the demonstration of environmentally safe carbon capture and storage (CCS) and innovative renewable energy (RES) technologies on a commercial scale within the European Union.
Ahead of its accession to the EU, Croatia joined the ETS at the start of Phase III on 1 January 2013. This took the number of countries in the EU ETS to 31.
On 4 January 2013, European Union allowances for 2013 traded on London's ICE Futures Europe exchange for between 6.22 euros and 6.40 euros.
The number of excess allowances carried over ("banked") from Phase II to Phase III was 1.7 billion.
Phase IV 2021–2030
Phase IV commenced on 1 January 2021 and will finish on 31 December 2030. The European Commission plans a full review of the Directive by 2026. Since 2018, prices have continuously increased, reaching €57/t ( $) in July 2021. This results in additional costs of about €0.04/kWh for coal and €0.02/kWh for gas combustion for electricity.
Reform of the EU-ETS and introduction of the Market Stability Reserve (MSR)
On 22 January 2014, the European Commission proposed two structural reform amendments to the ETS directive (2003/87/EC) of the 2008 Climate Package to be agreed on in the Council Conclusions on 20–21 March 2014 by the Heads of EU Member States at the meeting of the European Council:
* the linear reduction factor, at which the overall emissions cap is reduced, from 1.74% (2013–2020) to 2.2% each year from 2021 to 2030, thus reducing EU emissions in the ETS sector by 43% compared to 2005
* the creation of a 12% "automatic set-aside" reserve mechanism of verified annual emissions (at least a 100 million permit reserve) in the fourth ETS period from 2021 to 2030, thus creating a quasi carbon tax
A carbon tax is a tax levied on the carbon emissions required to produce goods and services. Carbon taxes are intended to make visible the "hidden" social costs of carbon emissions, which are otherwise felt only in indirect ways like more sev ...
or "carbon price floor" with a price range set each year by the European Commission's Directorate General for Climate Change
Connie Hedegaard, the EU Commissioner for Climate Change, hoped "to link up the ETS with compatible systems around the world to form the backbone of a global carbon market" with Australia cited as an example. However, as the COP 19 Climate Conference again ended with no binding new international agreement in 2013, and after the election of the Liberal-National government, Australia dismantled its ETS system.
Before the European Council summit on 20 March 2014, the European Commission decided to propose a change in the functioning of the carbon market ( permits). The submitted legislation on the Market Stability Reserve system (MSR) would change the amount of annually auctioned permits based on the amount of permits in circulation. On 24 October 2014, at the meeting of the European Council, the Heads of Governments of EU Member States provided legal certainty to the proposed Market Stability Reserve (MSR) by sanctioning the political project in the text of the Council Conclusions. This would address imbalances in supply and demand in the European carbon market by adjusting volumes for auction. The reserve would operate on predefined rules with no discretion for the commission or Member States.
The European Parliament and the European council informally agreed on an adapted version of this proposal, which sets the starting date of the MSR to 2019 (so already in Phase III), puts the 900 million backloaded allowances in the reserve and reduces the reaction time of the MSR to one year. The adopted proposal was passed as Decision (EU) 2015/1814 by the European parliament and the Council of ministers in 2015.
Reform of the Market Stability Reserve (MSR)
In the years 2014–2017, the back-loading of auction volumes and the legislation on introducing the MSR had neither substantially decreased the surplus of allowances nor substantially increased allowance prices in the EU-ETS, with EUA prices remaining below €10/t. In 2018, the MSR was reformed again with Directive (EU) 2018/410, primarily to reduce the surplus of emissions allowances and create additional scarcity:
* For the period from 2019 to 2023, the share of allowances put into the MSR was increased from 12% to 24%
* From 2023 onwards, all allowances in the MSR above the total number of allowances auctioned during the previous year would become invalid
* Unilateral invalidation of allowances by member states that take additional policy measures leading to reduced demand for EUAs.
This reform lead to a strong increase of EUA prices in 2018, with prices staying mostly in a range of €18-30/t from August 2018 to March 2020.
"Fit for 55" package
The change in the overall EU emissions target to –55% reduction versus 1990 in the European Green Deal necessitated tightening of the EU ETS reduction target for 2030 of –43% with respect to 2005. The EU commission
The European Commission (EC) is the executive of the European Union (EU). It operates as a cabinet government, with 27 members of the Commission (informally known as "Commissioners") headed by a President. It includes an administrative body o ...
proposed in its "Fit for 55" package to increase the EU ETS reduction target for 2030 to –61% compared to 2005. Such a tighter EU ETS target could increase scarcity of EUAs and thus raise EUA prices higher, with modeling studies estimating carbon prices in the range of €90-€130/t for 2030.
The EU commission
The European Commission (EC) is the executive of the European Union (EU). It operates as a cabinet government, with 27 members of the Commission (informally known as "Commissioners") headed by a President. It includes an administrative body o ...
also proposed to include emissions from maritime transport in the EU ETS.
Russian invasion of Ukraine 2022
The 24 February 2022 invasion sent carbon prices plunging from €97 in early February down to below €70.
Costs
Emissions in the EU have been reduced at costs that are significantly lower than projected,[ though transaction costs are related to economies of scale and can be significant for smaller installations. Overall, the estimated cost was a fraction of 1% of ]GDP
Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is ofte ...
. It was suggested that if permits were auctioned, and the revenues used effectively, e.g., to reduce distortionary taxes and fund low-carbon technologies, costs could be eliminated, or even create a positive economic impact.
Overall emission reductions
According to the European Commission, in 2010 greenhouse gas emissions from big emitters covered by the EU ETS had decreased by an average of more than 17,000 tonnes per installation from 2005, a decrease of more than 8% since 2005.
Inclusion of sinks
Currently, the EU does not allow credits under ETS to be obtained from sinks (e.g. reducing by planting trees). However, some governments and industry representatives lobby for their inclusion. The inclusion is currently opposed by NGOs as well as the EU commission itself, arguing that sinks are surrounded by too many scientific uncertainties over their permanence and that they have inferior long-term contribution to climate change compared to reducing emissions from industrial sources.
ETS related crime
Cybercrime
On 19 January 2011, the EU emissions spot market for pollution permits was closed after computer hackers
A hacker is a person skilled in information technology who uses their technical knowledge to achieve a goal or overcome an obstacle, within a computerized system by non-standard means. Though the term ''hacker'' has become associated in popu ...
stole 28 to 30 million euros ($41.12 million) worth of emissions allowances from the national registries of several European countries within a few days time period. The Czech Registry for Emissions Trading was especially hard hit with 7 million euros worth of allowances stolen by hackers from Austria, the Czech Republic, Greece, Estonia
Estonia, formally the Republic of Estonia, is a country by the Baltic Sea in Northern Europe. It is bordered to the north by the Gulf of Finland across from Finland, to the west by the sea across from Sweden, to the south by Latvia, a ...
, and Poland. A phishing
Phishing is a type of social engineering where an attacker sends a fraudulent (e.g., spoofed, fake, or otherwise deceptive) message designed to trick a person into revealing sensitive information to the attacker or to deploy malicious softwar ...
scam is suspected to have enabled hackers to log into unsuspecting companies' carbon credit accounts and transfer the allowances to themselves, allowing them to then be sold.
The European Commission said it would "proceed to determine together with national authorities what minimum security measures need to be put in place before the suspension of a registry can be lifted". Maria Kokkonen, EC spokeswoman for climate issues, said that national registries can be reopened once sufficient security measures have been enacted and member countries submit to the EC a report of their IT security protocol.
The Czech registry said there are still legal and administrative hurdles to be overcome and Jiri Stastny, chairman of OTE AS, the Czech registry operator, said that until there is recourse for victims of such theft, and a system is in place to return allowances to their rightful owners, the Czech registry will remain closed. Registry officials in Germany and Estonia have confirmed they have located 610,000 allowances stolen from the Czech registry, according to Mr. Stastny. Another 500,000 of the stolen Czech allowances are thought to be in accounts in the UK, according to the OTE.
Cyber fraudsters have also attacked the EU ETS with a "phishing" scam which cost one company €1.5 million. In response to this, the EU has revised the ETS rules to combat crime.
The security breaches raised fears among some traders that they might have unknowingly purchased stolen allowances which they might later have to forfeit. The ETS experienced a previous phishing scam in 2010 which caused 13 European markets to shut down, and criminals cleared 5 million euros in another cross-border fraud in 2008 and 2009.
VAT fraud
In 2009 Europol informed that 90% market volume of emissions traded in some countries could be result of tax fraud, more specifically missing trader fraud
Missing trader fraud (also called missing trader intra-community fraud or MTIC fraud) involves the theft of Value Added Tax (VAT) from a government by fraudsters who exploit VAT rules, most commonly the European Union VAT rules which provide th ...
, costing governments more than 5 billion euros.
German prosecutors confirmed in March 2011 that value-added-tax fraud in the trade of carbon-dioxide emissions has deprived the German state of about €850 million ($1.19 billion). In December 2011 a German court sentenced six people to jail terms of between three years and seven years and 10 months in a trial involving evasion of taxes on carbon permits. A French court sentenced five people to one to five years in jail, and to pay massive fines for evading tax through carbon trading. In the UK a first trial over VAT fraud in the carbon market is put on track to start in February 2012.
Views on the EU ETS
Different people and organizations have responded differently to the EU ETS. Mr Anne Theo Seinen, of the EC's Directorate-General for the Environment, described Phase I as a "learning phase", where, for example, the infrastructure and institutions for the ETS were set up (UK Parliament, 2009). In his view, the carbon price in Phase I had resulted in some abatement. Seinen also commented that the EU ETS needed to be supported by other policies for technology and renewable energy. According to CCC (2008, p. 155), technology policy is necessary to overcome market failure
In neoclassical economics, market failure is a situation in which the allocation of goods and services by a free market is not Pareto efficient, often leading to a net loss of economic value. Market failures can be viewed as scenarios where indiv ...
s associated with delivering low-carbon technologies, e.g., by supporting research and development.[
In 2009 the ]World Wildlife Fund
The World Wide Fund for Nature Inc. (WWF) is an international non-governmental organization founded in 1961 that works in the field of wilderness preservation and the reduction of human impact on the environment. It was formerly named the Wo ...
commented that there was no indication that the EU ETS had influenced longer-term investment decisions. In their view, the Phase III scheme brought about significant improvements, but still suffered from major weaknesses. Jones ''et al''. (2008, p. 24) suggested that the EU ETS needed further reform to achieve its potential.
A 2016 survey of German companies participating in the EUETS found that under current trading conditions, the EUETS has generated weak incentives for participating firms to adopt carbon abatement measures.[
]
Criticisms
The EU ETS has been criticized for several failings, including: over-allocation, windfall profits, price volatility, and in general for failing to meet its goals. Proponents argue, however, that Phase I of the EU ETS (2005–2007) was a "learning phase" designed primarily to establish baselines and create the infrastructure for a carbon market, not to achieve significant reductions.[Climate Change and the EU Emissions Trading Scheme (ETS): Kyoto and Beyond](_blank)
U.S. Congressional Research Service
The Congressional Research Service (CRS) is a public policy research institute of the United States Congress. Operating within the Library of Congress, it works primarily and directly for members of Congress and their committees and staff on a co ...
(2008)[The European Union's Emissions Trading System in Perspective](_blank)
MIT/Pew Center 2008
In addition, the EU ETS has been criticized as having caused a disruptive spike in energy prices. Defenders of the scheme say that this spike did not correlate with the price of permits, and in fact the largest price increase occurred at a time (Mar–Dec 2007) when the cost of permits was negligible.
Researchers Preston Teeter and Jorgen Sandberg have argued that it is largely the uncertainty behind the EU's scheme that has resulted in such a tepid and informal response by regulated organizations. Their research has revealed a similar outcome in Australia, where organizations saw little incentive to innovate and even comply with cap and trade regulations.
Some critics in EU blamed the EU ETS for contributing to the 2021 global energy crisis.
Over-allocation
There was an oversupply of emissions allowances for EU ETS Phase I. This drove the carbon price down to zero in 2007 (CCC, 2008, p. 140).[ This oversupply reflects the difficulty in predicting future emissions which is necessary in setting a cap.][ Given poor data about emissions baselines, inherent uncertainty of emissions forecasts, and the very modest reduction goals of the Phase I cap (1–2% across the EU), it was entirely expected that the cap might be set too high.]
This problem naturally diminishes as the cap tightens. The EU's Phase II cap is more than 6% below 2005 levels, much stronger than Phase I, and readily distinguishable from business-as-usual emissions levels.
Over-allocation does not imply that no abatement occurred. Even with over-allocation, there was theoretically a price on carbon (except for installations that received hundreds of thousands of free allowances). For some installations, the price had some effect on emitters' behavior. Verified emissions in 2005 were 3–4% below projected emissions, and analysis suggests that at least part of that reduction was due to the EU ETS.
In September 2012, Thomson Reuters Point Carbon calculated that the first Kyoto Protocol commitment period had been oversupplied by about 13 billion tonnes (13.1 Gt) of and that the second commitment period (2013–2020) was likely to start with a surplus of Assigned Amount Units (AAUs).
Windfall profits
According to Newbery (2009), the price of EUAs was included in the final price of electricity.[ The free allocation of permits was cashed in at the EUA price by fossil generators, resulting in a "massive windfall gain". Newbery (2009) wrote that "]here
Here is an adverb that means "in, on, or at this place". It may also refer to:
Software
* Here Technologies, a mapping company
* Here WeGo (formerly Here Maps), a mobile app and map website by Here Technologies, Here
Television
* Here TV (form ...
is no case for repeating such a wilful misuse of the value of a common property resource that should be owned by the country". In the view of 4CMR (2009), all permits in the EU ETS should be auctioned.
This would avoid possible windfall profits in all sectors.
Price volatility
The price of emissions permits tripled in the first six months of Phase I, collapsed by half in a one-week period in 2006, and declined to zero over the next twelve months. Such movements and the implied volatility raised questions about the viability of the Phase I system to provide stable incentives to emitters.
In future phases, measures such as banking of allowances, auctioning and price floors were considered to mitigate volatility. However, it's important to note that considerable volatility is expected of this type of market, and the volatility seen is quite in line with that of energy commodities generally. Nonetheless, producers and consumers in those markets respond rationally and effectively to price signals.
Newbery (2009) commented that Phase I of the EU ETS was not delivering the stable carbon price necessary for long-term, low-carbon investment decisions.[ He suggested that efforts should be made to stabilize carbon price, e.g., by having a ]price ceiling
A price ceiling is a government- or group-imposed price control, or limit, on how high a price is charged for a product, commodity, or service. Governments use price ceilings ostensibly to protect consumers from conditions that could make com ...
and a price floor
A price floor is a government- or group-imposed price control or limit on how low a price can be charged for a product, good, commodity, or service. A price floor must be higher than the equilibrium price in order to be effective. The equilibrium p ...
. This led to the reforms outlined above in Phase II and III.
Offsetting
Project based offsetting
The EU ETS is "linked" to the Joint Implementation Joint Implementation (JI) is one of three flexibility mechanisms set out in the Kyoto Protocol to help countries with binding greenhouse gas emissions targets (the Annex I countries) meet their treaty obligations. Under Article 6, any Annex I cou ...
and Clean Development Mechanism
The Clean Development Mechanism (CDM) is a United Nations-run carbon offset scheme allowing countries to fund greenhouse gas emissions-reducing projects in other countries and claim the saved emissions as part of their own efforts to meet internat ...
projects as it allows the limited use of "offset credits" from them. Participating firms were allowed to use some Certified Emission Reduction
Certified Emission Reductions (CERs) are a type of emissions unit (or carbon credits) issued by the Clean Development Mechanism (CDM) Executive Board for emission reductions achieved by CDM projects and verified by a DOE (Designated Operational E ...
units (CERs) from 2005 and Emission Reduction Unit
The emission reduction unit (ERU) is an emissions unit issued under a Joint Implementation project in terms of the Kyoto Protocol. An ERU represents a reduction of greenhouse gases under the Joint Implementation mechanism, where it represents one t ...
s (ERUs) from 2008. Each Member State's National Allocation Plan must specify a percentage of the national allocation that will be the cap on the CERs and ERUs that may be used. CERs and ERUs from nuclear facilities and from Land Use, Land-Use Change and Forestry
Land use, land-use change, and forestry (LULUCF), also referred to as Forestry and other land use (FOLU), is defined by the United Nations Climate Change Secretariat as a " greenhouse gas inventory sector that covers emissions and removals of gr ...
may not be used.
The main theoretical advantage of allowing free trading of credits is that it allows mitigation to be done at least-cost (CCC, 2008, p. 160).[ This is because the ]marginal
Marginal may refer to:
* ''Marginal'' (album), the third album of the Belgian rock band Dead Man Ray, released in 2001
* ''Marginal'' (manga)
* '' El Marginal'', Argentine TV series
* Marginal seat or marginal constituency or marginal, in polit ...
costs (that is to say, the incremental costs of preventing the emission of one extra ton of e into the atmosphere) of abatement differs among countries. In terms of the UK's climate change policy, CCC (2008), noted three arguments against too great a reliance on credits:
*Rich countries need to demonstrate that a low-carbon economy
A low-carbon economy (LCE) or decarbonised economy is an economy based on energy sources that produce low levels of greenhouse gas (GHG) emissions. GHG emissions due to human activity are the dominant cause of observed climate change since the mi ...
is possible and compatible with economic prosperity. This is to convince developing countries to lower their emissions. Additionally, domestic action by rich countries drives investment towards a low-carbon economy.
*An ambitious long-term target to reduce emissions, e.g., an 80% cut in UK emissions by 2050, requires significant domestic progress by 2020 and 2030 to reduce emissions.
*CDM credits are inherently less robust than a cap and trade system, where reductions are required in total emissions.
Due to the economic downturn, states have pushed successfully for a more generous approach towards the use of CDM/JI credits post-2012. The 2009 EU ETS Amending Directive states that credits can be used for up to 50% of the EU-wide reductions below the 2005 levels of existing sectors over the period 2008–2020. Moreover, it has been argued that the volume of CDM/JI credits, if carried over from phase II (2008–2012 to phase III 2013–2020) in the EU ETS will undermine its environmental effectiveness, despite the requirement of supplementarity "Supplementarity", also referred to as "the supplementary principle", is one of the main principles of the Kyoto Protocol. The concept is that internal abatement of emissions should take precedence before external participation in flexible mechanis ...
in the Kyoto Protocol.
In January 2011, the EU Climate Change Committee banned the use of CDM Certified Emission Reduction
Certified Emission Reductions (CERs) are a type of emissions unit (or carbon credits) issued by the Clean Development Mechanism (CDM) Executive Board for emission reductions achieved by CDM projects and verified by a DOE (Designated Operational E ...
units from HFC-23 destruction in the European Union Emissions Trading Scheme from 1 May 2013. The ban includes nitrous oxide (N2O) from adipic acid production. The reasons given were the perverse incentives, the lack of additionality, the lack of environmental integrity, the under-mining of the Montreal Protocol, costs and ineffectiveness and the distorting effect of a few projects in advanced developing countries getting too many CERs.
Buying and deleting emissions allowances
As an alternative to CDM and JI projects, emissions can be offset directly by buying and deleting emissions allowances inside the ETS. This is a way to avoid several problems of CDM and JI such as additionality, measurement, leakage, permanence, and verification. Buying and cancelling allowances allows to include more emissions sources in the ETS (such as traffic). Furthermore, it reduces the available allowances in the cap-and-trade system, which means that it reduces the emissions that can be produced by covered sources.Buying Allowances
U.S. Environmental Protection Agency (2011)
See also
* Carbon emission trading
Emission trading (ETS) for carbon dioxide (CO2) and other greenhouse gases (GHG) is a form of carbon pricing; also known as cap and trade (CAT) or carbon pricing. It is an approach to limit climate change by creating a market with limited ...
* Carbon finance
Carbon finance is a branch of environmental finance that covers financial tools such as carbon emission trading to reduce the impact of greenhouse gases (GHG) on the environment by giving carbon emissions a price.
Financial risks and opportuniti ...
*Carbon tax
A carbon tax is a tax levied on the carbon emissions required to produce goods and services. Carbon taxes are intended to make visible the "hidden" social costs of carbon emissions, which are otherwise felt only in indirect ways like more sev ...
* Energy policy of the European Union
* European Climate Change Programme
The European Climate Change Programme (ECCP) was launched in June 2000 by the European Union's European Commission, with the purpose of avoiding dangerous climate change.
The goal of the ECCP is to identify, develop and implement all the necessary ...
* ICAP (International Carbon Action Partnership)
* Mitigation of global warming
Climate change mitigation is action to limit climate change by reducing emissions of greenhouse gases or removing those gases from the atmosphere. The recent rise in global average temperature is mostly caused by emissions from fossil fuels bur ...
* Single European Sky
The Single European Sky (SES) is a European Commission initiative that seeks to reform the European air traffic management system through a series of actions carried out in four different levels (institutional, operational, technological and contr ...
References
External links
''Official pages''
European Commission, "Emissions Trading System (EU ETS)"
"Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003", ''Official Journal of the European Union''
– EU Directive establishing EU ETS
''How ETS works''
UK Defra General overview at the UK Department for Environment, Food and Rural Affairs
Pew Center White Paper: overview of EU ETS
Emission Trading Fact Book of Inagendo
(contains, among others, a glossary of ETS terms)
Video from Climate and Pollution Agency (Norway): The Emission Trading Scheme
''Key reports, and assessments''
Prospects for the EU Emissions Trading System
Library of the European Parliament, June 2012
National Allocation Plans 2005–7: Do they deliver?
Executive summary of report by Climate Action Network.
Carbon Trade Watch
WWF website
"The environmental effectiveness and economic efficiency of the EU ETS: Structural aspects of the allocation". by WWF and Öko-Institut, 9 November 2005.
The European Emission Trading Scheme Put to the Test of State Aid Rules
Scarcity and Allocation of Allowances in the EU Emissions Trading Scheme – A Legal Analysis
''Case law''
015EWCA Civ 331
{{Emissions Trading schemes
Carbon emissions in the European Union
Carbon finance
Climate change in the European Union
Climate change policy
Emissions trading
Energy policies and initiatives of the European Union
Energy treaties
Renewable energy law