EU Emissions Trading System

As to greenhouse gas, the EU Emissions Trading System is the largest system worldwide in which not only Member States but also enterprises can trade in allowances.

However, the first emissions trading systems were not developed for greenhouse gas, but for classical air pollutants. Consequently, trading systems are in place in several federal states of the US for SO2, and Canada has one for SO2 and NOx.

In principle, companies are assigned emission allowances (permits) and each allowance entitles them to emit one tonne of the relevant gas. If a company subsequently emits amounts lower than those predicted (e.g. due to technical adjustments), it may sell its excess allowances on the market. Similarly, a company may decide to emit more than the intended amount of gases and purchase the allowances it needs on the market. In comparison to classic environmental standards that assign fixed emission limits to individual plants, a trading system offers the companies concerned the freedom to achieve reduction targets according to their own strategy and plans. For each emissions trading system the question arises which method it should use to allocate emission rights.

Start into the third trading period

The EU Emissions Trading System was launched in 2005, starting with a three-years pilot phase to last until 2007. Subsequently, the second phase, 2008–2012, started, which, in time, covers the same period as the first commitment period of the Kyoto Protocol.

The objective pursued for the emissions trade is to achieve a reduction of the CO2 emissions by 21% compared to 2005 by the year 2020.

Emissions trading is a Cap-and-Trade system. This means that, by determining the total number of allowances prior to the start of the trading period, an upper limit is set for the emissions from plants covered by the system. During one period no additional allowances can be issued. For the current period, a certain number of allowances is allocated to each plant.

With Directive 2009/29/EC concerning the improvement and extension of the Community’s greenhouse gas emission allowance trading scheme, emissions trade has seen a comprehensive change from 2013 onward.

This includes in particular:

  • the extension of the trading period to eight years
  • the integration of additional sectors and gases into the system
  • the setting of an EU-wide upper limit for available emission allowances by the Commission and no longer My Member States under their national allocation plans
  • the harmonisation of the allocation rules: Auctioning of emission allowances as the basic allocation method, but free allocation for the industry also in the future, based on efficiency benchmarks.

In Austria, the Emissions Trading Directive has been implemented by the Emissions Allowances Act (EZG), in a new version with the rules for the 3rd trading period in the EZG 2011.

The European Union’s climate and energy package

The EU aims at reducing its greenhouse gas emissions by 20% compared to 1990 levels by the year 2020. Moreover, the share of renewable energy sources in the gross end-energy consumption is to be raised to 20 % and energy efficiency, too, is to be increased by 20% compared to a business-as-usual scenario by that time.
The major part of the emission reductions provided for by the EU’s climate and energy package has to be achieved in the context of emissions trading. For sources not covered by emissions trading (such as transport, room heat, agriculture) the obligation in the Effort Sharing Decision has been shared among Member States.