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Factsheet Ets en
Factsheet Ets en
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Climate Action
Emissions trading systems are among the most cost-effective tools for cutting greenhouse gas emissions. In contrast to traditional
‘command and control’ regulation, trading harnesses market forces to find the cheapest ways to reduce emissions.
The European Union launched the EU Emissions Trading System (EU ETS) in 2005 as the cornerstone of its strategy for cutting
emissions of carbon dioxide (CO2) and other greenhouse gases at least cost. The EU ETS is the world’s first major carbon market
and remains by far the biggest today.
By putting a price on carbon and thereby giving a financial value to each tonne of emissions saved, the EU ETS has placed climate
change on the agenda of company boards across Europe. Pricing carbon also promotes investment in clean, low-carbon technologies.
By allowing companies to buy credits from emission-saving projects around the world, in particular in least developed countries, the
EU ETS acts as a driver of investment in clean technologies and low-carbon solutions globally.
This factsheet explains the EU ETS as it stood in September 2016.
• Operates in the 28 EU countries plus Iceland, Liechtenstein and Emission allowances are the ‘currency’ of the EU ETS, and
Norway the limit on the total number available gives them a value.
• Limits greenhouse gas emissions from: Each allowance gives the holder the right to emit one tonne
of CO2, the main greenhouse gas, or the equivalent amount
◦◦ Approximately 11,000 energy intensive installations in
power generation and manufacturing industry sectors of two other powerful greenhouse gases, nitrous oxide (N2O)
and perfluorocarbons (PFCs).
◦◦ Operators of flights to and from EU Member States,
Iceland, Liechtenstein and Norway (for the time being, only Allowances can be used only once. Companies have
flights within these countries are covered) to surrender allowances for every tonne of CO2 (or the
• Covers around 45% of the EU’s greenhouse gas emissions equivalent amount of N2O or PFCs) covered by the EU ETS
that they emitted in the previous year. Heavy fines are
imposed if they do not hand in enough allowances to match
their emissions.
Companies may receive some allowances from governments
for free. To cover the rest of their emissions, they need to do
Ensuring compliance
Businesses must monitor and report their EU ETS emissions
for each calendar year and have their emission reports
checked by an accredited verifier. They must surrender
enough allowances to cover their total emissions by 30 April
of the following year. These allowances are then cancelled
so they cannot be used again.
Free allocation
A business is penalised if it does not surrender enough
• For manufacturing industries, the share of free allowances. It has to buy allowances to make up the shortfall,
allowances will decrease annually to reach 30% in is “named and shamed” by having its name published, and
2020. must pay a fine for each excess tonne of greenhouse gas
emitted. In 2013, the fine amounted to €100 per tonne of
• For the aviation sector, the share of free allowances CO2 (or the equivalent amount of N2O or PFCs). The penalty
amounts to 82%. rises annually in line with the European consumer price
index.
The allowances given to manufacturing industries for free
are distributed to companies on the basis of harmonised The accurate accounting of all allowances issued is assured
by a single Union registry with strong security measures.
The registry keeps track of the ownership of allowances held
in electronic accounts, just as a bank holds a record of its
Preventing ‘carbon leakage’ customers and their money.
10,000
8,715
9,000 8,330
7,903
8,000
6,713 6,677
7,000
6,000 5,410 5,631 Auctions
5,000
Over the counter
4,000
3,000 2,327 Exchange
2,000 998
1,000 94 460
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: Bloomberg LP, ICE, EEX, NYMEX, Bluenext, CCX, Greenmarket, Nordpool, UNFCC. Also using Bloomberg New Energy Finance estimations.
ML-06-16-080-EN-N
The international carbon market is expected to develop
through the bottom-up linking of compatible systems. EU ETS revision for phase 4 (2021-2030)
Linking the EU ETS with other robust systems helps reduce
the cost of cutting emissions, increase market liquidity, The Commission’s proposal of July 2015 on the revision of the EU
stabilise the carbon price, level the international playing ETS for phase 4:
field and support global cooperation on climate change.
• is in line with the European Council conclusions of October 2014
The EU has agreed in principle to link the EU ETS with the on the 2030 climate and energy policy framework
ETS of Switzerland. • aims to achieve a 43 % reduction in EU ETS emissions compared
to 2005 levels
Useful resources:
European Commission Climate Action website and social media:
ISBN 978-92-79-62396-7
ec.europa.eu/clima
doi:10.2834/6083
facebook.com/EUClimateAction
twitter.com/EUClimateAction
youtube.com/EUClimateAction
pinterest.com/EUClimateAction