The EU Emission Trading
Scheme is by many EU leaders seen as a cornerstone of EU climate policy
It covers 42% of EU greenhouse gas emissions. Unfortunately
several flaws in the scheme makes it presently an ineffective tool to reduce
greenhouse gases because of excess emissions and resulting very low emission
of Excess Emissions
of the EU-Emission Trading Scheme (ETS)
- External allowances into EU-ETS
- Airlines included
- EU Single Registry Read
- INFORSE-Europe Analysis Limits of the EU-ETS System. Read
- INFORSE-Europe Proposals to improve the EU-ETS. Read
- Directive 2008/101/EC to Include Airline
Emissions into the EU-ETS (November 2008). Read
- Directive 2009/29/EC to improve
and extend the greenhouse gas emission allowance trading system
(April 2009). Read
Link Directive (April
Bit of History. Read
Restriction of Excess Emisisons
2010, it was clear for everybody that there were excess emissions
in the EU-ETS, leading to unexpected low prices. In March 2011
the EU Commission suggested
allowances. The proposal was
welcomed by most EU countries, but because of resistance from
Poland, the proposal was delayed.
the Commission proposed to reduce allowances in the coming auctions
for 2013 and set them aside for later. This was agreed among the EU
countries, but in 2013 the Parliament first objected and then
agreed to a
is that allowances for 900 million tons of CO2 emissions
2013-14 until 2018.
Because of the large number of excess emissions, the set-aside
has not raised the price of allowances to a level, where it will
be effective to reduce emissions, (such as above 15 Eur/ton),
but it has probably avoided the collapse of the EU-ETS market
(a collapse is if the allowance price reaches 0)
In July 2015, however, the EU Comission's Summer Package proposes a revison of the ETS system in line with the 2030 climate and energy policy framework agreed by the EU leaders in October 2014. A reduction of the emission allowance quantity by 2.2 % every year from 2021 which would increase the price of CO2 emission. The EU ETS should continue to inspire other international partners, such as China, to use carbon pricing as a cost-effective driver for a gradual but sustainable decarbonisation of their economies for the benefit of future generations.
Read INFORSE-Europe's opinion in the Press Release dated ( pdf file 137 kB).
Follow the development at the Commission's website http://ec.europa.eu/priorities/energy-union/index_en.htm
of the EU Emission Trading Scheme (EU-ETS)
aim of the EU-ETS Directives is to reduce greenhouse
gas emissions in
a cost-efficient way, with introduction of greenhouse gas
of major emitters and a mechanism for trading among them.
All greenhouse gas emitters in EU that are covered by the EU-ETS must
have enough greenhouse gas "allowances" to be allowed to emit their
greenhouse gases. The EU countries' governments allocate greenhouse
gas allowances to companies in their respective countries. These allowances
can be traded between companies if they choose to do so. Each year, companies
submit a number of allowances that corresponds to their actual emissions. If
they do not have enough allowances, they will have to pay a fine. The holding
and tracking of allowances are done through national electronic registers.
The sectors covered are energy, iron, cement, glass, ceramics, pulp,
Only larger installations are covered, e.g. combustion installations above
20 MW input.
The total number of allowances given or auctioned is each year reduced with
1.74% compared with the previous year.
The first phase of the scheme was 2005 - 2007, before
the Kyoto Protocol's commitment period. In this phase allowances
were given for free to participating installations and there was a low
level of penalty for non-compliance of 40 EUR/tons of CO2.
Due to large allowances given by countries, the market price of the allowances
fell to close to zero during the period.
The second period followed the Kyoto Protocol commitment period 2008 - 2012.
In this period at least 95% of the allowances are given for free,
countries could decide to auction up to 5% of the allowances. The penalty
for non-compliance was
increased to 100 EUR/ton of CO2.
The third phase is covering 2013-2020 with allowances
to be auctioned to most power plants and to the part of the industry least
competition. In this phase unused emissions from the second phase can be
carried over, a decision that is giving large over allocation
of allowances, leading to low costs of emissions.
A fourth period i foreseen for the period 2021-2030, for which the
EU Commission has proposed to reduce emissions with 2.2%/year. Other improvements
of the EU-ETS are also proposed.
External allowances feed into EU-ETS
With the "link" directive (see below), companies can buy
emissions from project that should reduce emissions as CDM-projects
by the Kyoto Protocol and following UNFCCC guidelines. This has
added to the excess of emissions, in particular because of a large
influx on Chinese CDM quotas that are results on questionable
projects with very little greenhouse gas reduction effects. The
types of CDM projects that can be used for EU-EST allowances were
"link" directive is still a loophole that makes the EU-ETS less
likely to become effective.
September 2011, the EU established the rules of allocation of
to airlines, stating that the aviation industry will become
part of the EU ETS from 2012. The effect of the rules are that
airlines get about 85% of their emissions for free. The inclusion
of airlines caused
from China, USA and many
the protests and excluded flights outside EU from the EU-ETS until
2020. Also flights to airports near EU external borders are exempted
from EU-ETS since the Regulation n°421/2014.
the EU Commission activated the single registry, replacing
the national registries. It covers all EU Member countries
plus Norway, Iceland and Liechtenstein and records the national
with the allowances
assigned to each Member State, the accounts of the companies or physical persons
who hold these allowances, the transfers of allowances, the annual verified
emissions from installations and the annual reconciliation (settle and fitting)
of allowances and verified emissions.
The verification, recording and authorization of transactions now are held
by the European Union Transaction Log (EUTL).
Analysis: Limits of the EU-ETS
EU Emission Trading Scheme is regarded as one of the cornerstones
of the EU
climate policy, but the first periods have shown a number of weaknesses
- Large variations
in prices of allowances, reducing the incentives for long-term
investments to reduce emissions.
- Unjustified windfall profits for companies with large CO2 emissions
that receive free allowances and that can increase their product prices with
quota prices. Also nuclear power plants enjoy these windfall profits
- Reduced incentives to continue with reductions when allowances are sufficient
and prices are low. This is because a number of previous policies are abandoned
for the companies included in the EU-ETS, such as CO2-taxes.
- The uncertainty regarding future systems and CO2 costs have given uncertainty
for actors if they should aim at low or high emissions.
- large influx of questionable allowances from the CDM (Clean Development Mechanism)
of the Kyoto Protocol.
The CDM influx is less prominent in the third period, but with the
ETS allowances currently allocated until 2020,
allocated, if the EU countries shall reduce emissions in line with limiting global
warming to 2’C. The current reduction rate of 1.74% per year is too slow:
It will only result in phase-out of emissions by 2068, if continued.The carry
over of allowances from the second period and from CDM projects adds to the problem.
In conclusion, because of the flaws the EU-ETS is not the
cornerstone of the EU climate policies
it was meant to be.
Proposals to Improve the EU-ETS
the EU-ETS and achieve larger greenhouse gas reductions, INFORSE-Europe
proposes the following changes:
should be a minimum (floor) price
for allowances of 20€/ton of CO2.
carried over from one period to the third
period must be limited, by degrading them by a factor 2-3 or more
more unused allowances from the previous period shall give
only one allowance in the next period).
- The industry sectors that receive free allowances should be reduced,
and instead of free allowances, companies should be offered
grants and loans for transition to low carbon technologies
- Much stricter rules than the current ones must be introduced
to limit the use of allowances from CDM projects in EU-ETS. Only
projects that are clearly contributing directly to poverty reduction
and basic needs of those that implement the measures should be eligible.
The use of external (CDM) credits should be limited to 10% of reductions
(for instance 10% of reductions is 2% of total
allowances if reductions are 20%)
- a windfall tax shall be introduced for nuclear power.
The tax shall be equal to the extra revenue that the nuclear power
plants will gain because of increased electricity prices caused
by the EU-ETS.
the development at Climate Action
Network's site at www.climnet.org/EUenergy/NAPs.htm.
Commission's site http://ec.europa.eu/environment/climat/emission.htm
Regulation n°421/2014, amending the Directive (2003/87/EC) on gas emission allowance trading within the Community, on April 16th 2014. This amendment concerns the derogation of the Aviator sector concerning the external borders of EU. It has been done in advance of the implementation, by 2020, of an international agreement applying a single global market-based measure.
Read the Directive.
(2009/29/EC) of 23/4 2009 to amend the 2003 Directive
(2003/87/EC) to improve and extend the greenhouse gas
emission allowance trading system (until 2020).Read the Directive
on the EU
the consolidated text of EU-ETS dir. 2003/87/EC including amendments
with dir. 2009/29/EC
and other amendments
from 2009 and earlier, on the EU
to Include Airline Emissions into the EU-ETS On
November 19, 2008, a Directive (2008/101/EC) was agreed
to include aviation in the EU-ETS in
2012. Emissions from plane will be reduced by 3% in 2012 (compared
level) and by 5% in 2013. 85% of the emission
certificates will be allocated for free. Read the Directive
on the EU
Directive: Directive 2004/101/EC SIn
2004 this Directive was approved. It allows use of CDM credits within
to be used as EU-ETS allowances. Credits from projects generating sinks
and from hydropower above 20MW are not allowed in the EU-ETS Read
the directive at the EU
about the development and problems of EU-ETS at http://www.sandbag.org.uk/
Bit of History
Climate Change Programme for EU's implementation of the Kyoto Protocol
identified in 2000 a cap-and trade system for greenhouse gas
emission from large emmitter as a possible cornerstone in EU climate
policy. One reason for this conclusion was that since 1992 the EU countries
discussed a common energy/CO2-tax, but were not
able to agree on such a tax
2001, the EU Commission the proposed a directive for the EU-ETS, covering
the period until the end of the Kyoto Protocol,
In 2003, the directive was adopted.
In 2004, the use of CDM credits in EU-ETS was included with the "link" directive.
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