Swedish Energy Agency Climate The EU Emissions Trading System (EU ETS) Information about the EU ETS and how emissions trading works The EU ETS

The EU ETS

The EU Emissions Trading System (EU ETS) is one of the EU's most important tools for achieving its commitment to reducing greenhouse gas emissions.

The aim of the EU ETS is to create an efficient European market for trading in emissions allowances with the least possible negative impact on economic development and employment within the Union.

Around 750 industrial and energy production sites, along with 36 maritime operators and approximately 10 aircraft operators in Sweden, are required to report their emissions and surrender emission allowances. Around 9,400 industry and energy operators, 2,900 maritime operators and 1,000 aircraft operators across 31 European countries are impacted, together representing more than 40 percent of the Union's total greenhouse gas emissions.

Launched in January 2005, the EU ETS now includes operators across the 27 EU member states. The trading system also includes operators in Norway, Liechtenstein, Northern Ireland and Iceland. In 2017, the EU and Switzerland signed an agreement to link their emissions trading systems. The agreement entered into force on 1 January 2020.

The Emissions trading directive, an EU directive, regulates trading across all EU member states and is enforced through each country's national laws.

The EU emissions trading directive (europa.eu)

Space for trading is created when operators have a deficit or surplus of emission allowances which can be bought and sold on the market. Emission allowances can be traded not only by operators, but also by other companies, organisations, and private individuals.

The principal method of obtaining allowances is through auctioning, but many of the allowances are also allocated for free. Read more in the section Carbon leakage and CBAM.

The emissions cap

The EU ETS is a so-called "cap-and-trade" system and covers around 40 percent of the total volume of EU greenhouse gas emissions. Within the EU, an emissions cap is set for the included operators who then need to acquire emission allowances corresponding to the amount of emissions. Each such allowance grants the right to emit greenhouse gases equivalent to 1 tonne of carbon dioxide.

The cap determines the number of emission allowances in the system and is set to decrease each year. The gradual decrease allows companies to slowly adapt to meet increasingly ambitious emission reduction targets.

The total reduction of the emission cap amounted to 21 percent between 2005 and 2020.

Carbon leakage and CBAM

Every year a share of the allowances is allocated free of charge to certain participants in the system, usually to sectors where there is a risk of so-called carbon leakage. Carbon leakage is the movement of production of goods from the EU to countries outside the EU due to increased costs resulting from climate policy decisions and regulations.

This free allocation is gradually being phased out in connection with the introduction of the CBAM (Carbon Border Adjustment Mechanism). The mechanism establishes that importers of goods that have been produced outside the EU need to pay a price for the greenhouse gas emissions associated with the imported goods. The pricing of emissions within the CBAM is equivalent to emissions within the EU ETS.

The Swedish Environmental Protection Agency is the competent authority for CBAM since 2023. The agency is therefore responsible for regulatory compliance in Sweden. Swedish Customs is responsible for informing importers about reporting obligations within CBAM.

CBAM - vägledningar (guidance) (in Swedish, naturvardsverket.se)

Trading phases

The emissions trading system is put into effect through a number of phases. The fourth and current phase runs from 2021 to 2030. From 2024, an annual reduction factor of the emission cap of 4.3 percent applies. The auction share during the fourth phase has not changed. This means that 57 percent of the total number of emission allowances will be auctioned between 2021–2030, the rest will be allocated for free.

The revenues from the auctions are distributed to the Member States. Sweden receives approximately 1.5 percent of the revenues. According to the Emissions Trading Directive, these revenues must be used for climate-related purposes. The distribution is based on historical emission levels.

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Previous phases

The initial phase lasted from 2005 to 2007 and was regarded as a pilot phase.  It was used to test price formation on the emissions market and to set up the necessary infrastructure for monitoring, reporting and verification of emissions. The cap was largely based on estimates as there was not enough reliable emissions data available.

The second phase ran from 2008 to 2012 and allowed EU Member States to meet their commitments under the Kyoto Protocol. Amendments to the Emissions Trading Directive made it possible for operators in the system to use international reduction units (CERs & ERUs) generated under the Kyoto Protocol's flexible mechanisms (CDM & JI) to meet their commitments. In the second phase, over 95% of the emission allowances were allocated free of charge to the installations concerned.

Legal framework and references

Unit types in the registry

The third phase ran from 2013 to 2020. Aircraft operators became part of the ETS in 2012, and additional sectors were added starting in 2013. Below is a list of all sectors included in the third phase.

  • combustion plants with an installed capacity of over 20 MW and smaller combustion plants connected to district heating networks with a total capacity of over 20 MW
  • mineral oil refineries
  • coke ovens
  • iron and steel industry
  • mineral industry (cement, lime, glass, ceramics)
  • paper and pulp industry
  • aluminium production
  • aircraft operators

In Sweden, most combustion plants connected to a district heating network are covered, even if the plants are individually less than 20 MW. A more detailed description of the types of facilities covered can be found in the Swedish Act (2020:1173) on certain greenhouse gas emissions and the Regulation (2020:1180) on certain greenhouse gas emissions. The Swedish Environmental Protection Agency publishes the reported emissions from Swedish facilities annually.

Act (2020:1173) on certain greenhouse gas emissions (in Swedish, riksdagen.se)

Regulation (2020:1180) on certain greenhouse gas emissions (in Swedish, riksdagen.se)

Free allocation of allowances is based on common, predetermined benchmarks that have been developed for different products, such as pig iron or newsprint. For more information about benchmarks and decisions on free allocation, visit the Swedish Environmental Protection Agency's website.

Swedish Environmental Protection Agency (naturvardsverket.se/en)

In the third phase, auctioning is the main allocation principle. In 2013, 40 percent of the annual supply of allowances in the EU ETS was distributed and sold through auctions. The authority responsible for auctioning emission allowances in Sweden is the Swedish National Debt Office.

Last updated: 2026-03-26