Emissions trading in the EU
Emissions trading is one of the EU's most important tools for achieving the commitment to reducing greenhouse gas emissions. The goal is to create an effective European emissions trading market with the least possible negative impact on economic development and employment within the Union.
The EU Emissions Trading System (EU ETS) was launched in January 2005 and today comprises approximately 13,000 industrial and energy production industries, including aircraft operators. In addition to the 28 member states of the EU, there are also facilities in Norway, Liechtenstein and Iceland in the ETS.
The trade is regulated by an EU directive (2003/87/EC), which covers all EU member states and is implemented in the national law of each country.
Cap-and-trade system
The EU ETS is a so-called Cap-and-trade system and covers about 45 percent of the total volume of EU greenhouse gas emissions. The system sets an emission cap for all participants in the system. Then emission allowances are created that allow the release of greenhouse gases where every allowance corresponds to 1 tonne of carbon dioxide equivalents.
The level of the cap determines the number of allowances in the system and is designed to decrease annually from 2013 by 1.74 per cent per year. A decrease of 21 percent by 2020 compared with 2005. The gradual reduction allows companies to slowly adapt to meet increasingly ambitious emission reduction targets.
Carbon leakage
Each year, some of the allowances are allocated free of charge to certain participants in the system, for example in those sectors where there is a risk of so-called carbon leakage. Carbon leakage is the term used for businesses that are in risk of moving their business to countries with less ambitious emission reduction targets if they would have to pay in full for their emissions in the EU ETS. Other emission allowances in the system are sold through auctions.
After each year, an operator included in the ETS must surrender an allowance per tonne of carbon dioxide equivalent released during the previous year. If the operator does not have sufficient allowances, either measures must be taken to reduce emissions or allowances must be purchased on the market, by auction or from other participants in the system.