The EU Ehs is a cornerstone of EU policy to combat climate change and its most important instrument to reduce greenhouse gas emissions. It is the world's first large carbon market and remains the largest.
The EU emissions trading system:
Active in all EU countries as well as Iceland, Liechtenstein and Norway (EEA-FTA countries),
limits the emissions of around 10,000 systems of the energy industry and the manufacturing trade as well as the aircraft operators operating between these countries,
covers around 40 % of the EU greenhouse gas emissions.
A "cap-and trade" system
As part of the upper limit, buy or receive operators emission certificates that you can act among each other if necessary. By limiting the total number of the available certificates, it ensures that they have a value. The price signal creates incentives for emission reductions and promotes investments in innovative, low -carbon technologies, while trading offers flexibility that ensures that emissions are reduced where this costs least.
After each year, an operator has to give up enough certificates to completely cover his emissions, otherwise high fines are imposed. If a system reduces its emissions, it can keep the excess certificates to cover their future needs, or sell them to another operator who does not have certificates.
The income from the sale of certificates in the EU ETS largely flow into the households of the Member States. Certificates are also auctioned in order to provide the funds to support innovations in low -carbon technologies and the energy transition.
Covered sectors and gases
The EU ETS covers the following sectors and gases and focuses on emissions that can be measured, reported and checked with a high level of accuracy:
- Carbon dioxide (CO2) from:
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- Electricity and heat generation,
- Energy -intensive branches of industry, including oil refineries, steelworks and the production of iron, aluminum, metals, cement, lime, glass, ceramic, pulp, paper, cardboard, acids and organic mass chemicals,
- Air traffic in the European Economic Area.
- Lachgas (N2O)From the production of nitric, obesity and glyoxylic acid as well as glyoxal.
- Perfluoro floors (PFCs)From aluminum production.
Participation in the EU ETS is mandatory for companies in these sectors, but:
- In some sectors, only operators from a certain size are included,
- Certain small systems can be excluded if governments take tax or other measures that reduce their emissions by a corresponding amount,
In the aviation areaUntil at least December 31, 2023, the EU ETS only applies to flights between airports in the European Economic Area. From January 1, 2019, aircraft operators are obliged to monitor and report their emissions for the European economic area.
The European Union's emission trade system (EU ETS)is the cornerstone of EU policy to combat climate change and an important instrument for cost-efficient reduction in greenhouse gas emissions. It is the first and largest international system for trade in greenhouse gas emission certificates and includes more than 11,000 power plants and industrial plants in 31 countries and airlines.
Phase 4 of the EU ETS contains several important changes to the previous structures of the system, such as:
- Market stability reserve (MSR):The MSR is a mechanism that was introduced in 2015 and came into force in 2019 to fix the excess of emission certificates that had accumulated in the system and pressed the CO2 price. The MSR automatically adjusts the range of certificates sold to the market.
- Linear reduction factor (LRF):The LRF is the annual reduction of the upper limit of the maximum permissible emissions. For phase 4, the LRF was increased from 1.74 % to 2.2 % per year in order to achieve a clearer reduction in greenhouse gas emissions.
- Free allocation and carbon leakage:Phase 4 introduces changes in the way free certificates are allocated. Industry in which there is a significant risk of relocating your emissions to countries outside the EU (carbon leakage) receive a higher proportion of free certificates. The system for determining these industries will be more targeted and dynamic, whereby the list of sectors is updated every five years.
- Innovation and modernization funds:Two new funds are set up from the income from the auction of certificates. The innovation fund will support the demonstration of innovative technologies and the modernization fund will facilitate investments in the modernization of the energy sector and the energy systems as well as the increase in energy efficiency in ten low-income EU member states.
Ahmed Sakr
Product compliance consultant
Complymarket UG (limited liability)
