EU ETS is a cornerstone of EU policy to combat climate change and its key tool to reduce greenhouse gas emissions economically advantageous. It is the first large carbon market in the world and remains the largest.
The EU issuance rate exchange system:
It operates in all countries of the EU most Iceland, Liechtenstein and Norway (See-Efta countries),
limits the emissions of about 10,000 plants in the energy sector and manufacturing industry, as well as air operators operating between these countries,
It covers about 40% of EU greenhouse gas emissions.
A "Cap and Trade" system.
Inside the roof, operators acquire or receive emission shares, which can exchange with each other as needed. The limit to the total number of available shares guarantees that these have a value. The price signal incentives for the reduction of emissions and promotes investments in innovative technologies with low carbon emissions, while trade brings flexibility that guarantees that emissions are cut where it costs less.
After each year, an operator must return sufficient shares to cover his emissions entirely, otherwise heavy penalties are imposed. If a system reduces its emissions, it can hold back the reserve shares to cover its future needs or sell them to another operator who is short of quotas.
The revenues deriving from the sale of the shares within the ETS system of the EU mainly feed the financial statements of the Member States. Quote are also auction to provide funds in support of innovation in low carbon and energy transition technologies.
Sectors and covered gases
The EU ETS covers the following sectors and gas, focusing on the emissions that can be measured, communicated and verified with a high level of precision:
- carbon dioxide (CO2) from:
- production of electricity and heat,
- Energy high intensity industrial sectors, including oil refineries, steelworks and iron production, aluminum, metals, cement, lime, glass, ceramic, wooden pasta, paper, cardboard, acids and bulk organic chemicals,
- air transport within the European economic space.
- nitrogen protoxide (N2o)from the production of nitric, adipic, giant and glossy acid.
- perfluorocarburi (PFC)from the production of aluminum.
Participation in the EU ETS is mandatory for companies in these sectors, but:
- In some sectors only operators are included above a certain size,
- Some small plants can be excluded if governments implement tax or other measures that will reduce their emissions of an equivalent amount,
in the aeronautical sector, at least until December 31, 2023, the EU ETS will apply only to flights between airports located in the European economic space. From 1 January 2019, air operators are required to monitor and communicate their emissions also for the European economic space.
The European Union issuance exchange system (EU ETS)It is the corner stone of EU politics that fights climate change and a key tool for reducing greenhouse gas emissions in an economically advantageous way. It is the first and largest international system for the exchange of greenhouse gas emission shares, which covers more than 11,000 power plants and industrial systems in 31 countries, in addition to airlines.
Phase 4 of the Ets provides for several key changes to the previous structures of the system, including:
- Market stable reserve (MSR):The MSR is a mechanism introduced in 2015 and entered into operation in 2019 to cope with the surplus of emission shares that had accumulated in the system and was suppressing the carbon price. The MSR automatically adapts the offer of shares sold to the market.
- Linear reduction factor (LRF):The LRF is the annual reduction of the maximum permitted emissions roof. For phase 4, the LRF has been increased from 1.74% to 2.2% per year, in order to obtain a more significant reduction in greenhouse gas emissions.
- Free assignment and relocation of carbon emissions:Phase 4 introduces changes in how to assign free shares. The industries that run a significant risk of relocating their emissions outside the EU (relocation of carbon emissions) will receive a higher percentage of free shares. The system to determine these industries will be more targeted and dynamic, with the list of sectors updated every 5 years.
- Funds for innovation and modernization:Two new funds will be established using the proceeds of the sale at auction of the shares. The innovation fund will support the demonstration of innovative technologies, while the Fund for modernization will facilitate investments in the modernization of the energy sector and the largest energy systems and in the increase in energy efficiency in 10 low -income EU States.
Ahmed Sakr
Product Compliance Consultant
ComplyMarket Ug (Technical Description)
