European Union Emission Trading Scheme (EU ETS)
Climate change is inescapably becoming one of the key policy issues at both a national and
While the UK's government has now embarked upon their new legislation, the Carbon Reduction
Commitment Energy Efficiency Scheme (CRC-EES), to help limit our national emissions, the European
Union's Emissions Trading Scheme (EU ETS) has been in operation since 2005.
The EU ETS is a cap and trade scheme, where participating installations are required to monitor
and report their emissions. At the end of each year they surrender allowances to account for
their installation's actual emissions. They may use all or part of their allocation and have
the flexibility to buy additional allowances or to sell any surplus allowances generated from
reducing their emissions below their allocation.
The EU ETS was introduced to assist the EU's emission reduction target under the Kyoto
Protocol, where they have undertaken to demonstrate an 8% fall below 1990 levels.
Each member state is required to set out a National Allocation Plan (NAP) and these plans must
set an overall 'cap' on the total amount of emissions allowed from all the installations covered
by the scheme. This is converted to allowances, where 1 allowance equals 1 tonne CO2 and the
allowances are then distributed by Member States to installations in the scheme.
Installations are covered by the EU ETS on the basis of CO2 emitting activities they carry
out, and cover heavy industries such as:
- Electricity generation
- Iron & steel
- Mineral processing industries such as cement manufacture
- Pulp and paper processing industries.
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