Central components for the European emissions trading system

Official text of the ETS Directive (2003/87/EC)

The basic components of the European ETS Directive are:

• mandatory participation for the types of installation listed in Annex I of the EU emissions trading directive, beginning in 2005
• limited allocation of certificates to installation operators
• free allocation of certificates (at least for the first few years)
• option to purchase certificates from other market participants (entrants) or of engaging in climate-protection projects
• elaboration of a national allocation plan (NAP) in which the member states specify how many certificates they intend to allocate to which - individually listed! - Installations within the respective period of time, along with the criteria for doing so
• strictly installation-specific directive: Emissions trading concerns the operators of the installations listed in Annex I. If one operator carries out several activities falling under the same subheading in the same installation or on the same site, the capacities of such activities are added together (obligatory cumulation, e.g., when one operator is operating 3 firing systems rated at 9 MW each at a single location, all three capacities are added together, and the operator therefore falls under the emission trading program)
• EU-wide monitoring and reporting requirements:
  The actual emissions must be monitored, and the operators must submit annual reports to the competent authorities about the installations' greenhouse gas emissions. Any operator who fails to comply will be barred from trading until he submits a report of satisfactory scope.
• Operators participating in emissions trading require a permit for emitting greenhouse gases (such permit not being identical with permits required according to Germany's Federal Emission Control Act). In the absence of such a permit, the installation may not be operated.
• Greenhouse gases may only be emitted, if the operator is in possession of a significant number of allowances. CO₂ emissions that are not covered by certificates will be penalized:
• 40 € penalty in period of time between 2005 and 2007, and 100 € penalty from 2008 on, for 1 ton of CO₂ emitted by the operator without a certificate
• the names of the operators will be published ("name and shame")
• in addition, the operator must purchase additional certificates the following year to cover the excessive emissions.