Revision of the EU Emission Trading System (EU ETS)
Energy Consulting Network (ECNet) - 16 April 2009
The EU ETS, which has been in operation since 2005, is considered a cornerstone of the EU's strategy for fighting climate change. It currently covers over 10,000 installations in the energy and industrial sectors which are collectively responsible for close to half of the EU's emissions of CO2 and 40% of its total greenhouse gas emissions.
The first trading period ran for three years to the end of 2007 and was a 'learning by doing' phase to prepare for the second trading period. It established the free trading of emission allowances across the EU and put in place the necessary infrastructure for developing a dynamic carbon market.
The second trading period runs for five years from 1 January 2008 until the end of 2012. It is a crucial period, as it coincides with the first commitment period of the Kyoto Protocol, during which the EU and other industrialised countries must meet their targets to limit or reduce greenhouse gas emissions
Fully in line with the Commission's proposals in January 2008, the EU in December 2008 reached agreement on legally binding targets, by 2020, to cut greenhouse gas emissions by 20%, to establish a 20% share for renewable energy, and to improve energy efficiency by 20%.
The agreement included revisions to the EU emissions trading system with the aim to create a more efficient, harmonised and fair system.
Increased efficiency is achieved by means of a longer trading period (8 years instead of 5 years), a robust and annually declining emissions cap (21% reduction in 2020 compared to 2005) and a substantial increase in the amount of auctioning (from less than 4% in phase 2 to more than 50% in phase 3).
More harmonisation has been agreed in many areas, including with respect to the cap-setting (an EU-wide cap instead of the national caps in phases 1 and 2) and the rules for transitional free allocation.
The fairness of the system has been increased by the move towards EU-wide free allocation rules for industrial installations and by the introduction of a redistribution mechanism that entitles new Member States to auction more allowances.
The revised EU ETS Directive extends the rights to use credits generated by JI or CDM projects for the third trading period and allows a limited additional quantity to be used in such a way that the overall use of credits is limited to 50% of the EU-wide reductions over the period 2008-2020.
The Commission sees the EU ETS as an important building block for the development of a global network of emission trading systems. Linking other national or regional cap-and-trade emissions trading systems to the EU ETS can create a bigger market, potentially lowering the aggregate cost of reducing greenhouse gas emissions.
To learn more about the EU ETS system please visit the links below:
