European Union Emissions Trading Scheme (EUETS)
THE European Union Emissions Trading System (EU ETS) is the largest multi-national, emissions trading scheme in the world, and is a major pillar of the Eurozone climate policy. The ETS currently covers more than 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 percent of its total greenhouse gas emissions.
Under the EU ETS, large emitters of carbon dioxide within the EU must monitor and annually report their CO2 emissions, and they are obliged every year to return an amount of emission allowances to the government that is equivalent to their CO2 emissions in that year.
In order to neutralise annual irregularities in CO2-emission levels that may occur due to extreme weather events (such as particularly cold winters or exceptionally hot summers), emission allowances for any plant-operator subject to the EU ETS are given out for a sequence of several years at once.
Each such sequence of years is called a Trading Period. The 1st EU ETS Trading Period expired in December last year (2007); it had covered all EU ETS emissions since January 2005. With its termination, the 1st phase EU allowances became invalid. Since January 2008, the 2nd Trading Period is under way and this will last until December 2012. Currently, the installations get the allowances for free from the EU member states’ governments.
Besides receiving this initial allocation on a plant-by plant basis, an operator may purchase EU allowances from others (installations, traders, the government.) If an installation has received more free allowances than it needs, it may sell them to anybody.
In January 2008, the European Commission proposed a number of changes to the scheme, including: centralized allocation (no more national allocation plans) by a EU authority; a turn towards auctioning a greater share (60+ %) of permits rather than allocating freely; and inclusion of other greenhouse gases, such as nitrous oxide and perfluorocarbons.