Computatis - Cost effective Carbon Accounting

What is the European Union Emission Trading System (formerly Scheme) (EUETS)?

The European Union (EU) introduced the European Union Emission Trading System to help member states reach their greenhouse gas emissions (GHG) reduction targets and meet commitments set out in the Kyoto Protocol. Each member develops their national allocation plan (NAP) and participates in a cap and trade programme.

 

It operates by the allocation and trading of greenhouse gas emissions allowances. Each member state’s government sets an overall limit, or "cap", on the total emissions permitted from all installations covered by the scheme. Then, allowances (one allowance equals one tonne of CO₂) are allocated to eligible installations.

At the end of each year, installations are required to match their emissions to their allowances. They have the flexibility to buy additional allowances or to sell surplus allowances generated from reducing their emissions. The amount of allowances is fixed, so the environmental outcome becomes a known quantity and carbon, effectively, becomes a currency.

The EUETS has three phases. Click here for further information.

How does the EUETS affect my business?

If you have operations classified as installations (see specified industries below) in European countries, your business will be subject to the requirements of the EUETS. Installations must obtain the requisite permits, report the verified emissions and submit allowances. Facilities exceeding their allowances must pay the price by purchasing additional allowances. Efficient facilities can sell unneeded allowances in the emission markets, creating a new source of revenue.

Other entities that generate certified emission reductions (CERs) from clean development mechanism (CDM) projects may use these credits to comply with EUETS requirements or may sell these credits to other EUETS participants.

Which industries are covered by the EUETS?

EUETS requirements apply to facilities whose operations include:

• Power and heat generation, equal to or over 20 megawatts (MW) of capacity
• Refineries or coke ovens
• Ferrous metal production and/or processing
• Cement, glass or ceramic production
• Pulp, paper or board production
• Aviation from 1 January 2012
• Other GHG producing activities may be incorporated into the scheme in future periods such as transport and forestry.

How will the baseline be determined?

Each EU country is responsible for issuing emission allowances to installations according to its national allocation plan (NAP). Each NAP uses a slightly different approach, so baseline methods are country specific. In general, countries consider the historical emissions of installations from 1998 to 2002 or some subset of this period.

What are reporting and verification requirements under the EUETS?

Installations must measure CO₂ emissions or calculate them according to standardised and accepted methods. At the end of each year, an accredited, independent third party must verify these values. A report detailing the verified emissions must be submitted to the government, together with the allowances needed to cover the carbon impact of the installation.

Phases

Phase I (2005–2007)

In the first phase, the EUETS included some 12,000 installations, representing 40% of EU CO₂ emissions, covering:

• Power and heat generation, equal to or over 20 megawatts (MW) of capacity
• Refineries or coke ovens
• Ferrous metal production and/or processing
• Cement, glass or ceramic production
• Pulp, paper or board production

Phase II (2008–2012)

In the second phase, the scope has been expanded significantly, enabling:

• The purchase of carbon credits from UN-sanctioned and verified projects from the clean development mechanism (CDM) and joint implementation (JI) program
• Aviation emissions to be included from 1 January 2012
• Three non-EU members – Norway, Iceland and Liechtenstein – to join the system

Phase III (2013–2020)

In the third phase, the European Commission has proposed a number of changes (Committee on Climate Change, 2008, p149), including:

• Setting an overall EU cap, with allowances then allocated to EU members
• Tighter limits on the use of offsets
• Unlimited banking of allowances between Phases II and III
• A move from allowances to auctioning.