EU ETS

Current: March 2012

The EU Emissions Trading Scheme (EUETS) is a Europe-wide scheme which aims to reduce emissions of carbon dioxide. It requires all sites with a thermal output capacity of over 20 MW to register and 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 harsh winters or very hot summers), emission allowances are given out for 'Trading Periods' of several years duration. At the time of writing (March 2012) the second Trading Period is current and will last until December 2012.

Installations get the allowances 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 other installations, traders, or 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 by an EU authority rather than national governments;
• auctioning a greater share (60+ %) of permits rather than allocating freely;
• inclusion of other greenhouse gases, such as nitrous oxide and perfluorocarbons. 

Any approved amendments are only likely to become effective in January 2013 (the start of the third Trading Period). The proposed caps for the 3rd Trading Period imply an overall reduction of greenhouse gases for the sector of 21% in 2020 compared to 2005 emissions.

Documentation explaining the ETS in full can be found here.