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The most important international market for trading greenhouse gas emissions is the European Union market, known as the EU Emissions Trading Scheme (EU ETS – European Union Emissions Trading Mechanism).
The EU ETS was established in 2005 and includes approximately 10,000 polluting installations. These cover various industrial sectors, including energy, as well as sectors such as airlines from the 30 European countries that are members of the EU ETS – the EU countries along with Norway, Iceland, and Liechtenstein. In European climate change policy, the EU ETS is intended to be one of the main environmental pillars, covering almost half of the EU’s greenhouse gas emissions.
This directive applies to the 30 EU ETS European states, including Romania.
The European Union implemented its Emissions Trading Scheme (EU ETS) in four distinct phases, each with its own characteristics and legislative objectives for reducing CO2 emissions. These phases were designed to adjust and improve the mechanism based on economic, technological, and political developments.
This was the launch phase of the EU ETS, designed as a learning period. During this phase, approximately 12,000 installations from the energy sector and energy-intensive industries in 25 EU member states were included. The allocation of emission allowances was largely free based on national allocation plans approved by the European Commission. The key legislation was Directive 2003/87/EC, which established the general framework for the EU ETS.
The second phase coincided with the first commitment period of the Kyoto Protocol. During this stage, the scheme was expanded to include other greenhouse gases, and the total amount of freely allocated allowances was reduced. The legislation was updated to allow linkage with other emissions trading systems and to include greater transparency and oversight. Relevant directives include Directive 2004/101/EC, which integrated the flexible mechanisms from Kyoto.
This phase introduced major reforms to increase the efficiency and robustness of the EU ETS. A single EU-wide cap replaced the national allocation plans, and a linear reduction of the cap by 1.74% per year was implemented. More sectors were included, and the proportion of auctioned allowances increased significantly. The relevant legislation was Directive 2009/29/EC, which revised the EU ETS Directive for the 2013-2020 period.
The fourth phase of the EU ETS began in 2021 and will last until 2030. During this phase, the linear reduction factor was increased to 2.2%, free allocations for sectors at risk of carbon leakage were reformed, and the Market Stability Reserve was strengthened. The Fit for 55 package introduced additional measures to reduce net emissions by 55% by 2030, expanding the scheme to new sectors such as maritime transport. Legislation, including Directive 2018/410, was updated to support links with other schemes and enhance transparency.
After leaving the European Union, the United Kingdom established its own greenhouse gas emissions trading system, known as the UK ETS (UK Emissions Trading Scheme). This system was launched on January 1, 2021, aiming to maintain continuity and ensure a smooth transition from the EU ETS, in which the UK was a part before Brexit.
The Carbon Expert team can provide assistance and consultancy for optimizing carbon emissions trading, both within the EU ETS and the UK ETS, to ensure that your business remains competitive and compliant with current regulations.
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