NL-3:EU Emissions Trading System (EU ETS)
The EU Emissions Trading System (EU ETS) is a cornerstone of the European Union's policy to combat climate change and its key tool for reducing industrial greenhouse gas emissions cost-effectively. The EU-ETS officially began on January 1, 2005 with a “warm-up” phase (phase I) from 2005-2007. The second phase (phase II) from 2008-2012 was set to coincide with the Kyoto compliance period and phase III runs from 2013 to 2020. The EU ETS sets a cap on total direct GHG emissions for its participants (mostly energy generation and heavy industry) in participating countries but allowances can be traded internationally.
The EU Emissions Trading System (EU ETS) is a cornerstone of the European Union's policy to combat climate change and its key tool for reducing industrial greenhouse gas emissions cost-effectively . The EU-ETS officially began on January 1, 2005 with a “warm-up” phase (phase I) from 2005-2007. The second phase (phase II) from 2008-2012 was set to coincide with the Kyoto compliance period  and current phase III runs from 2013 to 2020. The EU ETS sets a cap on total direct GHG emissions for its participants (mostly energy generation and heavy industry in EU member states (*1) (*2).
Phases I and II (2005-2012)
Individual participants in phase I and II get a number of emission allowances for free and can buy additional allowances if they need more, assuming other participants have spare allowances to sell. The price of the allowances is aimed at influencing participants' decision to invest in emission reduction measures or to buy allowances when they are faced with a shortage of allowances compared to their actual emissions. In phases I and II, each country determines the total amount of allowances available for its national participants, but allowances can be traded internationally (i.e. there is no national cap on emissions).
The EU ETS phase I and II covers CO2 emissions from some 11,000 installations (see Target Group). Nitrous oxide emissions from certain processes are also covered. Between them, the installations currently in the scheme account for almost half of the EU's CO2 emissions and around 40% of its total greenhouse gas emissions.
Phase III (2013-2020)
The system for allocating emission allowances in the current phase of the EU ETS (phase III) has changed significantly compared to the two previous two phases (2005-2012). Emission allowances will be distributed according to fully harmonised and EU-wide rules, meaning that the same rules will apply across all EU Member States. A centralised EU-wide cap on emissions was introduced to ensure a more consistent approach across the EU, rather than country specific caps. The EU-wide cap is set at 2.04 billion tonnes of CO2 in 2013 and will reduce by 1.74% each year, delivering an overall reduction of 21% below 2005 levels by 2020 .
For the power sector, allowances are primarily auctioned meaning that the majority of allowances under the EU Emissions Trading System will not be allocated for free. Sectors that are considered to be at risk of carbon leakage will receive 100% of their allowances for free. Sectors that are not considered at rik of carbon leakage will receive 80% of their allocation for free in 2013, declining annually to 30% in 2020 and 0% (i.e. full auctioning) in 2027.
The scheme has been expanded in Phase III to include petrochemicals, ammonia, and aluminum sectors; nitrous oxide emissions from acid production; and PFC emissions from the aluminum sector. Aviation emissions were also included in 2012, both for flights within Europe and those flying in and out of Europe. However, due to strong opposition from other countries, inclusion of the latter emissions has been suspended. A decision is expected in late September 2013 
A few of the final product benchmarks for post 2012 EU ETS are included in the list below. For the full list see . Note that this is based on a carbon leakage status for these products for the year 2013 and 2014 and that the full definitions and included processes can be found in the full list .
· Coke: 0,286 allowances / tonne
· Hot metal: 1,328 allowances / tonne
· Aluminium: 1,514 allowances / tonne
· Grey cement clinker: 0,766 allowances / tonne
· White cement clinker: 0,987 allowances / tonne
Policy Information Expand this section for information on the key features of the policy, such as its date of introduction, categorization, main objective(s) and linkages with other policies.
Policy Instrument Type: Economic, Emissions Trading, Administrative
Position in the PyramidAbout Us
Start Date: 2005
|Complements||Long-term Agreement on Energy Efficiency for EU ETS enterprises (LEE)||Effort Defining|
|Complements||Long-Term Agreements on Energy Efficiency||Effort Defining|
|Complements||Permits under the Environmental Management Act||Supporting Measure|
Ministry of Economic Affairs
Primary Objective: GHG Emissions
To limit the absolute amount of GHG emissions in Europe at lowest cost (through trading). The Europe-wide target for EU ETS participants (currently covering 40% of EU emissions) is to reduce CO2 emissions by 21% below 2005 levels by 2020.
CO2 emissions from power stations and other combustion plants, aviation, oil refineries, coke ovens, iron and steel plants and factories making cement, glass, lime, bricks, ceramics, pulp, paper and board, petrochemicals, ammonia and aluminium and N2O emissions from the production of nitric, adipic and glyocalic acid production and perfluorocarbons from the aluminium sector. The capture, transport and geological storage of all greenhouse gas emissions will also be covered.
Driver of energy consumption or emissions affected by policy: Total GHG emissions
Implementation Information Expand this section for information on targets, monitoring, verification and enforcement regimes, and implementation requirements and tools.
Quantitative Target? yes
Target: 37,4 Mt/yr for all EU ETS participating countries over the period 2013-2020 The cap for 2013 has been determined at 2,039,152,882 allowances and this cap will be decreased with 37,435,387 allowances each year (1,74%), until at least 2020. Target for the period 2013-2020 is therefore an annual reduction of approximately 37,4 Mt/yr for all EU ETS participating countries.
Time Period: 2013-2020
Progress Monitored? yes
Verification Required? yes
Sanctions: Penalty: €100/t CO2 not surrendered + make up shortfall Possibly revoking of permit to emit
Requirements on the Target Group
• Obtain permits for GHG emissions (subject to approved monitoring protocol)
• Annual monitoring and reporting of emissions according to harmonised rules
• Surrender each year enough allowances to cover the emissions of the previous year
Support by Government
No separate support in addition to existing energy efficiency and renewable energy policies.
The following tools are provided to support implementation of EU ETS
- Electronic template for monitoring report (mandatory)
- Guiding document on EU-ETS 2013-2020
- Example of risk analysis
- Guiding document on measurement uncertainties
- Example of sample protocol
- Calculation tool for frequency of analysis of calculation variables
- Standardized letters for communication of monitoring plan to the Dutch emissions authority.
- Link for provided tools: https://www.emissieautoriteit.nl/vergunningen/vergunningen-co2-2013-2020/hulpmiddelen
Complexity of Implementation
Until 2013, National Allocation Plans must be developed, in which BaU scenarios for a large variety of industry as well as improvement potential (information asymmetry) must be assessed, competitiveness issues must be taken into account and made explicit, and new entrants reserves and auctions must be arranged. To inform EU-harmonized allocation of permits under phase III, the UK government prepared a document outlining National Implementation Measures (NIMs) for submission in December 2011 to the European Commission. The methodology for determining free allocation is outlined in Commission Decision (2011/278/EU), adopted on 27 April 2011, after agreement by Member States in 2010.
Develop explicit scenarios of production and emissions, develop benchmarks, take uncertain carbon price into account in investment decisions, participate in auctions and trading.
Impacts, Costs & Benefits Expand this section to find information on policy effectiveness and efficiency.
|Impact||Quantitative Estimate||Qualitative Estimate|
|Estimated effect on energy consumption or emissions||~ 6.5% below ‘streefwaarden’ (the non-binding sectorial target values used in Dutch policy making) (reduction below streefwaarden occurs mostly in energy sector, not industry); 83.4Mt/yr for CO2 under ETS compared with 89.4Mt/yr in ‘streefwaarden’||Limited additional effect for industry in phase I-II compared to existing policies|
|Estimated costs/benefits for industry||N/A||Low additional cost compared to existing Long-Term Agreements (policy NL-1a, NL-1b, NL-2) as ETS allocation is based on existing policy targets|
|Estimated cost for government||Assessment has been done for Ministry of Environment, but not (yet) publicly available|
|General Benefits||Industry increases its energy efficiency and reduces its CO2 emissions, which provides benefits for the environment and economy, improving competitiveness|
|Specific Benefits||Better insight into emissions, better monitoring & reporting systems, better awareness of environmental and societal costs and ability to address risks associated with this.|
References & Footnotes
 EU ETS European Commission’s Website (2012). http://ec.europa.eu/clima/policies/ets/cap/index_en.htm
 Pew Center (2009). THE EUROPEAN UNION EMISSIONS TRADING SCHEME (EU-ETS) INSIGHTS AND OPPORTUNITIES, March 2009: http://www.pewclimate.org/docUploads/EU-ETS%20White%20Paper.pdf
 European Commission (2011). Decision of 27.4.2011: determining transitional Union-wide rules for the harmonized free allocation of emission allowances pursuant to Article 10a of Directive 2003/87/EC. http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2011:130:0001:0045:EN:PDF
 European Commission (2012). Press Release. “Stopping the clock of ETS and aviation emissions following last week's International Civil Aviation Organisation (ICAO) Council”. Available at http://europa.eu/rapid/press-release_MEMO-12-854_en.htm
(*1) Currently 27 EU Member States + Norway, Iceland and Liechtenstein
(*2) DIRECTIVE 2009/29/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 23 April 2009: - Combustion of fuels in installations with a total rated thermal input exceeding 20 MW (except in installations for the incineration of hazardous or municipal waste), - Refining of mineral oil, - Production of coke, - Metal ore (including sulphide ore) roasting or sintering, including palletisation, - Production of pig iron or steel (primary or secondary fusion) including continuous casting, with a capacity exceeding 2,5 tonnes per hour, - Production or processing of ferrous metals (including ferro-alloys)where combustion units with a total rated thermal input exceeding 20 MW are operated. Processing includes, inter alia, rolling mills, re-heaters, annealing furnaces, smitheries, foundries, coating and pickling, - Production of primary aluminium, - Production of secondary aluminium where combustion units with a total rated thermal input exceeding 20 MW are operated, - Production or processing of non-ferrous metals, including production of alloys, refining, foundry casting, etc., where combustion units with a total rated thermal input (including fuels used as reducing agents) exceeding 20 MW are operated. Production of cement clinker in rotary kilns with a production capacity exceeding 500 tonnes per day or in other furnaces with a production capacity exceeding 50 tonnes per day, - Production of lime or calcination of dolomite or magnesite in rotary kilns or in other furnaces with a production capacity exceeding 50 tonnes per day, - Manufacture of glass including glass fibre with a melting capacity exceeding 20 tonnes per day, - Manufacture of ceramic products by firing, in particular roofing tiles, bricks, refractory bricks, tiles, stoneware or porcelain, with a production capacity exceeding 75 tonnes per day, - Manufacture of mineral wool insulation material using glass, rock or slag with a melting capacity exceeding 20 tonnes per day, - Drying or calcination of gypsum or production of plaster boards and other gypsum products, where combustion units with a total rated thermal input exceeding 20 MW are operated, - Production of pulp from timber or other fibrous materials, - Production of paper or cardboard with a production capacity exceeding 20 tonnes per day, - Production of carbon black involving the carbonisation of organic substances such as oils, tars, cracker and distillation residues, where combustion units with a total rated thermal input exceeding 20 MW are operated
(*3) For industry and heating sectors, allowances will be allocated for free based on ambitious (greenhouse gas performance-based) benchmarks. Installations that meet the benchmarks (and thus are among the most efficient installations in the EU) will in principle receive all allowances they need. Installations that do not meet the benchmark will have a shortage of allowances and the option to either lower their emissions (e.g. through engaging in abatement) or to purchase additional allowances to cover their excess emissions.
Other Useful Resources
The European Commission has an online database containing information about emissions, allocations and transfers for every installation in the EU. The database is updated regularly with information from each country’s national registry.
A fact-sheet on the background of the EU Emissions Trading Scheme provided by the EU Commission.