SW-2: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 and consists of a “warm-up” phase (phase I) from 2005-2007 and then successive five-year periods, with the second phase (phase II) from 2008-2012 set to coincide with the Kyoto compliance period. The EU ETS sets a cap on total direct GHG emissions for its participants (mostly energy generation and heavy industry in participating countries.
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 and consists of a “warm-up” phase (phase I) from 2005-2007 and then successive five-year periods, with the second phase (phase II) from 2008-2012 set to coincide with the Kyoto compliance period . The EU ETS sets a cap on total direct GHG emissions for its participants (mostly energy generation and heavy industry in participating countries (*1)).
Phase I (2005-2008) and Phase II (2008-2012)
Individual participants currently (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 will influence 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.
Under phase 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 in the scheme account for almost half of the EU's CO2 emissions and 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: Administrative, Economic
Position in the PyramidAbout Us
Start Date: 2005
End Date: 2020
|Complements||Programme for Improving Energy Efficiency in Energy-Intensive Industries (PFE)||Effort Defining|
|Complements||Ecodesign Directive||Effort Defining|
Swedish Energy Agency
Swedish Environmental Protection Agency
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.
Sweden’s carbon dioxide emissions in the ETS trading sector totaled 19.8 million tonnes in 2011 
Quantitative Target? yes
Target: 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. Payment of the penalty does not free the company from the obligation to surrender emission allowances for its excess emissions. Under the Directive, Member States have to ensure publication of the names of operators who are in breach of the requirement to surrender a sufficient number of allowances.
Requirements on the Target Group
- Obtain permits for GHG emissions (subject to approved monitoring protocol). Emission allowances are accessed electronically via the Swedish Emissions Trading Registry, in which all participants must have an account to be able to register their transactions. The Swedish registry is known as the ETR and is linked to the CITL, which is the EU electronic registry .
- Annual monitoring and reporting of emissions according to harmonised rules. Emission reports are submitted utsing the Swedish database E-CO2 and have to be verified by an independent accredited verifier. The Swedish Environmental Protection Agency examines the reports submitted .
- Surrender each year enough allowances to cover the emissions of the previous year. The registry for trading emissions allowances (SUS) is maintained by the Swedish Energy Agency. The surrendering of allowances in SUS is monitored by and reported to the Swedish EPA. Both agencies are responsible for the web portal on ETS in Sweden: http://www.utslappshandel.se/
Emissions allowances allocated in Sweden are provided in the table below:
Support by Government
The following tools are provided to support implementation of EU ETS
- Guiding document on EU-ETS 2013-2020
- Example and electronic template for monitoring and reporting of emissions
- Example template for tonne-kilometres
- List of accepted verification bodies for verification in Sweden 
- The registry for trading emissions allowances (SUS) web portal for the EU ETS in Sweden: http://www.utslappshandel.se/
Complexity of Implementation
Complex for the period until 2013, National Allocation Plans (NAP) must be developed, BaU scenarios for a large variety of industry judged as well as potential improvement (information asymmetry (*3), competitiveness issues taken into account and made explicit, arrange new entrants reserves and auctions, etc.
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||Compilations of Swedish statistics of emissions indicate that annual emissions develop differently over time and for different industry sectors. Compared to the first trading period, the industry sectors in Sweden have generally decreased their emissions, when taking the inclusion of new installations into the ETS into account .||TBC|
|Estimated costs/benefits for industry||TBC|
|Estimated cost for government||TBC||TBC|
References & Footnotes
[1 ] European Commission, Climate Action, European Union Emissions Trading System: http://ec.europa.eu/clima/policies/ets/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 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
 Swedish Environmental Protection Agency (2012). The EU ETS in Sweden. Available at http://www.naturvardsverket.se/en/In-English/Start/Legislation-and-other-policy-instruments/Economic-instruments/The-EU-ETS-in-Sweden/
 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
(*1) Currently 27 EU Member States + Norway, Iceland and Liechtenstein
(*2) 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.
(*3) Government will almost by definition have less information about current performance, remaining improvement potentials and associated costs and BaU developments than industry itself. This is called an 'information asymmetry' and can hinder well-informed decision-making on target stringency or allocation levels.
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 EE Commission.