Finland

FI-2:EU Emissions Trading System (EU ETS)

Policy Description

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.

Description

 

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 [1]. 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 [2]. 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 COemissions 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 [10].

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 [5]

A few of the final product benchmarks for post 2012 EU ETS are included in the list below. For the full list see [3]. 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 [3].

·        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 Categorisation

Policy Instrument Type: Administrative, Economic

Position in the Pyramid

About Us

Participation: Mandatory

Period

Start Date: 2005

End Date: 2020

Policy Linkages

Complements Energy Efficiency Agreements Effort Defining
Complements Ecodesign Directive (Finland Ecodesign Act 2008) Effort Defining
Complements Energy Efficiency Directive Effort Defining

Agencies Responsible

Ministry of the Environment

Primary Objective: GHG Emissions

Objective

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.

Target Group

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.

Coverage

Quantitative Target? yes

Target: 37.6 Mt per year over the period 2013-2020 for all EU ETS installations [4]. The cap for the year 2013 has been determined at 2,039,152,882 allowances, i.e. just under 2.04 billion allowances. The cap will decrease each year by 1.74% of the average annual total quantity of allowances issued by the Member States in 2008-2012. In absolute terms this means the number of allowances will be reduced annually by 37,435,387. This annual reduction will continue beyond 2020 but may be subject to revision not later than 2025

Time Period: 2013-2020

Progress Monitored? yes

Verification Required? yes

Enforced? yes

Sanctions: Penalty of €100/t CO2 not surrendered and requirement to make up the shortfall Possibly revoking of permit to emit.

Requirements on the Target Group

  • Obtain an emission permit for GHG emissions subject to the approved monitoring protocol
  • Annual monitoring and reporting of emissions according to EU harmonised rules
  • Surrender each year enough allowances to cover the emissions of the previous year.

Support by Government

No specific additional support.

Implementation Toolbox

Monitoring protocols and templates

Complexity of Implementation

Government

Up until Phase III, National Allocation Plans had to be developed, BaU scenarios for a large variety of industry judged as well as improvement potential (information asymmetry), competitiveness issues taken into account and made explicit, arrange new entrants reserves and auctions, etc

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
Estimated costs/benefits for industry
Estimated cost for government

References & Footnotes

References

[4] MURE II Database on Energy Efficiency Policies and Measures (Industry). http://www.muredatabase.org/public/mure_pdf/industry/FIN18.PDF

[1] European Commission, Climate Action, European Union Emissions Trading System: http://ec.europa.eu/clima/policies/ets/index_en.htm

[2] 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

[3] 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

[5] 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

Other Useful Resources

EU Transaction Log

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.

EU Emissions Trading Scheme Fact-sheet

A fact-sheet on the background of the EU Emissions Trading Scheme provided by the EU Commission.