EU ETS is the world’s largest carbon market and the longest-running carbon market in the world. The EU ETS is an effective tool from the EU to meet emissions reductions targets following a distinct trading period that started in 2005. EU ETS covers more than 11,000 power stations and industrial plants in 31 countries and flights between airports of participating countries.
The EU chose a “cap-and-trade” structure as the best mean of meeting the GHG emissions reduction target. Using such a system the ETS caps the total GHG emissions from installations and aircraft operators. The mechanism allows the trading of allowances so that emissions of the facilities and aircraft operators stay within the established cap.

A tonne must be a tonne.

Monitoring, reporting, and verifying is a complete, consistent, accurate, and transparent system essential for creating trust in emissions trading. Without it, compliance in the EU ETS would lack transparency, be much more difficult to track, and compromise enforcement. This system ensures that operators meet their obligations to submit sufficient allowances in line with their actual yearly emissions. Every year, stationary installations and aircrafts need to hand in an Annual Emission Report (AER) in line with the MRV to the Competent Authority. The AER is the crucial document that provides the operator’s emitted greenhouse gases in a given year.

Allocation of allowances is done either by:

  1. Yearly, the EU grants installations free carbon allowances. Each allowance is equivalent to one tCO2(e). The total amount of free allocation each installation should receive is determined by product-related GHG emission benchmarks. Free allowances are handed out mainly to the industrial (non-power) and heating sector limiting it to approximately 43% of the total. Allocating carbon allowances to the producer or consumer depends on which type of sub-installation the energy is produced in and the medium used to deliver the energy.
  2. Auctioning is a transparent allocation method that allows market participants to acquire the allowances at the market price. The auctioning of allowances is controlled by the Auctioning Regulation, which specifies the timing, administration, and other aspects of auctioning to ensure an open, transparent, harmonised, and non-discriminatory process.

In August 2021, the IPCC sixth report was published during one of the most challenging times in recent history. The G20 took place and the European Commission presented the new package of reforms, “Fit for 55”. This package is considered the most remarkable initiative of climate policy ever put into motion under the Green New Deal. Fit for 55 covers all measures necessary to reduce emissions by 55% compared with 1990’s levels in the upcoming ten years to respect the goal of climate neutrality by 2050.

An interesting and significant change in the Commission’s new strategy is revising and broadening the Emissions Trading System (EU ETS) specifically related to the aviation and shipping industries. Additionally, there will be modifications in the directive on renewable energy and a new implementation of carbon taxation to prevent de-localization while protecting the European industry (CBAM).

As stated in the IPCC report, the climate crisis has now reached a no-return point. We are facing extreme and more frequent events. We are very close to the +1,5 degrees in average temperatures around the globe. However, the anthropogenic contribution to climate change will halt by crushing net emissions, and temperature changes might start moving in the opposite direction.

Companies must reach net-zero by 2050; thus, they must triple investments in renewables by 2030 and introduce breakthrough and innovative changes in the economy and society. Join Aither. We’ll help you be compliant with nature.


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