The EU ETS in a Nutshell
The European Union Emissions Trading System (EU ETS) is a cornerstone of the EU’s policy to combat climate change and it is the world’s first and most significant international emissions trading scheme. It was first introduced in 2005 and applied to more than 11,000 power plants and industrial facilities in 31 countries, covering around 45% of the EU’s total greenhouse gas emissions. The EU ETS puts a cap on the total amount of CO2 emitted by the power and industrial sectors. Companies must hold sufficient allowances, also known as EUAs, to cover their emissions. The EU ETS operates on a market-based principle, allowing companies to buy or sell allowances depending on their emissions level, creating a dynamic price for carbon. This will enable companies to find cost-effective ways to reduce their emissions.
Why Companies Must Comply
For several reasons, companies covered by the EU ETS must comply with the system. Firstly, non-compliance can result in significant fines and penalties. This is enforced by national regulatory bodies, which have the power to audit companies and impose penalties for non-compliance. Secondly, companies that exceed their emissions limits will have to purchase additional allowances on the carbon market, which can be costly. This can lead to a significant increase in operating costs for non-compliant companies. Finally, organizations that demonstrate that they are taking steps to reduce their emissions can sell their surplus allowances, providing a financial incentive for companies to invest in clean technologies. This can lead to a competitive advantage for compliant companies.
The EU ETS applies to a wide range of industries, including but not limited to:
- Power generation
- Oil refineries
- Iron and steel production
- Cement and lime production
- Pulp and paper production
- Chemical production
- Glass production
- Ceramic production
- Food and drink production
- Aluminum production
- Carbon black production
- Fertilizer production
- Silicon production
- Waste treatment
- Non-ferrous metals production
- Pharmaceutical production
- Carbon capture and storage (CCS)
- Electricity distribution
Note that this is not an exhaustive list, and the EU ETS coverage and sectors can be subject to change and review as part of the EU’s climate goals.
These industries are responsible for a significant portion of the EU’s greenhouse gas emissions. They must comply with the EU ETS by holding sufficient allowances to cover their emissions. They can make changes to their operations to reduce their emissions. For example, power companies can invest in clean energy sources such as wind and solar. Oil refineries can improve energy efficiency or switch to low-carbon feedstocks. And cement producers can use alternative fuels or capture and store carbon emissions. By implementing these changes, industries can reduce emissions and meet compliance obligations under the EU ETS while contributing to the global effort to combat climate change.
What Does it Mean for the Environment?
The EU ETS is vital for reducing greenhouse gas emissions and combating climate change. By putting a cap on emissions and creating a financial incentive for companies to reduce their emissions, the EU ETS helps to drive the transition to a low-carbon economy. The system also helps to promote the development and deployment of clean technologies, which can further reduce emissions in the power and industrial sectors.
How to Comply with the EU ETS
Businesses covered by the EU ETS must register and submit regular emissions reports to demonstrate their compliance. They must also hold a sufficient number of allowances to cover their emissions. Moreover, they can acquire allowances through the auctioning system or on the secondary market and apply for free allocation of allowances in certain circumstances. Companies need to stay informed about the regulations and developments of the EU ETS, as the system is regularly reviewed and updated to align with the EU’s climate goals.
Our team of experts has the knowledge and expertise to help companies navigate the complex regulations of the EU ETS. We understand the challenges companies face in meeting compliance deadlines and staying up to date with the ever-changing environmental regulations. Whether it is guiding how to acquire carbon credits, recommending strategies to reduce emissions, or assisting with compliance reporting, we are here to help. We aim to help companies meet their compliance obligations and identify cost savings opportunities while gaining a competitive advantage through sustainable practices.