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Greenhouse gas emission allowance trading scheme

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Greenhouse gas emission allowance trading scheme

SUMMARY OF:

Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading

SUMMARY

INTRODUCTION

Under the Kyoto Protocol, the EU committed itself to reducing greenhouse gas (GHG) emissions between the years 2008 and 2012 by 8 % compared to the level in 1990.

During a second commitment period between 2013 and 2020, it has undertaken to reduce its GHG emissions by 20 % by 2020 compared to 1990 levels.

To meet its commitments, the EU has established a scheme for GHG allowance trading within the EU. Each allowance represents the permission to emit 1 tonne of carbon dioxide (CO2) or carbon dioxide equivalent over a specified period.

The Emissions Trading System (ETS)* is a cornerstone of EU policy to combat climate change and its key tool for reducing industrial greenhouse gas emissions cost-effectively.

KEY POINTS

The EU ETS was first introduced in 2005. It has evolved over time with series of amendments to the original legislation, Directive 2003/87/EC.

  • The current third phase of the EU ETS began in 2013 and will last until 2020.
  • The EU ETS covers power plants and manufacturing installations, as well as emissions from airlines flying between European airports.
  • Since 1 January 2005, operators installations carrying out the activities covered by the Directive must have an appropriate greenhouse gas emissions permit.
  • The EU ETS system covers emissions of carbon dioxide (CO2) from power plants, a wide range of energy-intensive industry sectors and commercial airlines. Nitrous oxide emissions from the production of certain acids and emissions of perfluorocarbons from aluminium production are also included.
  • National competent authorities issue the permits to emit greenhouse gases if they are satisfied that the operator is able to monitor and report its emissions.
  • Within the single EU-wide cap* on allowances (which decreases by 1.74 % annually), operators receive or buy emission allowances which they can trade with one another as needed. They can also exchange limited amounts of international credits from emission-saving projects around the world for allowances.
  • Operators must monitor and report their emissions to the competent authorities. The reports are checked by independent verifiers.
  • After each year, operators must surrender enough allowances to cover all their emissions, otherwise fines are imposed
  • As of 2013, auctioning of the allowances is the default rule of allocation.
  • The proportion of allowances received for free by manufacturing installations will decrease to 30 % in 2020. In principle, there is no free allocation for electricity production.
  • At least 50 % of the revenues from auctioning allowances should be used by EU countries for climate-related purposes (e.g. reducing the carbon intensity of industry).
  • Each year, EU countries report to the European Commission on how the Directive is applied.
  • A proposal for the revision of the EU ETS for Phase 4 (2021-2030) in line with the 2030 Climate and Energy Policy Framework was adopted in July 2015. The proposal aims to achieve a reduction of EU ETS emissions of 43 % compared to 2005.

FROM WHEN DOES THIS ACT APPLY?

Directive 2003/87/EC entered into force on 25 October 2003 and had to be transposed into EU countries’ national law by 31 December 2003.

BACKGROUND

The EU Emissions Trading System (EU ETS)

KEY TERMS

* EU Emissions Trading System (EU ETS): the first — and still by far the largest - international system for trading greenhouse gas emission allowances, it covers more than 11,000 power stations and manufacturing plants in the 28 EU countries, Iceland, Norway and Liechtenstein, as well as aviation activities.

* ‘Cap and trade’ principle: the EU ETS works on the basis of this principle. A ‘cap’, or limit, is set on the total amount of certain greenhouse gases that can be emitted by the factories, power plants and other installations in the system. The cap is reduced over time so that total emissions fall. The system allows trading of emission allowances so that the total emissions of the installations and aircraft operators stays within the cap and the least-cost measures can be taken up to reduce emissions.

MAIN DOCUMENT

Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC (OJ L 275, 25.10.2003, pp. 32-46).

Successive amendments to Directive 2003/87/EC have been incorporated in the original text. This consolidated version is of documentary value only.

RELATED DOCUMENTS

Commission Regulation (EU) No 1031/2010 of 12 November 2010 on the timing, administration and other aspects of auctioning of greenhouse gas emission allowances pursuant to Directive 2003/87/EC of the European Parliament and of the Council establishing a scheme for greenhouse gas emission allowances trading within the Community (OJ L 302, 18.11.2010, pp. 1-41). See consolidated version.

Commission Decision 2011/278/EU of 27 April 2011 determining transitional Union-wide rules for harmonised free allocation of emission allowances pursuant to Article 10a of Directive 2003/87/EC of the European Parliament and of the Council (notified under document C(2011) 2772) (OJ L 130, 17.5.2011, pp. 1-45). See consolidated version.

Commission Regulation (EU) No 600/2012 of 21 June 2012 on the verification of greenhouse gas emission reports and tonne-kilometre reports and the accreditation of verifiers pursuant to Directive 2003/87/EC of the European Parliament and of the Council (OJ L 181, 12.7.2012, pp. 1-29)

Commission Regulation (EU) No 601/2012 of 21 June 2012 on the monitoring and reporting of greenhouse gas emissions pursuant to Directive 2003/87/EC of the European Parliament and of the Council (OJ L 181, 12.7.2012, pp. 30-104). See consolidated version.

Commission Regulation (EU) No 389/2013 of 2 May 2013 establishing a Union Registry pursuant to Directive 2003/87/EC of the European Parliament and of the Council, Decisions No 280/2004/EC and No 406/2009/EC of the European Parliament and of the Council and repealing Commission Regulations (EU) No 920/2010 and No 1193/2011 (OJ L 122, 3.5.2013, pp. 1-59). See consolidated version.

Commission Regulation (EU) No 1123/2013 of 8 November 2013 on determining international credit entitlements pursuant to Directive 2003/87/EC of the European Parliament and of the Council (OJ L 299, 9.11.2013, pp. 32-33)

Commission Decision 2013/448/EU of 5 September 2013 concerning national implementation measures for the transitional free allocation of greenhouse gas emission allowances in accordance with Article 11(3) of Directive 2003/87/EC of the European Parliament and of the Council (OJ L 240, 7.9.2013, pp. 27-35)

Commission Decision 2014/746/EU of 27 October 2014 determining, pursuant to Directive 2003/87/EC of the European Parliament and of the Council, a list of sectors and subsectors which are deemed to be exposed to a significant risk of carbon leakage, for the period 2015 to 2019 (OJ L 308, 29.10.2014, pp. 114-124)

Decision (EU) 2015/1814 of the European Parliament and of the Council of 6 October 2015 concerning the establishment and operation of a market stability reserve for the Union greenhouse gas emission trading scheme and amending Directive 2003/87/EC (OJ L 264, 9.10.2015, pp. 1-5)

last update 07.07.2016

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