Greenhouse gas emission allowance trading system



Directive 2003/87/EC establishing a system for greenhouse gas emission allowance trading within the EU


It establishes the EU emissions trading system (ETS)*. This is the cornerstone of the EU’s policy to tackle climate change by reducing greenhouse gas (GHG) emissions in a cost-effective and economically efficient way. It is based on the ‘cap and trade’ principle*.

EU countries have amended the original legislation several times as the system has evolved. The most recent changes were agreed in March 2018.


The current (third) phase of the EU ETS runs from 2013 to 2020.

The system applies to:

Since 1 January 2005, operators of all activities covered by the legislation must surrender an appropriate number of emission allowances to cover their GHG emissions.

The total number of allowances issued in the EU is reduced annually: by 1.74% between 2013-2020 and by 2.2% from 2021.

Aircraft flying to airports in the EU, Iceland or Norway from elsewhere in the world are exempt from the EU ETS until 31 December 2023.


From 2021, 57% of allowances are to be auctioned. At least half of the EU countries’ proceeds must be used for climate-related purposes.

Two new low carbon funding mechanisms will be established:

EU countries:

All of these steps are fulfilled on the basis of rules harmonised at EU level.

The European Commission:


It has applied since 25 October 2003 and had to become law in EU countries by 31 December 2003.


Under the Kyoto Protocol on climate change, agreed in December 1997, the EU pledged to reduce GHG emissions between 2008 and 2012 by 8% compared to 1990 levels.

In the second Kyoto period (2013-2020), this commitment was increased to 20% of 1990 levels by 2020.

During the fourth phase of the EU ETS (2021-2030), the EU is aiming to cut its emissions by at least 40% by 2030, in line with the 2015 Paris Agreement on climate change. To meet these targets, the EU established a GHG allowance trading system. Each allowance covers the emission of 1 tonne of CO2 or CO2 equivalent over a specific period.

For more information, see:


EU Emissions Trading System (EU ETS): the first — and still by far the largest — international system for trading GHG emission allowances, it covers nearly 11,000 power stations and manufacturing plants in the 28 EU countries (1), 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 GHGs 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.


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.


Decision (EU) 2018/853 of the European Parliament and of the Council of 30 May 2018 amending Regulation (EU) No 1257/2013 and Directives 94/63/EC and 2009/31/EC of the European Parliament and of the Council and Council Directives 86/278/EEC and 87/217/EEC as regards procedural rules in the field of environmental reporting and repealing Council Directive 91/692/EEC (OJ L 150, 14.6.2018, pp. 155-161)

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)

See consolidated version.

last update 03.10.2018

(1) The United Kingdom withdraws from the European Union and becomes a third country (non-EU country) as of 1 February 2020.