What is the EU Emissions Trading Scheme?
The EU Emissions Trading Scheme (EU ETS) is a European Union policy aimed at reducing carbon emissions and combating climate change.
Introduced in 2005, it is the first and largest international carbon market, operating in 31 countries (all 28 EU countries plus Iceland, Liechtenstein and Norway), covering around 45% of the EU's greenhouse gas emissions.
How does the EU ETS work and who does it affect?
The EU ETS limits greenhouse gas emissions from more than 11,000 heavy energy-using installations, typically from the heavy combustion and manufacturing sectors, with qualifying organisations obliged to take part.
Working on a ‘cap and trade’ basis, the EU ETS sets a cap on the amount of emissions released by scheme participants (installations with a total rated thermal input of 20MW), with this limit being lowered over time so that total emissions are reduced.
Participants also have the ability to receive and buy tradeable emissions allowances within this cap via free allocations and auctions (each allowance permitting the holder to one tonne of CO2 emissions, or an equivalent).
This encourages organisations to proactively lower emissions, as every 12 months the participant must surrender enough allowances to cover what they emit, or face heavy fines.
On the other hand, if an organisation reduces its emissions, it can sell its spare allowances to other participants who need them, or reserve them for the future.
EU ETS Phase 3
The third phase of the EU ETS began in 2013 and runs until 2020. Major changes in Phase 3 include:
• A centralised EU emissions cap (replacing national caps)
• Introduction of auctions as the default allocation of emissions allowances (replacing free allocations)
• Greater number of sectors (including metal production and aviation) and wider range of gases in addition to CO2 (nitrous oxide and perfluorocarbons).
As a result of EU ETS, emissions from sectors covered by the system will be 21% lower than in 2005, according to the European Commission.
EU ETS legislation changes in UK following Brexit vote
Following Brexit, the UK Department of Business, Energy & Industrial Strategy (BEIS) has brought forward the deadline for reporting 2018 emissions to Monday 11 March 2019 – three weeks sooner than the usual date. This is to ensure participating organisations in Britain achieve compliance in time for the UK’s planned exit from the EU on 29 March 2019.
A new surrender deadline of Friday 15th March 2019 meanwhile is a full six weeks ahead of the usual 30 April deadline, meaning organisations will only have four days in which to then surrender allowances.
The upshot of this is that organisations will need plan their compliance schedules well, especially the purchase of additional allowances for surrender owing to the very short time window now available.
However, there is another potential spanner in the works. In a move aimed to protect the EU from the UK’s likely departure, the EU Commission has proposed legislation that means, as of 1 January 2018, UK allowances will be allocated as normal, but will no longer be able to be surrendered as part of carbon compliance.
While this could have significant impact on UK organisations participating in the scheme, we are here to support and advise any organisations through this uncertain period as negotiations between the EU and Britain continue, as well assisting in the compliance process as normal.
How we can help
Our energy management team of expert energy consultants can guide you through the complete EU ETS compliance process, including a full audit service, legislative support, allowance advice and assistance in any further energy efficiency action required, ultimately allowing your organisation to maximise savings.
Not only this, we manage the whole process for you, leaving you to concentrate on the core side of your business.
For more information on legislative compliance advice, contact our energy management team today on 02920 893 811 or email us to discuss your needs.