How does the EU Emissions Trading System work?

emissions trading system

Understand how the EU ETS actually works and the key measures that should be taken by your company.

Everything you need to know about European Union Emissions Trading System (EU ETS)

The European Union Emissions Trading Scheme (EU ETS) is the main tool for cost-effectively reducing greenhouse gas emissions.

The EU ETS was launched in 2005 and currently accounts for more than three-quarters of international carbon trading, making it the world’s largest carbon market.

How does it work?

Cap and trade, these are the two words that define how this system works.

Companies are allowed to emit a single EU-wide cap on certain greenhouse gases. Within that limit, companies receive or buy allowances (EUA) that they can trade with each other according to their needs.

Each allowance is equivalent to one tonne of carbon dioxide (CO2), the most common greenhouse gas.

1tCO2 = 1 allowance (EUA)

Let us assume that the limit is set at 10tCO2.

If company A has issued a total of 6tCO2 at the end of the year, it can sell company B 4 allowances (equivalent to the 4tCO2 it has not issued).

Companies can also buy limited quantities of credits from voluntary market emission reduction projects around the world, with a limitation of about 20% of the set.

How should companies proceed?

At the end of each year, companies must have acquired enough allowances to cover all emissions, otherwise they are subject to heavy penalties.

What is the price of carbon?

Currently, the price for a tonne of CO2 is about 30€. However, the price for emitting carbon dioxide into the atmosphere will double by 2021 and quadruple by 2030, according to a report published by the Carbon Tracker Organisation.

According to this study, if the European Union‘s emissions are to remain in line with international targets for preventing climate change, the price of carbon dioxide emissions will have to rise to redirect public and private investment towards production models that help decarbonise the economy.

How to sell or buy CO2 emission rights?

Climatetrade has a qualified and experienced team that operates with a broad base of industrial partners. We provide information, knowledge, and guidance to access markets for Emission Rights (EUAs), Carbon Credits (CERs), Reduction Units (ERUs) and Voluntary Reductions (VERs) in a simple, equitable and efficient way.

For further information on this service, please contact: info@climatetrade.com

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