Ex course Flashcards
EU Emissions Trading System
the EU ETS is a cap-and-trade system designed to reduce greenhouse gas emissions (GHGs) from large industries and power generation within the European Union. Established in 2005, it is the world’s first international emissions trading system.
Key Principles:
Cap and Trade: The system sets a cap on total GHG emissions, which decreases annually. Companies covered by the scheme must acquire or receive carbon allowances, which they can trade with others.
Flexibility: Companies can choose between reducing emissions and purchasing allowances from other companies, depending on the carbon price.
Free Allocation: Some companies receive a certain number of allowances for free, while others must buy them on the market or through auctions.
Coverage:
Industries: The EU ETS covers energy-intensive industries, such as cement, steel, and chemicals, as well as power generation from fossil fuels.
Aviation: The system also covers CO2 emissions from flights within the EU and between EU and non-EU countries.
Reform:
Phase IV (2021-2030): The EU ETS has undergone reforms to strengthen price signals, protect energy-intensive industries, and reduce emissions.
ETS II: A new system, ETS II, will cover fuels used in buildings, road transport, and additional sectors, applying a cap-and-trade approach upstream (at the fuel production level).
Goals:
Climate Neutrality: The EU aims to achieve climate neutrality by 2050, and the EU ETS is a key tool to reduce emissions and drive the transition to a low-carbon economy.
Economic Incentives: The system provides economic incentives for companies to invest in emissions reduction technologies and practices.
Monitoring and Verification:
Union Registry: Companies must hold carbon allowances electronically in the Union Registry, which tracks emissions and ensures compliance.
Monitoring, Reporting, and Verification (MRV): Companies must report their emissions and surrender allowances annually. Non-compliance can result in penalties.
Impact:
Price Signals: The EU ETS creates a market price for carbon, influencing corporate decision-making and driving investment in low-carbon technologies.
Emissions Reduction: The system has led to significant emissions reductions in covered sectors, with a focus on further reductions in the coming years.
