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Greenhouse gas emission allowance trading scheme

The European Union (EU) is establishing a scheme for greenhouse gas emission allowamce trading for the cost-effective reduction of such emissions. This scheme should enable the EU and the Member States to meet the commitments to reduce greenhouse gas emissions made in the context of the Kyoto Protocol. Installations operating in the energy sector, iron and steel production and processing, the mineral industry and the paper and board industry will automatically be subject to the emission trading scheme.

ACT

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 [See amending act(s)].

SUMMARY

This Directive aims to introduce significant reductions in greenhouse gas emissions with a view to reducing the influence of such emissions on the climate.

Greenhouse gas emission permits

Since 1 January 2005, all installations carrying out any of the activities listed in Annex I to this Directive (activities in the energy sector, iron and steel production and processing, the mineral industry and the wood pulp, paper and board industry) and emitting the specific greenhouse gases associated with that activity must be in possession of an appropriate permit issued by the competent authorities.

Applications for greenhouse gas emission permits must describe:

  • the installation, its activities and the technology used;
  • the materials used which could emit the greenhouse gases listed in Annex II;
  • the sources of gas emissions;
  • the measures planned to monitor and report emissions.

The authorities will issue a permit provided that they are satisfied that the operator of the installation is capable of monitoring and reporting the emissions. A permit may cover one or more installations on the same site operated by the same operator. The permit will contain details of:

  • the name and address of the operator;
  • the installation’s activities and emissions;
  • a monitoring programme;
  • the reporting requirements in respect of emissions;
  • the obligation to surrender, during the first four months of each year, a quantity of allowances commensurate with the total emissions over the previous year.

The competent authority will reexamine the greenhouses gas emissions permit at least every five years and make the necessary modifications.

Management of allowances

The Community-wide quantity of allowances issued each year shall decrease in a linear manner as from 2013. For 2013, the absolute Community-wide quantity of allowances shall be calculated on the basis of the national plans accepted by the Commission and introduced between 2008 and 2012.

Member States shall auction all allowances which are not allocated free of charge. The distribution of allowances by auction shall take place according to the following procedures:

  • 88 % shall be distributed amongst Member States on the basis of their emissions;
  • 10 % shall be distributed for the purpose of solidarity and growth;
  • 2 % shall be distributed amongst Member States the greenhouse gas emissions of which were, in 2005, at least 20 % below their emissions in the base year applicable to them under the Kyoto Protocol.

At least 50 % of the revenues generated from the auctioning of allowances should be used for the following purposes:

  • to reduce greenhouse gases;
  • to develop renewable energies, and other technologies contributing to the transition to a low-carbon economy;
  • measures to avoid deforestation and increase afforestation and reforestation;
  • forestry sequestration;
  • capture and geological storage;
  • a shift to low-emission and public forms of transport;
  • research in energy efficiency and clean technologies;
  • improvements in energy efficiency and insulation;
  • to cover administrative expenses of the management of the European scheme.

By 31 December 2010, the European Commission shall adopt Europe-wide harmonised measures for the allocation of allowances.

By 30 June 2010, the Commission shall submit to the European Parliament and to the Council an analytical report assessing the situation with regard to energy-intensive sectors or subsectors that have been determined to be to a significant risks of carbon leakage.

Monitoring and reporting of emissions

By 31 December 2011, the Commission shall adopt a regulation for the monitoring and reporting of emissions. That regulation shall take into account the most accurate and up-to-date scientific evidence available.

Member States and the Commission shall ensure that all decisions and reports relating to the quantity and allocation of allowances and to the monitoring, reporting and verification of emissions are immediately disclosed in an orderly manner ensuring non-discriminatory access.

Verification and accreditation

By 31 December 2011, the Commission shall propose a regulation for the verification of emission reports and for the accreditation and supervision of verifiers. It shall specify conditions for the accreditation and withdrawal of accreditation, for mutual recognition and peer evaluation of accreditation bodies, as appropriate.

Kyoto Protocol project mechanisms

Directive 2004/101/EC reinforces the link between the EU’s emission allowance trading scheme and the Kyoto Protocol by making the latter’s ‘project-based’ mechanisms (Joint Implementation and the Clean Development Mechanism) compatible with the scheme. This will enable operators to use these two mechanisms in the allowance trading scheme to fulfil their obligations. The result will be lower compliance costs for installations in the scheme. It is estimated that annual compliance costs in the period 2008-12 for all installations covered in the enlarged EU will be reduced by more than 20 %.

This Directive thus recognises joint implementation (JI) and clean development mechanism (CDM) credits as equivalent to EU emission allowances, except for those generated by nuclear installations and those from land use, land use change and forestry activities. Credits from JI projects are called ‘emission reduction units’ (ERU), while credits from CDM projects are called ‘certified emission reductions’ (CER). The Directive also takes steps to prevent ERUs and CERs being counted twice where they result from activities which also lead to a reduction in, or limitation of, emissions from installations covered by Directive 2003/87/EC.

Registries, reports and agreements

The Commission has adopted Regulation (EU) No 920/2010 for the establishment of a system of standardised registries in the form of electronic databases for monitoring the issue, holding, transfer and cancellation of allowances. These registries will also guarantee public access to information, confidentiality and conformity with the provisions of the Kyoto Protocol.

The Commission will nominate a Central Administrator to maintain an independent transaction log recording the issue, transfer and cancellation of allowances at Community level. The Central Administrator will conduct an automated check on each transaction relating to allowances. If irregularities are identified, the transactions in question will be suspended until the irregularities have been corrected.

Each year, the Member States will submit to the Commission a report on the application of this Directive.

Agreements may be made to provide for the recognition of allowances between the European scheme and compatible mandatory greenhouse gas emissions trading systems with absolute emissions caps established in any other country or in sub-federal or regional entities. Non-binding arrangements may be made with third countries or with sub-federal or regional entities to provide for administrative and technical coordination in relation to allowances in the European scheme or other mandatory greenhouse gas emissions trading systems with absolute emissions caps.

Adjustments applicable upon the approval by the Community of an international agreement on climate change

The signing of such an agreement requires Member States to reduce greenhouse gases by over 20 % compared to 1990 levels, as reflected in the 30 % reduction commitment as endorsed by the European Council of March 2007. In that regard, the Commission undertakes to submit a report assessing the following elements:

  • the measures taken at international level;
  • the action to be taken to reach a target of a 30 % reduction in greenhouse gas emissions;
  • the risk of carbon leakage in the context of business competitiveness;
  • the implications of the agreement on other economic sectors;
  • the impact on the agriculture sector;
  • afforestation, reforestation, avoided deforestation and forest degradation.

Operators are permitted to use the credits provided for in this Directive, CERs (certified emission reductions), ERUs (emission reduction units) or other approved credits from third countries which have ratified the international agreement.

Background

The adoption of the Kyoto Protocol by the Community and its Member States in 2002 commits them to reducing their greenhouse gas emissions by 8 % in relation to 1990 levels between 2008 and 2012. This Directive, by establishing a market in greenhouse gas emission allowances, will help the EU and its Member States to effectively meet the commitments made in the framework of the Kyoto Protocol while safeguarding economic development and employment.

In March 2007, the European Council approved the target of reducing greenhouse gas emissions by 30 % by 2020 compared to 1990 levels, as a contribution with a view to an agreement after 2012, on condition that other developed countries undertake to set comparable reduction targets, depending on their respective responsibilities and capacities. The EU is strongly committed to reducing its greenhouse gas emissions by at least 20 % by 2020 compared to 1990 levels. In October 2009, the European Council supported the objective of reducing emissions by 80 to 95 % by 2050 compared to 1990 levels, within the context of the IPPC Directive. The Copenhagen Conference from 7 to 18 December 2009 is also in line with those objectives.

REFERENCES

Act Entry into force - Date of expiry Deadline for transposition in the Member States Official Journal

Directive 2003/87/EC

25.10.2003

31.12.2003

OJ L 275 of 25.10.2003

Amending act(s) Entry into force Deadline for transposition in the Member States Official Journal

Directive 2004/101/EC

13.11.2004

13.11.2005

OJ L 338 of 13.11.2004

Directive 2008/101/EC

2.2.2009

2.2.2010

OJ L 8 of 13.1.2009

Directive 2009/29/EC

25.6.2009

31.12.2012

OJ L 140 of 5.6.2009

Regulation (EC) No 219/2009

20.4.2009

-

OJ L 87 of 31.3.2009

The successive amendments and corrections to Directive 2003/87/EC have been incorporated in to the original document. This consolidated version is of documentary value only.

RELATED ACTS

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 [Official Journal L 302 of 18.11.2010].

Commission Decision 2007/589/EC of 18 July 2007 establishing guidelines for the monitoring and reporting of greenhouse gas emissions pursuant to Directive 2003/87/EC of the European Parliament and of the Council [Official Journal L 229 of 31.8.2007].
The 12 Annexes to this Decision contain guidelines for monitoring and reporting greenhouse gas emissions. Annex I sets out general guidelines. Additional guidelines for specific activities are set out in Annexes II to XI. Annex XII gives guidelines on continuous greenhouse gas emission measurement systems. These guidelines are designed to ensure regular and precise monitoring and reporting of greenhouse gas emissions in the Community. Their application is facilitated in the case of installations with average verified reported emissions of less than 25 000 tonnes of fossil CO2 per year during the previous trading period.

Commission Decision 2006/780/EC of 16 November 2006 on avoiding double counting of greenhouse gas emission reductions under the Community emissions trading scheme for project activities under the Kyoto Protocol pursuant to Directive 2003/87/EC of the European Parliament and of the Council [Official Journal L 316 of 16 November 2006].

Last updated: 05.04.2011
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