The EU Emissions Trading Scheme (EU ETS, European Union Emissions Trading System) is an EU climate policy instrument designed to reduce greenhouse gas emissions (such as CO2) at the lowest possible economic cost by enforcing the level of emissions reduction while leaving it to the market to decide how to achieve this reduction.
It is based on the fact that the participating companies have to buy a certificate for every tonne of CO2 emitted and that there are only a limited number of new certificates available each year. This amount has been reduced by 2.2% annually, by 4.2% since 2024 and by 4.4% from 2028. The system currently covers almost half of the greenhouse gas emissions generated in the EU.
A large proportion of the certificates are auctioned on the European Energy Exchange (EEX Leipzig). This proportion increases linearly in the following years (2020: 80%). The remainder are allocated free of charge and distributed according to certain principles. The certificates are valid for an unlimited period.
The certificates can be traded on exchanges or bilaterally (OTC).
The EU-ETS is the first cross-border and so far largest emissions trading scheme worldwide. It was adopted by the European Parliament and the Council of the EU in 2003 and came into force on 1 January 2005. The European ETS also serves as a pioneer for a possible global system. The EU ETS currently covers and limits the CO2 emissions of around 13,000 plants in 31 European countries (28 EU states plus Liechtenstein, Iceland and Norway) in energy production and various industrial sectors. Emissions trading takes place in trading periods lasting several years in order to balance out fluctuations caused by extreme weather conditions (mild winters, for example, mean lower emissions) and to create long-term investment security. So far, the pilot phase I (2005-2007), phase II (2008-2012) and phase III (2013-2020) have been completed.
In the first two phases, the EU member states jointly determined how many emission certificates (i.e. greenhouse gas emissions) would be made available to companies overall and under what conditions this should happen. The distribution of emission allowances to the specific plants, on the other hand, was largely left to the discretion of the national governments. This was regulated in so-called national allocation plans (NAPs). Since the beginning of Phase III (2013 – 2020), there have been no more national allocation plans. Instead, the emission allowances are issued centrally by the European Commission. The Commissioner for Climate Action is responsible for this.