The EU emissions trading system (EU ETS) is the most important policy instrument introduced by the European Union to combat climate change and its key tool for reducing industrial greenhouse gas emissions cost-effectively. EU ETS is the first and yet biggest international system for trading greenhouse gas emission allowances, covering and involving more than 11,000 power stations and industrial plants in 31 countries, as well as airlines.
EU ETS is based on the “cap and trade” principle. This means there is a “cap”, or limit, on the total amount of certain greenhouse gases that can be emitted by the factories, power plants and other installations in the system. Within this cap, companies receive emission allowances which they can sell to or buy from one another as needed. The limit on the total number of allowances available ensures that they have a value.
At the end of each year each company must surrender enough allowances to cover all its emissions, otherwise heavy fines are imposed. If a company reduces its emissions, it can keep the spare allowances to cover its future needs or else sell them to another company that is short of allowances. The flexibility that trading brings ensures that emissions are cut where it costs least to do so.
Industrial installations covered by the EU Emissions Trading System (EU ETS) are required to have an approved monitoring plan, according to which they monitor and report their emissions during the year. In the case of industrial installations, the monitoring plan forms part of the approved permit that is also required.
The data in the annual emissions report must be verified before 31 March each year by an accredited verifier, like EΜΙCERT Ltd. Once verified, operators must surrender the equivalent number of allowances by 30 April of the same year. Common rules for monitoring and reporting, as well as the accreditation of verifiers and the verification of annual emissions reports are important for ensuring the quality of the annually reported emissions and the credibility of the data.
This annual procedure of monitoring, reporting and verification (MRV), as well as all processes connected to these activities are known as the “compliance cycle” of the EU ETS.
EU ETS is now in Phase III, running from 2013 to 2020. A major revision approved in 2009 in order to strengthen the system means the third phase is significantly different from the two previous phases and is based on rules which are far more harmonised than before.
The main changes are:
- A single, EU-wide cap on emissions applies in place of the previous system of national caps;
- Auctioning, not free allocation is now the default method for allocating allowances. In 2013 more than 40% of allowances will be auctioned, and this share will rise progressively each year;
- For those allowances still given away for free, harmonized allocation rules apply which are based on ambitious EU-wide benchmarks of emissions performance;
- Energy production has no free allowances
- More sectors and gases are included.
For period 2013-2020 the system for allocating emission allowances will have many change compared to the two previous trading periods. Firstly, emission allowances will be distributed according to fully harmonised and EU-wide rules, meaning that the same rules will apply across all EU Member States. Secondly, auctioning will be the rule for the power sector, which means that the majority of allowances under the EU Emissions Trading System will not anymore be allocated for free.
According to Decision 2011/278/EU determining transitional Union-wide rules for harmonised free allocation of emission allowances the allocation is calculated more or less based on the following formula:
Allocation = Benchmark X Historical activity level X Carbon leakage exposure factor X Cross-sectoral correction factor OR linear factor
A benchmark does not represent an emission limit or even an emission reduction target but merely a threshold for the level of free allocation of an individual installation. Generally speaking a product benchmark is based on a value reflecting the average greenhouse gas performance of the 10 % best performing installations in the EU producing that product.
In 2013, the free allocation is 80% of the quantity determined via these rules, going down to 30% in 2020. An exception is made for activities that are deemed to be exposed to a significant risk of carbon leakage.
EMICERT ltd is the first body from Greece that was accredited for the verification of the historical activity data of the installations that apply for free allowances for period 2013-2020.
Conducting the verification of baseline historical data falls under the same general regulatory framework as the verification of stationary installations according to 2003/87/EC and 2007/589/EC.