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ETS (Emissions Trading System)

The Emissions Trading System (ETS) is a climate policy mechanism used by the European Union (EU) and other countries to reduce greenhouse gas (GHG) emissions in the context of climate change. It works alongside measures like the Carbon Footprint (which should link to another tab on the site), CBAM (which should also link to another tab), and the Climate Change Adaptation Strategy.

What is the purpose of ETS?
The purpose of ETS is to set a cap (maximum allowable limit) for carbon dioxide (CO₂) and other greenhouse gas emissions to combat climate change. This mechanism encourages companies to invest in cleaner technologies, aiming to reduce emissions and consequently lower additional costs.

How does ETS work?
Under the ETS system, public and private companies receive or purchase emission allowances to emit a certain amount of CO₂. For every ton of CO₂ released into the atmosphere, an allowance is required. If a company exceeds its allocated emissions, it must purchase additional allowances on the ETS market from other companies that have emitted less and hold surplus allowances.

The EU Emissions Trading System (EU ETS) is governed by Directive (EU) 2023/959 of the European Parliament and of the Council of 10 May 2023, amending Directive 2003/87/EC on establishing a system for greenhouse gas emission allowance trading and Decision (EU) 2015/1814 on the operation of a market stability reserve for the EU ETS.

Who does ETS apply to?

The current ETS phase runs from 2021 to 2030, during which the EU has set a new, more ambitious target to reduce GHG emissions by 62% compared to 2005 levels.

The system applies to:

  • ]Power plants;
  • ]A wide range of energy-intensive industrial sectors;
  • ]Flights within the EU and the European Economic Area (EEA), as well as flights departing for Switzerland and the United Kingdom;
  • ]Maritime transport (compliance obligations will be phased in between 2024 and 2026);
  • ]Fuel suppliers for buildings and transport, as well as building owners and operators.
  • ]The emissions covered include:
  • Carbon dioxide (CO₂);
  • Nitrous oxide;
  • Perfluorocarbons;
  • Methane.

A separate, standalone ETS system has also been created to cover buildings, road transport, and fuels for additional sectors not included in the original ETS.

What are the funding mechanisms for reducing GHG emissions?

Funding mechanisms for low-carbon initiatives (these could link to a page describing European funding options):

  • Modernization Fund: Supports investment projects for modernizing the energy sector and broader energy systems in EU member states with a GDP per capita (at market prices in 2013) below 60% of the EU average. Three additional lower-income member states, with a GDP per capita below 75% of the EU average during 2016–2018, have also been included.
  • Innovation Fund: Supports the demonstration of innovative technologies and groundbreaking innovations in sectors covered by the EU ETS, including innovative renewable energy sources, carbon capture and utilization, and energy storage, with a stronger emphasis on scaling up new technologies.
  • Social Climate Fund: Established under Regulation (EU) 2023/955, this fund will accompany the introduction of carbon pricing in the buildings and road transport sectors. It provides targeted financing to EU member states to support vulnerable groups most affected, particularly households experiencing energy or transport poverty, and micro-enterprises.

How can our experts help?

Our experts can assist you with:

  • Analyzing building eligibility and compliance obligations;
  • Comprehensive services for measuring and monitoring emissions under EU ETS and EU ETS 2;
  • CO₂ emission audits;
  • Support in obtaining the necessary authorizations;
  • Preparing Monitoring Plans;
  • Reporting emissions in compliance with legislative requirements.