Name of Instrument
EU ETS
ETS
Implemented
EU27+
Free allocation (Intensity-based), Auctioning
None (Market stability reserve, no direct corridor)
CO2, N2O, PFCs, and additional coverage in certain industries
Diesel; Other oil products; Gasoline; Kerosene; LPG; Natural gas; Jet fuel; Coal
Point Source
Not permitted
Covered Sectors
- Covered
- In principle
Description
Operational since 2005, the European Union Emissions Trading System (EU ETS) is the oldest cap-and-trade system in force. It is a cornerstone instrument of the EUs policy framework to combat climate change under the European Green Deal and reduce GHG emissions cost-effectively. The EU ETS is currently in its fourth trading phase (2021 to 2030). Every year, covered entities must surrender allowances for their emissions under the EU ETS. Auctioning is the main method of distributing allowances, with free allocation, based on benchmarks, used to address carbon leakage.
Recent Developments
The EU has adopted a number of reforms to the EU ETS as part of the Fit for 55 package to align the system with the EUs 2030 climate target of at least 55% net emissions reductions compared to 1990 levels and the European Green Deal objectives. The reforms increased the ambition and expanded the scope of the EU ETS to maritime transport, and introduced a new, separate emissions trading system for buildings, road transport and additional sectors (called EU ETS 2). The reforms also established a Carbon Border Adjustment Mechanism to address the risk of carbon leakage from specific sectors under the EU ETS (as an alternative to free allocation).
Coverage
The EU ETS applies to direct (scope 1) emissions from activities in the power sector, manufacturing, industry, and intra-EU aviation (including flights from the EEA to the United Kingdom). The EU ETS covers CO2 emissions, and emissions of other gases from certain activities. Each sector or activity has a specific threshold for participation.
Recent reforms to the scheme expanded its scope to maritime transport, and introduced a new, separate emissions trading system for buildings, road transport and additional sectors (EU ETS 2)
Pricing and allocation approaches
Free allocation (Intensity-based), Auctioning
Compliance Approaches
Annual
Relation to other compliance CPIs
The EU ETS has been linked with the Switzerland ETS since 2020. Several countries that participate in the EU ETS also have domestic mechanisms.
Covered Emissions
Price range:
in 2024
Indicates instruments with multiple price levels. Only the main rate is shown for these instruments. Data last updated on 1 April 2023
