The EU Emissions Trading Scheme
Introduction
The EU Emissions Trading Scheme (EU ETS) Directive is one of the main policies within the EU to control emissions of carbon dioxide and combat the serious threat of climate change.
The scheme started in January 2005, establishing the world’s largest market in greenhouse gas (GHG) emissions. The first phase of the EU ETS ran from 1st January 2005 to 31 December 2007, and the second phase runs from 1st January 2008 to 31st December 2012. The second phase coincides with the first Kyoto Commitment Period. The EU has announced that a third phase will follow in 2013.
More information on the EU ETS can be found elsewhere on the BERR website and on the DEFRA website,.
Allowances that can be used for compliance are called European Union Allowances Units (EUAs). In addition to this, carbon credits from international climate change projects (Certified Emission Reductions from CDM projects and Emission Reduction Units from Joint Implementation projects) can be used.
Using JI and CDM credits
The EU Linking Directive allows companies that participate in the EU ETS to use carbon credits from Clean Development Mechanism and Joint Implementation projects for compliance.
Individual Member States decide whether or not they will place a limit on the number of credits that can be used by companies in their countries that participate in the scheme. However this is likely to change in the third phase.
Companies will be able to use certified emission reductions (CERs) from CDM projects for compliance from 2005 onwards, and credits from JI projects (ERUs; emissions reduction units) from 2008 onwards.
If CDM or JI credits are acceptable under the Kyoto rules, they will also be allowable for EU ETS compliance, with the following exceptions:
- Credits from large dam projects;
- Credits from forestry projects (sinks);
- Credits from projects in the same country (known as unilateral JI or domestic projects) in sectors outside the EU ETS.
Credits from CDM and JI projects have been historically cheaper than EU allowances, so allowing them into the EU ETS may make it less expensive for participating companies to meet their targets than it would otherwise have been.