Key Facts
- Covers power sector energy-intensive industrial sectors - of around 46% of European emissions.
- First trading phase (2005-7) is for CO2 with potential expansion in second phase (2008-12) to cover all greenhouse gases
- JI and CDM credits will be able to be used for compliance in the EU ETS thanks to the 'Linking Directive', agreed in 2004.
The scheme started on 1 January 2005. From this date emissions from companies in sectors covered by the scheme will be capped across 25 European countries.
Only CO2 will be included in the first phase (2005-2007), with the potential to expand this to the other 5 greenhouse gases (GHG) from 2008.
In the first phase, the EU ETS coverage includes: energy activities (power generators; combustion installations with a rated thermal input exceeding 20MW, mineral oil refineries, coke ovens): production and processing of ferrous metals: mineral industries (cement clinker, glass and ceramic bricks); and pulp, paper and board activities.
Credits from JI and CDM projects can be used for compliance thanks to the Linking Directive.
The EU ETS is central to the UK's efforts to move towards a low carbon economy. It is a key measure in helping meet the UK's domestic CO2 reduction goals and international commitments to reduce greenhouse gas emissions.
In the first phase of the scheme the UK have set a cap on emissions from sites covered by the scheme of 245 MtCO2 pa. This cap is defined by the UK National Allocation Plan (NAP), in which the Government allocates (free) emissions allowances to the ~1,500 UK sites covered by the scheme. Each European Government lays out an equivalent plan for each phase of the scheme. In the first phase the UK Government gave less allowances to the power generation sector than they were expected to need, and allocated to all other sectors in line with expected need. This shortfall or cut-back for the power sector has been borne out in the verified emissions for the first full year of the scheme. The verified emissions for 2005 indicate that the UK have set one of the most stringent caps of all EU countries.
The Government announced in June 2006 that it intends to set a robust cap for phase 2 of the scheme – 238MtCO2 pa. This is 29.3 MtCO2 pa (11%) below projected need in 2010, and is a cut back of 7MtCO2 pa below the phase 1 cap. Moreover, 7% of the allowances represented by the UK cap will be auctioned in phase 2, rather than given away for free. Once again all the cut-back is planned for the power generation sector, with all other sectors to be allocated allowances in line with need for free.
Holders of Climate Change Agreements and participants of the UK ETS were given the option of applying to 'opt-out' of the EU ETS for the first phase. No opt-outs will be allowed in phase 2.
The Carbon Trust is working with companies to quantify and measure carbon related risks and opportunities through its Carbon Management Programme.
The latest on the draft National Allocation Plan (NAP) and the EU ETS can be found on the DEFRA website
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