EU Emissions Trading System (ETS)
In the fight against climate change, the European Union has pioneered market-based approaches, particularly through the Emissions Trading System (EU ETS). The system uses economic incentives to reduce greenhouse gas emissions and preserve natural ecosystems cost-effectively.
The EU ETS covers several sectors and account types. Use the sector banners below to access guidance for stationary installations, aviation, maritime transport, ETS2, trading accounts, and CBAM.
What is Emissions Trading?
Emissions trading, also known as “cap-and-trade,” is a market-based approach designed to control pollutants by providing economic incentives to limit or reduce emissions.
How Does the EU ETS Work?
The EU ETS is the largest emissions trading system in the world, covering 27 EU Member States, Norway, Iceland, and Liechtenstein. It works by:
1.Capping Emissions
The EU sets a cap on the total amount of greenhouse gas emissions that can be emitted by participating entities, such as power plants, industrial installations, airlines and shipping companies.
2. Allocating Allowances
Each entity is allocated and/or acquires tradable emissions allowances, with one allowance representing the right to emit one tonne of carbon dioxide equivalent (CO2e). Allocation may take place through free allocation against benchmarks or through auctioning. Allowances may also be acquired through trading in the carbon market.
3. Ensuring Compliance
At the end of each year, entities must surrender enough allowances to cover their total emissions. Failure to comply results in heavy penalties.
4. Trading for Efficiency
Entities that reduce their emissions need fewer allowances to meet their surrender obligations, resulting in lower compliance costs. If they have received free allowances and reduce their emissions below the level covered by those allowances, they may sell the surplus to entities that need more. This creates a market where emissions reductions take place where they are most cost-effective.
Benefits of the EU ETS
Cost-Effective Reductions
By allowing the trade of allowances, emissions reductions happen at the lowest possible cost across participating sectors.
Flexibility and Innovation
The market approach encourages companies to explore innovative solutions, increasing their competitiveness.
Broad Coverage
The system covers power generation, energy-intensive industries, aviation, maritime transport and more, ensuring a comprehensive approach.
Transparency and Accountability
Strict monitoring, reporting, and verification rules ensure transparency and accountability for emissions reductions.
What is the Union Registry?
The Union Registry is the central platform that records all holdings and transactions of allowances under the EU ETS.
Types of Accounts
- Holding Accounts
An entity with the obligation to surrender allowances in respect of reported emissions shall open a Holding Account. Different sectors (stationary installations; aircraft operators; shipping companies; ETS-2 regulated entities) have different types of Holding Accounts.
- Trading Accounts
An entity that wishes to trade in allowances may open a Trading Account. Trading Accounts cannot be used to comply with surrender obligations under the EU ETS.
Union Registry Regulation
The operations of the Union Registry are governed by the Commission Delegated Regulation (EU) 2019/1122, which supplements Directive 2003/87/EC. This regulation ensures a standardised, secure, and efficient system for managing allowances across the EU.
Malta’s Implementation
The Competent Authority for the implementation of the EU ETS in Malta is the Climate Action Authority. For any inquiries, please contact the Climate Action Authority at [email protected]
Stay Informed
European Commission EU ETS Page: For more information on the EU ETS, visit the European Commission’s dedicated page.
