How the Emissions Trading System works
The EU Emissions Trading System (EU ETS) aims to promote reductions of greenhouse gas emissions in a cost-effective and economically efficient manner. The system operates through the allocation, trading and auctioning of greenhouse gas emission allowances throughout the EU. One allowance represents one tonne of carbon dioxide equivalent.
An overall limit, or 'cap', is set on the total amount of emissions allowed from the installations covered by the system. Emission allowances are then distributed to the installations and aircraft operators in the system.
The operators are then free to trade in allowances. For example, the operator of an installation may sell the surplus allowances to another operator whose installation has emitted more carbon dioxide than its allocation. Additional allowances may also be bought at ETS auctions. Trading does not affect the environmental outcome as the number of allowances matches the level of the cap.
The rationale behind emissions trading is that it enables emission reductions to take place where the cost of the reduction is lowest, lessening the overall cost of tackling climate change.
The system is currently in its third operating phase. Phase III (2013-2020) has a tighter cap, a reduced level of free allowances and greater levels of auctioning than the previous phases and brings in a wider number of industries.
How to participate
SEPA is responsible for regulating installations and aircraft operators based in Scotland. Other regulators include the Environment Agency (England), Natural Resources Wales, the Northern Ireland Environment Agency and Department of Energy and Climate Change (Offshore installations).
Each installation requires a Greenhouse Gas Permit and aircraft operators are required to hold an Emissions Plan. Operators must monitor and report CO2 emissions every year. More information for installation operators on how to comply with the ETS is available in the guidance document “How to comply with the EU ETS, including the Small Emitter and Hospital Opt-Out Scheme”. More information for aircraft operators is available in the guidance document “How to comply with the EU ETS for the period 2013 to 2016”.
Charges for participating in the EU ETS are payable to SEPA. More details on the charging scheme can be found on the Current charging schemes page.
The EU ETS includes a requirement for independent verification of emissions data for operators with large emissions. The emissions data is confirmed in an annual emissions report, which is submitted to the regulator by 31 March of the following year. Each operator then has to surrender one allowance to the Registryby 30 April for each tonne of carbon dioxide they have emitted during the year.
To find out more visit the UK Government’s Emissions Trading webpagefor appropriate operator guidance. More information about the Emissions Trading System is also available on the European Commission’s webpage.