Environment Agency - Home

EU Emissions Trading Scheme

Want to know more about the EU Emissions Trading Scheme? This section will give you all the information you need including how to make an application.

What is the EU Emissions Trading Scheme (EU ETS)?

The scheme is one of the policies introduced across the European Union (EU) to help it meet its greenhouse gas emissions reduction target under the Kyoto Protocol. The EU has to make an eight per cent reduction on 1990 levels by the first Kyoto Protocol commitment period (2008 - 2012).

The UK Kyoto target is 12.5 per cent. The EU ETS will also contribute to delivering the UK's domestic goal of a 20 per cent reduction in CO2 emissions by 2010.

How the EU ETS works

The scheme is cost-effective and operates by the allocation and trading of greenhouse gas emissions allowances throughout the EU - one allowance represents one tonne of carbon dioxide equivalent.

An overall limit, or 'cap', is set by Member State's Governments on the total amount of emissions allowed from all the installations covered by the scheme. The allowances are then distributed to the installations in the scheme.

At the end of each year, operators are required to ensure they have enough allowances to cover their installation's emissions. They have the flexibility to buy additional allowances (on top of their free allocation), or to sell any surplus allowances generated from reducing their emissions.

These options create a flexible compliance regime for operators and also ensures emissions are effectively capped across the EU. 

The scheme currently has two operating phases:

  • Phase 1 from 1 January 2005 to 31 December 2007
  • Phase 2 from 1 January 2008 to 31 December 2012

Installations covered by the EU ETS are those which carry out activities listed in Annex I of the EU ETS Directive. These include energy activities, production and processing of ferrous metals, mineral industries and pulp and paper industries.

What the EU ETS means for your business

The EU ETS Directive requires all installations carrying out activities listed in Annex I to hold a greenhouse gas emissions permit. The conditions of the permit will require installations to monitor and report emissions in accordance with the Commission's guidelines for monitoring and reporting.

Each year emissions data must be verified, and the equivalent number of allowances surrendered. All transactions and surrendering of allowances take place on a national registry.

What to do next

  • us for submission of completed applications
  • us for registry matters
  • us for further help