EU Emissions Trading System (EU ETS)
Environmental Programs & Solutions for the EU ETS
Targray’s environmental programs for the European market are designed to ensure efficient and cost-effective compliance with the EU Emissions Trading System (EU ETS). Operating jointly out of Targray trading desks in Geneva and Montreal, our Environmental Commodities team leverages its expertise in environmental compliance, carbon trading, and sustainability to provide valuable emissions reduction solutions for European companies across several sectors.
Get in touch with our experts to learn more about our tailor-made emissions reduction solutions for EU ETS participants.
About the EU ETS
The European Union Emissions Trading System (EU ETS) stands as one of the world’s most ambitious and comprehensive carbon pricing initiatives. Established in 2005, the EU ETS represents the EU’s proactive stance in combating climate change by putting a price on carbon emissions and fostering the transition to a low-carbon economy. This unique program has not only set the stage for emission reduction efforts but has also provided valuable lessons for other regions and countries aiming to address the global climate crisis.
The EU ETS operates on the principle of cap and trade, where a cap is set on the total amount of greenhouse gas emissions allowed within the system. This cap decreases over time to ensure emission reductions. The system covers various industries, including power generation, energy-intensive sectors, and aviation. Participants within the system, known as installations, are allocated or required to purchase emission allowances, which serve as permits to emit greenhouse gases. Each allowance corresponds to one tonne of CO2 equivalent.
Trading and Compliance
One of the key features of the EU ETS is its market-based approach to emissions reductions. Installations have the flexibility to trade allowances with one another, creating a dynamic market for carbon credits. This allows for cost-effective emission reductions, as entities that can reduce emissions at a lower cost have the opportunity to sell surplus allowances to those facing higher costs. By encouraging this exchange, the EU ETS stimulates innovation, fosters competitiveness, and incentivizes emission reduction measures.
Cap Adjustment and Innovation
The EU ETS demonstrates a commitment to progressively reducing emissions over time. Through a process known as cap adjustment, the total number of allowances available is decreased periodically. This reduction aligns with the EU’s emission reduction targets and ensures a continuous push for greater carbon efficiency. The program also encourages investment in low-carbon technologies and innovations by providing support for projects that reduce emissions and promote sustainable development.
Monitoring, Reporting, and Verification
The success of the EU ETS relies on accurate monitoring, reporting, and verification of emissions. Installations are required to monitor their emissions and report the data to competent authorities. Robust verification processes ensure the integrity and credibility of emission data, fostering transparency and accountability within the system. This comprehensive monitoring framework enhances confidence in the EU ETS and enables evidence-based decision-making.
Linking and International Cooperation
The EU ETS has actively pursued linking with other emissions trading systems worldwide, enabling the exchange of emission allowances between participating jurisdictions. Such linking can create larger and more liquid markets, enhancing cost-effectiveness and facilitating global emission reductions. The EU ETS also encourages international cooperation on climate change, providing a model for other regions and countries to establish their own carbon pricing mechanisms.
EU ETS Sustainability Criteria
The EU ETS Sustainability Criteria form an integral part of the European Union’s commitment to ensuring environmental integrity and promoting sustainable practices within the emissions trading system. These criteria go beyond merely reducing greenhouse gas emissions and extend to encompass broader environmental and social considerations. By incorporating sustainability standards into the EU ETS, the program encourages participants to adopt sustainable practices, such as minimizing deforestation, promoting biodiversity, respecting human rights, and supporting local communities.
This holistic approach not only safeguards the environment but also drives the transition towards a more sustainable and equitable future, where economic growth goes hand in hand with responsible environmental stewardship. Through the EU ETS Sustainability Criteria, the European Union demonstrates its dedication to combatting climate change while fostering a sustainable, inclusive, and resilient society for generations to come.
Carbon credits are created by governments capping the amount of CO2 an entity may emit, and allocating a quantity of credits to entities covered in a regulated jurisdiction or policy regime.
Global carbon markets are broken down into two major market types; voluntary carbon markets (also known as VCMs) and compliance carbon markets, which vary by jurisdiction.
A carbon price typically appears as a carbon tax or in emissions trading, with the main policy instrument being an Emissions Trading System (ETS), also known as Cap-and-Trade (CAT) program.
A carbon offset is a transferrable credit certified by governments or certifying bodies to represent an emission reduction of one metric tonne of CO2, or an equivalent amount of other GHGs.