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The EU Emission Trading System (EU ETS)

The EU ETS is the largest multi-country, multi-sector greenhouse gas emissions trading system in the world. It includes around 11,000 Europe-wide installations, excluding aviation, and accounts for about 45% of EU carbon dioxide emissions

EU ETS and Brexit

To ensure the 2018 compliance year is not affected by a potential ‘no deal’ scenario, the UK Government has amended legislation with regards to compliance deadlines.

Further information on EU ETS and the implications of Brexit.  

The scope of the EU ETS

Installations captured by the EU ETS include power stations, oil refineries, offshore platforms and industries that produce iron and steel, cement and lime, paper, glass, ceramics and chemicals. Other organisations, including universities and hospitals may be covered by the EU ETS depending on the combustion capacity of equipment at their sites. Aviation operators flying into or from a European airport are also covered.

How the EU ETS works

The EU ETS works on the ‘cap and trade’ principle. The overall volume of greenhouse gases that can be emitted each year by installations captured by the system is subject to a cap set at EU level. Emission allowances are the ‘currency’ of the EU ETS, and the limit on the total number available gives them a value.

EU ETS timeline

Phase III of the EU ETS runs from 1 January 2013 to 31 December 2020.  During each trading year within the phase participating installations are required to monitor their emissions and then have these emissions independently verified. Operators are then required to ensure they have enough allowances to cover their installation's emissions. Installations may receive some allowances from governments for free, however, installations that produce electricity from fossil fuels (including combined heat and power installations) will not receive any free allowances from 2013 onwards.

Buying and selling emission allowances

Installations have the flexibility to buy additional allowances on top of any free allocation, or to sell any surplus allowances generated from reducing their emissions. Within limits, they can also buy credits from certain types of approved emission-saving projects around the world.

What the allowances represent

Each allowance gives the holder the right to emit one tonne of CO2, the main greenhouse gas, or the equivalent amount of two more powerful greenhouse gases, nitrous oxide (N2O) and perfluorocarbons (PFCs).

Managing system participation

All permit applications, variations, notifications and submissions of reports are managed through the online greenhouse gas emissions planning, reporting and management tool Emissions Trading System Workflow Automation Program (ETSWAP).  New applicants, excluding off-shore installations, need to go to ETSWAP and register a new installation. 

Operators of installation that have had a change in capacity or activity levels may need to tell us and submit information using the ‘New Entrants and Closures’ spreadsheet. Please contact us at to request the latest version of the spreadsheet.

Requirements for EU ETS participants

In each compliance year an installation participating in the EU ETS needs to do the following:

  • Monitor emissions stipulated within their greenhouse permit throughout the calendar year
  • Submit an emissions report for previous reporting year via ETSWAP by 31 March
  • Surrender emission allowances equal to the total emissions within the report by 30 April

EU ETS customers in Wales should continue to use ETSWAP on the Environment Agency’s website to manage compliance activities. 

What we do

The UK is the member state for compliance within the EU ETS, and the Department for Energy and Climate Change (DECC) is the UK competent authority. DECC also sets the UK’s policy, working in partnership with the devolved administrations and other government departments. Responsibility for implementation and regulation of the EU ETS is largely geographically based.

The role of the Environment Agency

The Environment Agency is the UK administrator and they maintain ETSWAP.

Natural Resources Wales is responsible for all regulation, compliance, enforcement, auditing and permitting activities (including new permits, variations, surrenders, transfers, revocations, notifications, activity/capacity changes and new entrants reserve applications) relating to installations in Wales We are also responsible for responding to technical enquires raised by Welsh participants.

UK participation in 2019 NIMs Exercise

The cross-EU data collection exercise (the National Implementation Measures, or NIMs) runs from January to September 2019. UK operators of EU ETS installations need to participate in this data collection.

As laid out in the government’s White Paper, July 2018 , continued UK membership of the EU ETS post-EU Exit is still being considered, and UK participation in the NIMs exercise is necessary to ensure UK installations are eligible for free allocations should we remain in the system. However, UK participation in this exercise is without prejudice to any final decision on the UK’s future approach to carbon pricing; the UK is considering a range of options, including continuing to participate in the EU ETS, a UK ETS (linked or standalone) or a carbon tax. 

If the government considers the data collected as part of this exercise to be useful to the design and implementation of a non-EU ETS post-EU exit carbon pricing scheme, the government will also use the data collected for this purpose.

The European Commission has prepared a suite of guidance documents, most of which have been published on the European Commission's website

To note the NIMs collection covers stationary installations only. Aviation operators do not need to participate.

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