The EU ETS
The European Union Emissions Trading Scheme, or the EU ETS, was introduced to help the European Union meet its emission reduction target under the Kyoto Protocol.
The EU ETS is the largest emissions trading scheme in the world and the first cap-and-trade scheme for carbon dioxide emissions. It was launched in 2005 and regulates emissions of roughly 7,300 companies and 11,500 installations in emission intensive sectors across 30 nations in Europe (the EU-27 plus Iceland, Liechtenstein and Norway).
Under the EU ETS, Member State Governments set an emissions cap on the total amount of emissions to be allowed from the installations covered by the scheme. Tradable European Union Allowances (EUAs) in amounts equal to the cap are then distributed to the installations, who have to monitor and report their emissions and surrender an allowance for every ton of CO2 emitted.
The target for the traded sector is a 21% emissions reduction on 2005 levels by 2020, and the number of allowances allocated to participants will be reduced over time until that target is met. As participants in the EU ETS are allowed to use CERs for compliance (roughly 1.7 billion up to end 2020), naturally much focus in the carbon market is given to developments in the EU ETS.
