The EU Emission Trading Scheme
The EU Emission Trading Scheme (EU ETS) is a tool that European countries use to meet their commitments under the Kyoto Protocol.
The scheme limits the emissions of greenhouse gases from heavily polluting industries, including power generation, offshore extraction, cement production, iron and steel, paper and pulp and chemical processing.
Allocation plans
The EU ETS is divided into Phases. Phase 1 ran from 2005 to 2007, Phase 2 runs from 2008 to 2012 and Phase 3 will run from 2013 to 2020.
At the start of each Phase, each government agrees an allocation plan with the European Commission (the executive body of the EU). The plan indicates the quantity of emissions that will be permitted for these industries during the Phase. The plans must be stretching (meaning they will require a significant reduction in emissions) and support the country's overall commitment under the Kyoto Protocol.
Allocation and statutory retirement of EU Emission Allowances
Once the plans are agreed, governments allocate allowances to companies in heavily polluting industries. The allowances allocated in the EU ETS are called EU Emission Allowances, or EUAs. One EUA represents the right to release one tonne of carbon dioxide into the atmosphere. The total number of EUAs allocated corresponds to the overall cap on emissions for the companies covered by the scheme.
At the end of each year, companies must retire the number of EUAs that equals their emissions in tonnes during the year. The measurement of emissions is verified by an independent auditor.
Trading
EUAs can be traded across the whole scheme. A company in one country may buy credits from a company in another country.
Trading means that reductions are made in the most economically efficient place. A company that can reduce emissions for a low cost may do so beyond its obligation and sell surplus credits to a company that would have to spend more on reducing emissions.
For example, a company may decide to reduce its emissions by using a cleaner but more expensive type of fuel. Under the EU ETS this may save them money, as they will now need to buy fewer allowances to cover their emissions. If the fuel is so clean that it reduces the company's emissions below their allocation, they can sell the extra allowances to other companies that haven't been able to reduce their emissions enough.
A market price for EUAs emerges as a result of trading. Carbon Retirement buys and retires EUAs. The price you pay includes our admin fee and
Further information
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The calculator follows recognised government guidelines. It uses data published by the Department for Environment, Food and Rural Affairs.