EU Emission Trading System
The EU Emissions Trading System (EU ETS) is a key tool in the European Union's policy for reducing greenhouse gas emissions from power-generation and industry cost-effectively. The system covers greenhouse gas emissions from power and heat generation and a wide range of energy-intensive industry sectors including oil refineries, steel works and production of iron, aluminium, metals, cement, lime, glass, ceramics, pulp, paper, cardboard, acids and bulk organic chemicals. It operates in all EU countries plus Iceland, Liechtenstein and Norway.
It is established under Directive 2003/87/EC and amendments, and is implemented in Ireland under Statutory Instrument (SI) No. 490 of 2012 and amendments, and SI No. 261 of 2010 and amendments.
Since 2012 emissions from all flights from, to and within the European Economic Area (EEA) are included in the EU ETS.
It limits emissions from more than 15,000 heavy energy-using installations (power stations & industrial plants) and airlines operating between these countries - operators which carry out activities listed in Annex I of the EU ETS Directive.
It covers around 45% of the EU's greenhouse gas emissions. In Ireland approximately 100 installations are included in the scheme, which account for roughly 29% of total emissions for the country.
The EU ETS is a ‘cap and trade’ system with a limit set on the total amount of certain greenhouse gases that can be emitted by installation covered under the scheme. The cap is reduced over time so that the total emissions fall. Every year, each installation has to surrender enough allowances to cover all its emissions.
If a company reduces its emissions so that it has more allowances than it needs, it can sell the remaining allowances at the market. Alternatively, it has to purchase additional allowances to comply with its surrender obligation. If a company does not fulfil its obligations to surrender allowances in line with their verified emissions / tonnes of CO2, heavy penalties will apply.
Set up in 2005 the EU ETS is implemented in distinct phases or ‘trading periods’. Under Phase IV, which will run from 2021-2030, the installation covered by EU ETS must reduce their emissions by 43% by 2030 compared to 2005 levels. Under the European Green Deal, the Commission will present an impact-assessed plan to increase the EU’s greenhouse gas emission reduction target in a responsible way, including for the EU ETS.
EU ETS is run on a day to day basis in Ireland by the EPA, and information on the operation of the scheme in Ireland is available on the ETS section of the EPA website.
Effort Sharing Regulations
The Effort Sharing Regulations establish binding annual greenhouse gas emission targets for all Member States for the periods 2013–2020 and 2021–2030. These targets concern emissions from most sectors not included in the EU Emissions Trading System (EU ETS), such as transport, buildings, agriculture and waste. Member States are responsible for national policies and measures to limit emissions from the sectors covered by Effort Sharing Regulations to meet the emission reduction targets. Some measures taken at EU level, for example CO2 emission standards for new cars will also help Member States to reduce their emissions.
The national targets are based on Member States’ relative wealth, measured by gross domestic product (GDP) per capita. Less wealthy countries have less ambitious targets because their relatively higher economic growth is likely to be a stronger emission driver and they have relatively lower investment capacities.
The EU Effort Sharing Regulation (ESR) requires that Ireland reduce its non-ETS emissions by 30% on 2005 levels by 2030. Flexibilities built into the regulations, such as ETS allowances and credit related to land use, land use change that result in removing or absorbing carbon dioxide from the atmosphere may also have to be considered.
The EPA’s Greenhouse Gas Emissions Projections 2019-2040 shows that full implementation of the measures in the 2019 Climate Action Plan will result in a reduction in Ireland’s total greenhouse gas emissions by up to 23% by 2030 compared to the most recent greenhouse gas inventory levels (2018). Ireland will need to avail of, at a minimum, Land-use, Land-use Change and Forestry (LULUCF) flexibilities provided for in EU legislation in order to comply with its 2030 target under the Effort Sharing Regulation.