ETS (EU Directive)

In January 2005 the European Union Greenhouse Gas Emission Trading System (EU ETS) commenced operation as the largest multi-country, multi-sector Greenhouse Gas Emission Trading System world-wide. The scheme is based on Directive 2003/87/EC, which entered into force on 25 October 2003.

Allowances traded in the EU ETS will not be printed but held in accounts in electronic registries set up by Member States. All of these registries will be overseen by a Central Administrator at EU level who, through the Community independent transaction log, will check each transaction for any irregularities. In this way, the registries system keep track of the ownership of allowances in the same way as a banking system keeps track of the ownership of money.

Greenhouse gas emissions – a new commodity
 
Parties with commitments under the Kyoto Protocol (Annex B Parties) have accepted targets for limiting or reducing emissions. These targets are expressed as levels of allowed emissions, or “assigned amounts,” over the 2008-2012 commitment period. The allowed emissions are divided into “assigned amount units” (AAUs).

Emissions trading, as set out in Article 17 of the Kyoto Protocol, allows countries that have emission units to spare – emissions permitted them but not “used” – to sell this excess capacity to countries that are over their targets.
Thus, a new commodity was created in the form of emission reductions or removals. Since carbon dioxide is the principal greenhouse gas, people speak simply of trading in carbon. Carbon is now tracked and traded like any other commodity. This is known as the “carbon market.”

 

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