The European Union (EU) is leading the world in emissions trading. In 2005, it put in place the world's largest 'cap and trade' scheme that covers energy-intensive industries. The European Union's Emissions Trading Scheme (EU ETS) is the cornerstone of the EU's efforts to reduce its carbon footprint.
The aim of the EU ETS is to reduce greenhouse gases (GHG) by 8 per cent by 2012 compared to 1990 levels and by at least 20 per cent by 2020. These are based on commitments made at and after the Kyoto agreement. If further agreement is reached these cuts could be raised to 30 per cent.
The currency is European Union Allowances (EUA), one of which is equal to one metric tonne of carbon dioxide. EUA are freely tradable across EU member states and trading takes place between companies, with or without market intermediaries and at organised exchanges (Amsterdam, Vienna, Paris, Leipzig, Oslo, and others).
Each covered installation is obliged to report its annual emissions by 31 March the following year. The reports are then verified by an independent third party. The EU intends in the future to strengthen its monitoring, reporting and verifications standards and procedures.
The EU ETS commenced in 2005, and completed its learning phase in 2007. The next phase began on 1 January 2008. It is expected that consecutive five-year phases will follow after 2012.
'Overview of the European Union's activities—environment', Europa World.
'Climate Change Package 2020—the EU Emissions Trading System's 3rd Phase', European Parliament, 4 July 2008.
EU ETS—The UK experience
, Department for Environment, Food and Rural Affairs, United Kingdom.
15 July, 2010