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Do you want to minimize CO2 emissions in your company? At r2eko, we offer comprehensive support in the EU ETS emission allowances trading system. Find out how we can help your business.
What is the emission allowances trading scheme?
The European Union Emission Allowances Trading System is a key strategy of the European Union aimed at mitigating the impacts of climate change. It is linked to the world’s largest market for carbon dioxide emission allowances, motivating companies to reduce their emissions. Companies must hold a sufficient number of allowances to cover their CO2 emissions.
These allowances can be acquired through auctions or allocated for free under certain circumstances, constituting a crucial element in limiting harmful gas emissions and protecting the climate.
What is the emission allowance trading system?
The Emission Allowances Trading System involves setting limits (caps) on CO2 emissions with a specified maximum number of available allowances, which are traded on the market. Operators of installations must possess allowances corresponding to each ton of emitted CO2. These allowances can be acquired through auctions, allocated for free, or purchased on dedicated markets.
Who is covered by the ETS system?
The EU ETS primarily applies to large industrial facilities, power plants, and the aviation sector operating in EU countries, Norway, Liechtenstein, and Iceland. Its goal is to reduce harmful gas emissions and protect the environment.
Why is emission allowances trading important?
The goal of the EU Emission Trading System (ETS) is to reduce greenhouse gas emissions by incorporating the costs of CO2 emissions in the production of energy and industrial goods. This makes high-emission activities more expensive compared to utilizing clean energy alternatives.
Incorporating environmental costs of emissions from buildings and transportation is crucial for phasing out the most emission-intensive technologies, such as coal-fired furnaces or gasoline cars. Regulatory actions, setting standards, goals, and organizing financial support systems for less affluent countries are also necessary.
The introduction of new fees should be gradual to avoid price shocks for end-users.
Ultimately, all revenues from new fees should be allocated to support low-emission technologies and protective measures. The new ETS emission trading system also provides an opportunity to create a social fund similar to the Modernization Fund, which could be used, for example, to combat energy poverty.
How does the emission allowances trading system work?
The EU Emission Trading System operates based on the principles of accurate monitoring and reliable reporting of greenhouse gas emissions to ensure consistency and comparability of data across the European Union.
The rules regarding the monitoring and reporting of greenhouse gas emissions are specified in Commission Regulation (EU) No 2018/2066 dated December 19, 2018.
Operators of installations and aircraft operators must fulfill their duties related to monitoring and reporting emissions, following these principles:
- Completeness: All emissions from technological processes and combustion from all sources within the installation must be considered.
- Consistency, Comparability, and Transparency: Emission monitoring and reporting should be conducted in a consistent and transparent manner, allowing verifiers and authorities to assess and compare data over time.
- Accuracy: The method of determining emission quantities should not produce systematically or intentionally inaccurate results.
- Integrity of Methodology: Reported data should not contain significant errors, ensuring objectivity and credibility to provide a fair representation of emissions.
- Continuous Improvement: Recommendations from verification reports should be considered in subsequent activities related to monitoring and reporting.
Various methods are employed to determine greenhouse gas emissions:
- Calculation-Based Methods:
- standard methodology (differentiating emissions from combustion and technological processes), which involves calculating the emission volume by multiplying the values:
- activity data (amount of fuel or process input material used multiplied by calorific value),
- emission factor,
- oxidation factor (for emissions from combustion processes) or conversion factor (for emissions from technological processes).
It is used for more complex production processes, e.g. in integrated steel plants or chemical industry plants.
- Methods based on measurements – the object of measurement are the greenhouse gases themselves in the waste gases of the installation.
- A methodology that is not based on tiers (“fallback methodology”). Used in installations with special conditions in which the use of a system of precision levels is technically impracticable or leads to unreasonable costs incurred by the operator of the installation.
- Combining methods.
Possibility to combine the above. methods applies to those cases for which Annex IV of Regulation 2018/2066 does not require the use of specific methods. Combining different monitoring methods can only be used provided that there are no data gaps or double counting of emissions.
What do you need to know about the emissions monitoring method?
The emission monitoring method, as described in the monitoring plan, must be approved by the relevant authority in the emission permit decision. This ensures that the methods used comply with applicable regulations.
Installations are required to submit annual reports on greenhouse gas emissions, which are then verified by accredited verifiers.
The compliance of the report with regulations and the monitoring plan is checked by verifiers, following Commission Regulation (EU) No 2018/2067 dated December 19, 2018. This ensures that the report is credible and accurate.
Verification aims to ensure that the report contains reliable data and that the emission quantity has been correctly determined. Only the issuance of a positive opinion by an accredited verifier allows the settlement of annual emissions from the installation.
Benefits of implementing the emission allowances trading system
The benefits of implementing the Emission Allowances Trading System (EU ETS) are diverse and include:
Motivation for Greenhouse Gas Emission Reduction:
The auction revenues from emission allowances contribute to climate actions. Member states primarily use these funds for projects related to reducing greenhouse gas emissions, developing renewable energy sources, and improving energy efficiency.
Under the existing EU ETS emission allowances trading system, member states are obligated to:
- Allocate at least half of their auction revenues during the compliance period to reduce greenhouse gas emissions.
- Implement renewable energy sources.
- Carbon capture and storage.
- Improve energy efficiency and heating systems.
The increase in carbon dioxide emission allowances prices in the current EU ETS since 2018 has led to higher auction revenues available for climate-related activities.
In the years 2018–2020, the revenues amounted to 14–16 billion euros annually. Member states, on average, allocated 70% of these funds to climate and energy-related purposes.
Financial Savings
The EU ETS operates as a market mechanism, meaning that the prices of CO2 emissions depend on the supply and demand for allowances. This system ensures that emission reductions are achieved in the most cost-effective way, encouraging investments in technologies with a lower environmental impact.
Technological innovations
Under the existing EU ETS emission allowances trading system, a portion of allowances is auctioned for the Innovative Fund and the Modernization Fund. These funds support breakthrough innovations for climate neutrality throughout the EU and the modernization of the energy sector in member states with lower incomes, respectively.
Implement the Emission Allowances Trading System with r2eko
Our team at r2eko is ready to support you in utilizing the EU ETS emission allowances trading system. We can provide assistance in:
- Consultation and advisory services regarding the EU ETS system,
- Implementation and management of the EU ETS system,
- Training for employees on the EU ETS system.
With r2eko, you will be able to make the most of the EU ETS system, minimizing your environmental impact and maximizing economic benefits.
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