EU Emissions Trading System (EU ETS) & EU ETS II
Overview Summary
The EU Emissions Trading System (EU ETS) is the European Union’s main policy tool for reducing greenhouse gas (GHG) emissions. It works as a “cap‑and‑trade” carbon market, where a limit (cap) is set on the total emissions allowed each year, and companies must hold a carbon allowance for every tonne of CO₂ they emit. Overall, the EU ETS aims to make polluters pay, encourage cleaner technologies and guide the EU economy toward climate neutrality.
EU ETS II is a separate emissions trading system—distinct from the original—designed to cover road transport, buildings and smaller industrial installations. It begins in 2027 and applies upstream, meaning fuel suppliers (not end-users) are obligated to hold and surrender allowances.
EU ETS (existing) and EU ETS II (new) allowances will be traded independently.
Scope of Coverage
Originally launched in 2005, the EU ETS covered power generation plants and heavy industry. Over time, its scope has expanded and now also includes:
– Aviation within the EU
– Maritime transport (phased in from 2024).
The new system (ETS II) will also cover road transport and buildings from 2027.
Affected Entities
The EU ETS applies to specific sectors, activities and operators whose installations or services generate GHG emissions. It does not impose obligations based on company size (large vs. SME) or market role (retailer vs. importer):
– Power stations and combustion plants ≥20 MW, electricity and heat generation and a range of energy‑intensive industrial sectors (e.g., refineries, steel, cement, glass, ceramics, pulp and paper)
– Aviation operators flying within the EEA and flights departing to Switzerland and the UK
– Maritime transport, phased in from 2024 for cargo and passenger ships >5,000 GT, expanding further through 2027
– Producers of specific chemicals emitting N₂O or PFCs; methane and nitrous oxide for maritime transport from 2026
– CO₂ capture, pipeline transport, and storage operators.
EU ETS II applies to:
– Fuel suppliers for road transport fuels
– Fuel suppliers for heating fuels used in buildings
– Fuel suppliers for small industrial installations not covered under the original ETS
Applicability and Compliance Timeline
Entered into force in 2005.
The EU ETS is currently in Phase IV, covering 2021–2030. This phase is designed to support the EU’s target of reducing GHG emissions by at least 55% by 2030.
Together, the EU ETS and the EU ETS II systems will cover about 75% of the EU’s total GHG emissions.
What This means for Companies
EU ETS impacts companies that emit CO₂ directly (industry, power, aviation, maritime).
EU ETS II impacts companies that supply fuels for road transport and buildings, with costs cascading to all fuel users.
Together, they create a comprehensive carbon‑pricing environment that raises operational costs for high‑emission activities, rewards reductions and accelerates the shift toward low‑carbon technologies.
MCS can help companies manage the regulatory data, reporting and transformation challenges arising from EU ETS and EU ETS II. Support typically spans compliance, technology enablement, data management, operational transformation and strategic decarbonization.
Status
Active (EU ETS)