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The European Emissions Trading System (EU-ETS)

is the key climate policy in the EU with the objective to reduce greenhouse gas emissions from energy- and other industries as well as aviation within Europe.

The increasing concentration of the anthropogenic greenhouse gases like carbon dioxide (CO2), nitrous oxide (N2O) or methane (CH4) in the atmosphere has become a major contributor to climate change. The European Emissions Trading System covers about 40 percent of all greenhouse gas emissions in the EU.

1. WHAT IS THE EU EMISSIONS TRADING SYSTEM AND WHAT IS THE GOAL OF IT?

As a result of the international climate protection agreement of Kyoto in 1997, an emissions trading system was introduced in Europe. In Kyoto all participating nations agreed for the first time on internationally binding stabilization and reduction targets for greenhouse gas emissions. The EU committed itself to reduce greenhouse gases by eight percent until 2012 compared to the year 1990. In order to achieve this and other future climate protection goals, the European Emissions Trading System (EU-ETS) was introduced in 2005. In the European Union and the European Economic Area (EEA), industrial installations and power plants, as well as aviation activities are subject to emissions trading.

With the market-based instruments (“Cap & Trade”) of the European Emissions Trading System, a cost-efficient implementation of the climate targets is sought. About 40 percent of all greenhouse gas emissions in the EEA are covered by the EU-ETS. In 2019, about 11,000 installations were subject to the EU ETS.

Annual emissions limits are set by the memberstates of the EU (“cap”). Tradable emission allowances (CO2 certificates) are issued (“trade”).

Through ambitious upper limits, the right to emit CO2 becomes a decreasing resource and the rules of the market create economically efficient ways to save emissions through supply and demand.

In order to prevent the migration of CO2-intensive industry (a fact, that is called carbon leakage), measures are implemented that enable a particular compensation. Selected market participants initially receive a free “base supply” of emission allowances (allocation). The amount of allowances accounts for the risk of migration of the carbon-intensive insdustries and their CO2-intensity. The remaining emission allowances are auctioned regularly by the member states.

The EU-ETS is organized in trading periods with a duration of several years:

EMISSIONS TRADING Trading periods 

The transition from one period to the next is characterized by adapted regulations.

2. How does the EU-ETS work?

Operators of installations or aircrafts, that are subject to emissions trading are obliged to surrender emission allowances in the amount of their emitted greenhouse gases each year. For this purpose, each operator must report the individual CO2 emissions to the responsible authority anually. In Germany this is the Deutsche Emissionshandelsstelle (DEHSt).

These and other basic rules for emissions trading are set by the European Directive 2003/87/EC. This directive is implemented in Germany by the Treibhausgas-Emissionshandelsgesetz (TEHG).

The emissions trading obligation for stationary installations depends on the production activities. Installations subject to emissions trading require a permission for emitting.

For aircraft operators, the obligation to take part in the EU-ETS depends on the number of flights carried out per trimester that take off or land at an airport in the EEA and on the total annual emissions.

All installation and aircraft operators in the European Union are obliged to check if they are subject to emissions trading. The EU-ETS currently covers the emissions of CO2, CH4, N2O, SF6 and perfluorinated hydrocarbons (PFC).

In order to participate in the EU-ETS, operators need an account in the EU registry. The account is to be opened with the respective national administrator. The register contains information on:

  • Free allocations
  • Certificate owners
  • Transfer of certificates
  • Verified emissions of installations / aircraft fleets
  • Annual withdrawal of allowances

For a fair and transparent recording of CO2 emissions certain rules have been set: operators must first submit a so-called monitoring plan to the naional authority (in Germany: DEHSt), that describes how the CO2 emissions are recorded for all installations. The likewise determined recording of emissions must meet the requirements of the currently valid Monitoring Regulation (MRR; Regulation (EU) 2018/2066).
The national authority verifies, whether a monitoring plan meets these requirements and grants (after changes have been submitted, if necessary) an approval for the described procedure. The description of internal control mechanisms is an important part of the monitoring methodology. A risk assessment is required for data collection and associated control mechanisms. Furthermore every facility or aircraft operator is obliged to regularly check whether the used monitoring methodology can be improved.

Operators collect all necessary informations over the course of a year and summarize it in an emissions report by the end of the year. The national authority provides electronic forms for this purpose (DEHSt: Form Management System). This report must be confirmed by a verification body.

The verification body is commissioned by operators to assess the emission reports. After successful verification, the verification body confirms the emissions report respectively the individual CO2 emissions of an operator in the Union registry. The assessment is based on the requirements of the Accreditation and Verification Regulation (EU) 2018/2067; verification bodies must be accredited to assess emissions reports.

Verification bodies act as an interface between operators and the competent authorities. On the one hand, the verification process can be seen as a safeguard for the operator, since non-conformities are to be eliminated during the verification process. On the other hand, the findings in the verification report point out remaining non-conformities for the authorities.

Verification bodies set up a verification team to verify the emissions reports. In the course of the assessment, the verification team will conduct an on-site visit of the operator’s facilities. This is to ensure that relevant changes to installations have been reported to the authorities and that all facilities are suitable to allow the planned monitoring to be carried out. The verification team must also have access to all relevant data and fully comprehend the process of the creation of the emissions report.

After the verification, the most important information is summarized in a verification report. This verification report also contains recommendations for improving the monitoring and possibly descriptions of nonconformities that have yet to be rectified. In the case of pending non-conformities, the verification team must assess whether these have a significant impact on the viability of the reporting or on the recording of emissions.

Verifications must be carried out with reasonable assurance. The applicable materiality threshold for activities with total emissions of more than 500,000 t CO2 is 2 %. Total emissions beneath 500,000 t are verified with a materiality threshold of 5%.

STATIONARY INSTALLATIONS

Free emission allowances for stationary installations are allocated on the basis of the production and according to the principle of the best available technology.

For this purpose, product emission values (so-called benchmarks) are recorded. These benchmarks reflect how much CO2 the most efficient installations emit during production. The allocation amount is then usually calculated using the production volume of bespoken installations. In the past, benchmarks were defined for 52 different products. For all other products there are three so-called fall-back benchmarks. They relate to heat, process emissions and fuels.

For the fourth trading period (2021 to 2030), the benchmarks have recently been announced by the European Commission. They are derived from the emissions reports of operators, that take part in emissions trading. These reports contain the production and emissions data for the years 2014 to 2018, which were collected in connection with the allocation applications for the fourth trading period.

Beginning with the fourth trading period, production and emissions data will be checked annually. Accordingly, the authorities will make adjustments to the allocation if production volumes change by at least 15% and if an increase or a reduction of the allocation would amount to at least 100 t of CO2 emissions.

The corresponding directive of the EU Commission for the allocation in the fourth trading period is Regulation (EU) 2019/331.

For stationary installations, the Monitoring Regulation (MRR) contains special quality requirements with regard to emissions reporting. For each fuel used, up to three parameters must be specified:

  • Amount
  • Calorific value
  • Emission factor

Permissible error limits in monitoring or in reporting are specified for each fuel or for each activity in a four-level concept. Thereby applies: the higher the level, the lower the permissible uncertainty. The level of uncertainty to be used results from the category of an installation. Installations are divided into three categories based on their total annual emissions:

  • A: up to 50,000 t CO2 emissions per year
  • B: 50,000 t CO2 to 500,000 t CO2 emissions per year
  • C: from 500,000 t CO2 emissions per year

Here also applies: the higher the total emissions, the stricter the requirements. In addition, not all fuels have the same relevance for an operator’s overall emissions. Therefore, they are also categorized:

  • High emissions: highest possible level of uncertainty
  • Low emissions: uncertainty level 1 as a minimum
  • De minimis: conservative estimates are possible

When creating a monitoring plan, these reporting requirements must always be implemented accordingly. Under certain circumstances, however, a multi-year plan for a step-by-step implementation of the uncertainty requirements can be agreed upon with the responsible authority.

Installations with less than 25,000 t CO2 per year are categorized as installations with low emissions. They are exempt from certain obligations (e.g. risk assessment and improvement reporting). Furthermore, the annual site inspection can be carried out only every three years.

AIR TRAFFIC

The free allocation of emission allowances for aircraft operators until 2023 is calculated on the basis of the tonne-kilometer-reports of 2010. In Swiss emissions trading (see below), the allocation is based on the tonne-kilometer-reports of 2018.

Since aircraft operators often are multinational companies, each of them is assigned an administrative memberstate by the EU Commission (Regulation (EC) No. 748/2009). The emissions trading obligations for aircraft operators result from the number of flights or from the total emissions of all flights of each operator. To determine the emissions trading obligation, all flights that take off or land at an airport in the EEA are taken into account. An aircraft operator is subject to the EU-ETS if the number of flights in a trimester (Jan-Apr; May-Aug; Sept-Dec) exceeds 243 flights, or if the emissions of all flights exceed 10,000 t CO2.

The following flights are excluded:

  • Official government agency flights
  • Flights with humanitarian or medical purpose
  • Military, police, customs, search and rescue flights and fire-fighting flights
  • Flights under visual flight regulations
  • Research and certification flights
  • Aircraft with a take-off weight (TOW)< 5,700 kg

The above described purposes must be recorded in the flight plan to be considered an exception. There are also exceptions for flights from the EEA to outermost regions, such as the Canary Islands or the Azores (see DEHSt LV005).

With the foreseeable implementation of an international agreement on emissions from aviation and the subsequent introduction of CORSIA, the EU has refrained from reporting and issuing emission allowances for flights that do not take place between two EEA states or states with an emissions trading system connected to the EU ETS (stopping-the-clock rule) since 2013. This means that in order to determine whether operators are subject to the EU-ETS, all of the flights must be counted (full scope). For the reporting itself, however, operators only need to consider flights between EEA airports and flights from the EEA to Switzerland (reduced scope).

Since January 1st, 2020, the European Emissions Trading System has been linked to the Swiss Emissions Trading System (CH-ETS). Flights within Switzerland and flights from Switzerland to the EEA are recorded in the Swiss Emissions Trading System. Swiss emissions trading is regulated by the CO2 Act and the CO2 Ordinance. The specifications correspond to the regulations in the EU ETS. The EU and Swiss authorities each also administer flights for the other one of the associated emissions trading systems (one-stop shop). This includes, among other things, the acceptance of the annual emissions reports, the determination of the fulfillment of obligations and the enforcement of the obligations. That is why Switzerland has been an administrative memberstate since spring 2020.

In the EU, the CORSIA requirements are implemented in the emissions trade system with the Delegated Regulation (EU) 2019/1603. European aircraft operators, can do the CORSIA reporting together with the emissions report for the EU-ETS and the verification report on March 31 of the following year.

The emissions of aircraft operators are recorded per flight. This is why the integrity of the flight lists is of particular importance for the emissions reporting of aircraft operators.

The flights are assigned to this list on the basis of the ICAO airline designator of the flights. This means that so-called wet leases are also to be recorded for emissions reporting. (A wet lease is a rental of a fully fueled aircraft by one aircraft operator from another in order to carry out a flight.)

Therefore verification bodies are obliged to carry out a comparison with official air traffic data, in order to confirm the operator’s flight lists. In the EEA, Eurocontrol is the central organization for coordinating air traffic control. It makes the air traffic data available to every aircraft operator with the ETS support facility (ETS SF). However, air traffic data can only be ordered by the operators themselves.

There are three options in the EU ETS to record the emissions from flights: Small emitters with total emissions of less than 3,000 t CO2 (reduced scope), or less then 25,000 t CO2 (full-scope), or who carry out fewer than 243 flights per trimester, can use the Small Emitters Tool by Eurocontrol to estimate their emissions (see Regulation (EU) 606/2010). If this estimation tool is used and if only data from the ETS Support Facility is used, a verification of the emissions can be avoided. The waiver of a verification only applies to the EU ETS and only to operators, whocarriy out fewer than 243 flights (full scope) per trimester.

Aircraft operators who are not subject to the above regulation must determine the fuel quantities per flight using one of the following two methods:

“Method A”
Method A is based on the amount of fuel in the aircraft tanks immediately after refueling, as well as the amount of fuel used. Method A requires data from both, the flight to be considered (N) as well as from the subsequent flight (N + 1).

“Method B”
Method B is based on the amount of fuel at the on-block time and the amount of fuel that is filled in the tank. This method requires data from the flight to be considered (N) as well as from the previous flight (N-1).

3. Annual deadlines

EMISSION REPORT

The annual emissions report is to be verified until March 31st. of the following year. After successful verification, the emissions report as well as the verification report of the verification body center are to be submitted to the competent authority.

In addition, the total emissions must be declared in the Union Register (see above) which has to be confirmed by the verification body.

SUBMISSION OF EMISSION CERTIFICATES

Annually by April 31st, the emission allowances must be submitted in the Union registry. The amount corresponds to the confirmed annual emissions of the previous year.

MONITORING PLAN

Every installation- and aircraft operator regularly checks whether their monitoring plan is appropriate for the type and functionality of the installation or the air traffic activity. A monitoring plan must be adapted, if there are significant changes to an installation, new requirements of the Monitoring Regulation (MRR) have been issued, or if suggestions for improvement by the verification body are being implemented.

Significant changes must be reported to the authority before they are implemented. From February 1st, 2020, backdated approvals will only be granted by the DEHSt under certain circumstances (see FAQ MVO 011).

IMPROVEMENT REPORT

Operators must submit an improvement report to the competent authority for approval. It has to be submitted within the following deadlines:

  • For a category A installation: every four years by June 30th.
  • For a category B istallation: every two years by June 30th.
  • For a category C installation: Every year by June 30th.

These reports contain for example information on why levels of uncertainty cannot be complied with without disproportionate costs. Another example could be a schedule for the implementation of measures through which levels of uncertainty will be complied with, if this is not possible in a regular time period.

If a verification report by a commissioned verification body contains suggestions for improvement or not yet resolved non-conformities, operators must submit an improvement report by June 30 of the same year in which the verification report was created. Within the improvement report operators must describe, in which way the non-conformities identified by the verification body have been resolved or are intended to be resolved and whether recommended improvements are to be implemented.

4. Our services

Our accreditation for Verification in the European Emissions Trading System, according to DIN EN ISO 14065 and VO (EU) 2018/2067 includes all scopes for industrial installations and aviation. We are also accredited for verifications of CORSIA-relevant emissions for aircraft operators within the EEA.

Our verifications are effective and individually adapted to the needs of each of our customers. By combining different auditing techniques, we ensure an efficient audit. Our verifications include the effectiveness of your control systems, an analytical test of the logical integrity of your data, a reasonable number of random samples to ensure the systematic integrity of your report and a comparison with flight plan data. We are happy to offer you this profoundness in combination with the convenience of a flawless workflow for your emissions reporting.

Our fundamentals include competence, customer orientation, independence and reliability. They always stand in the focus of our verification activities.

If you are searching for the perfect verification body, we invite you to contact us:

Contact us.

We will be happy to make an appointment to explain our offer and / or clarify your questions on the subject of the European Emissions Trading System.
You can also call us directly at:

+49 2273 59280-188

We offer you the full scope of the required verification services and on top of that, we can look back on more than 10 years of experience. With our knowledge, we support you throughout the entire verification process, from the on-site audit up to the final verification.

If you would like to find out more about our company and our references, have a look here:
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