Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Union (EU ETS Directive) establishes the European Union system for greenhouse gas emission allowance trading (EU ETS) in order to promote reductions of greenhouse gas emissions in a cost-effective and economically efficient manner.

 


The scope of EU ETS Directive has been broadened from 1 January 2013 onwards so as to include, inter alia, emissions from the production of aluminium and from certain sectors of the chemicals industry.

  

To that end, Annex I to Directive 2003/87, which lists the categories of activities which fall within the scope of the EU ETS was amended by the Directive 2009/29.

 

The EU ETS legal framework for the fourth trading period as from 2020 has been outlined by the European Commision's Proposal for a Directive of the European Parliament and of the Council amending Directive 2003/87/EC to enhance cost-effective emission reductions and low-carbon investments of 15 July 2015 (COM(2015) 337 final) 2015/148 (COD)).

 

The above European Commission's Proposal was a first piece of legislation implementing the 2030 Climate and Energy package agreed by the European Council in October 2014.

 

Pursuant to Article 3(1) of the Directive (EU) 2018/410 of the European Parliament and of the Council of 14 March 2018 amending Directive 2003/87/EC to enhance cost-effective emission reductions and low-carbon investments, and Decision (EU) 2015/1814, the EU Member States are required to bring into force the laws, regulations and administrative provisions necessary to comply with the Directive by 9 October 2019 (deadline for transposition).

 

The EU ETS Directive earlier modifications were introduced to accommodate the backloading of emission allowances (see box) as well as the Market Stability Reserve.

 

 

Backloading

 

The absence of legal mechanism accommodating the 2003/87/EC Directive's arrangements to market fluctuations occurred fundamental from practical perspective in the third phase of the EU ETS.

 

It is noteworthy that in the context of the so-called back-loading of emission allowances of the third phase a proposition has been put to add in the first subparagraph of Article 10(4) of Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading the following sentence:

 

"The Commission shall, where appropriate, adapt the timetable for each period so as to ensure an orderly functioning of the market."

 

The said wording was contained in the European Commission’s Proposal of 25 July 2012 for a Decision of the European Parliament and of the Council amending Directive 2003/87/EC clarifying provisions on the timing of auctions of greenhouse gas allowances. 

 

This amendment has been considered against the background of the simultaneous change of the auction time profile for phase 3 allowances done by amending the Auctioning Regulation.

 

The European Parliament upheld on 14 March 2013 by a slight majority a non-binding recommendation for regulators to intervene in the balance of the supply and demand set by the earlier rules of the Directive (see point 91 of the European Parliament resolution of 14 March 2013 on the Energy roadmap 2050, a future with energy (2012/2103(INI)).

 

Finally, Decision No 1359/2013/EU of the European Parliament and of the Council of 17 December 2013 amending Directive 2003/87/EC clarifying provisions on the timing of auctions of greenhouse gas allowances has been adopted in the following wording:

 

"Article 1
In the first subparagraph of Article 10(4) of Directive 2003/87/EC the following sentences are added:
'Where an assessment shows for the individual industrial sectors that no significant impact on sectors or subsectors exposed to a significant risk of carbon leakage is to be expected, the Commission may, in exceptional circumstances, adapt the timetable for the period referred to in Article 13(1) beginning on 1 January 2013 so as to ensure the orderly functioning of the market. The Commission shall make no more than one such adaptation for a maximum number of 900 million allowances.'".
 

 

In December 2019 the European Commission announced its plans to develop a new set of measures, the “European Green Deal”, which, as regards the scope of the EU ETS Directive, includes “a possible extension of European emissions trading to new sectors”.

 

The Communication from the Commission of 11 December 2019 (COM/2019/640 final), reads in this regard:

“By summer 2020, the Commission will present an impact assessed plan to increase the EU’s greenhouse gas emission reductions target for 2030 to at least 50% and towards 55% compared with 1990 levels in a responsible way. To deliver these additional greenhouse gas emissions reductions, the Commission will, by June 2021, review and propose to revise where necessary, all relevant climate-related policy instruments. This will comprise the Emissions Trading System, including a possible extension of European emissions trading to new sectors”.

 

 

Enforcement

 

 

Compliance with the EU ETS Directive is ensured by wide array of instruments.

 

Firstly, the EU ETS Directive provides for an excess emissions penalty in the form of €100 (indexed) for each tonne of CO2 emitted for which no allowance has been surrendered in due time.

 

Other sanctions include the prohibition on the selling of allowances as long as the installations are non-compliant with the system requirements and the publication of names of non-compliant operators.

 

Other penalties applicable to infringements in implementation of EU ETS are according to national provisions set by the concerned country.

 

However, these penalties were so far rather rarely applied.

 

The EU ETS has a very high compliance rate: each year around 99% of the emissions are covered by the required number of allowances on time.

 

For 2014, the application of 'excess emissions penalty' was reported for a low number of cases (ca. 0.1% of installations) in 6 Member States (DE, ES, PL, PT, RO, UK).

 

The prohibition on the selling of allowances as long as the installations are non-compliant with the system requirements has been applied in 2014 by twenty-two EU Member States.

 

The publication of names of non-compliant operators has been applied in 2014 by 11 EU Member States.

 

Report of 23 November 2017 from the Commission to the European Parliament and to the Council on the functioning of the European carbon market (COM(2017) 693 final) contains the following remarks on the compliance with the EU ETS Directive in 2016:

 

1. less than 1% of the installations reporting emissions for 2016 did not surrender allowances covering all their emissions by the deadline of 30 April 2017 (these installations were typically small and accounted for approximately 0.4% of EU ETS emissions);


2. in the aviation sector the level of compliance was also very high: aircraft operators responsible for more than 99 % of EU ETS aviation emissions complied;


3. for 2016, the application of excess emissions penalty was reported for only 14 installations by four countries (BG 1, PL 1, RO 6 and UK 6);


4. for aviation, excess emission penalties were reported for 48 aircraft operators (BE 1, DE 4, ES 4 and UK 39);


5. the most common offences reported for 2016 were operation without a permit (21 cases), failure to report capacity changes (14 cases), failure to submit verified annual emission reports by the due deadline (9 cases), failure to comply with permit conditions (6 cases) and failure to hold a duly approved monitoring plan (5 cases);


6. other cases included the annual emission report being non-compliant with the requirements of the MRR, failure to surrender a sufficient number of allowances by 30 April and failure to submit improvement reports.

 

 

 

 

chronicle   Regulatory chronicle 

 

 

 

 

18 May 2020

 

Commission Delegated Decision (EU) 2020/1071 of 18 May 2020 amending Directive 2003/87/EC of the European Parliament and of the Council, as regards the exclusion of incoming flights from Switzerland from the EU emissions trading system

 

11 December 2019


Communication from the Commission, The European Green Deal, COM/2019/640 final

 

20 June 2019

 

Communication from the Commission, Guidelines on non-financial reporting: Supplement on reporting climate-related information (2019/C 209/01)

 

14 March 2018

 

Directive (EU) 2018/410 of the European Parliament and of the Council of 14 March 2018 amending Directive 2003/87/EC to enhance cost-effective emission reductions and low-carbon investments, and Decision (EU) 2015/1814

 

 

 

 

 

IMG 0744

    Documentation    

 

 

 

 

 

Directive (EU) 2018/410 of the European Parliament and of the Council of 14 March 2018 amending Directive 2003/87/EC to enhance cost-effective emission reductions and low-carbon investments, and Decision (EU) 2015/1814

 

Directive 2009/29/EC of the European Parliament and of the Council of 23 April 2009 amending Directive 2003/87/EC so as to improve and extend the greenhouse gas emission allowance trading scheme of the Community
 

Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Union

 

European Commision's Proposal for a Directive of the European Parliament and of the Council amending Directive 2003/87/EC to enhance cost-effective emission reductions and low-carbon investments of 15 July 2015 (COM(2015) 337 final) 2015/148 (COD)

 

Proposal for a regulation of the European Parliament and of the Council amending Directive 2003/87/EC to continue current limitations of scope for aviation activities and to prepare to implement a global market-based measure from 2021, COM(2017) 54, 3.2.2017, 2017/0017(COD)

 

Report from the Commission to the European Parliament and to the Council, Report on the functioning of the European carbon market, 23 November 2017 (COM(2017) 693 final

 

Report on the functioning of the European carbon market, accompanying the document Report from the Commission to the European Parliament and to the Council, Climate action progress report, including the report on the functioning of the European carbon market and the report on the review of Directive 2009/31/EC on the geological storage of carbon dioxide of 18 November 2015 (COM(2015) 576 final)

 

European Commission’s Proposal of 25 July 2012 for a Decision of the European Parliament and of the Council amending Directive 2003/87/EC clarifying provisions on the timing of auctions of greenhouse gas allowances 

 

Decision No 1359/2013/EU of the European Parliament and of the Council of 17 December 2013 amending Directive 2003/87/EC clarifying provisions on the timing of auctions of greenhouse gas allowances

 

Guidance on Interpretation of Annex I of the EU ETS Directive (excl. aviation activities) 

 

 

 

 

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    Links    

 

 

 

 

 

Communication from the Commission — Guidelines on non-financial reporting: Supplement on reporting climate-related information