Understanding European Allowances: a guide to EU ETS compliance
11 Apr 2024
Purchasing, calculating, and reducing emissions with biofuels and carbon capture technologies
The EU Emissions Trading System (EU ETS) is a "cap-and-trade" program established by Directive 2003/87/EC to encourage the reduction of greenhouse gas emissions. The "cap" refers to the total amount of greenhouse gases that can be emitted by the entities subject to the system, and it is progressively decreased each year to meet the EU's climate objectives. At present, the EU ETS applies to the production of electricity and heat, energy-intensive industries, aviation, and maritime transport.
From 2025, by 30 September of each year Company shall surrender several allowances that is equal to its total emissions during the preceding calendar year, with the exception for 2024 reporting period for which the due allowances correspond to 40% of the emissions and 2025 for which the due allowances correspond to 70% of the emissions.
What are European allowances (EUAs)?
EUA is the allowance to emit one ton of carbon dioxide equivalent.
How to buy EUAs?
Emission allowances can be purchased:
- in the primary market through auctions on the European Energy Exchange (EEX);
- in a secondary market in which allowances can be sold bilaterally or through various derivatives provided by financial institutions
To buy ETS allowances, companies need to open a trading account or a maritime operator holding account in the Union Registry.
The price of allowance depends on many factors and fluctuates a lot over the year.
How to calculate emissions in case of use of biofuels/RFNBOs/RCFs and carbon capture technologies?
In case of use of fuel, complying with the sustainability criteria and GHG emission saving criteria established by Directive (EU) 2018/2001 (RED II Dir.), the CO2 emission factor of the biomass fraction of the fuel shall be zero, thus such emissions are excluded from the amount of those for which allowances are to be surrendered.
In case of use of RFNBO/RCf, the CO2 emission factor shall be determined in accordance with Implementing Regulation (EU) 2018/2066.
Emissions which have been captured and utilized to become permanently chemically bound in a product so that they do not enter the atmosphere under normal use, including any normal activity taking place after the end of life of the product, are excluded from the amount of those for which allowances are to be surrendered.
