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Emissions trading

The EU Emissions Trading Scheme (EU ETS) is a cap-and-trade system which the UK participates in.

The cap element limits the amount of GHGs that can be emitted by the Member State installations that are covered by the scheme. The cap will gradually be reduced. Emission allowances are given to installation operators; some for free, some by auction, and some are made available for allocation to new entrants. The trade element allows operators to trade their allowances. After each year, operators must surrender enough emission allowances to cover their emissions; otherwise heavy fines are imposed to reflect the fact that the operator has exceeded its capped limit.

Adherence to the cap, surrendering of emission allowances, and the prescription of installations and operators caught by the scheme are controlled by UK legislation.

Key legislation

Key subordinate legislation

• Greenhouse Gas Emissions Trading Scheme (Amendment) and National Emissions Inventory Regulations 2005 (SI 2005/2903) (as amended)
• Community Emissions Trading Scheme (Allocation of Allowances for Payment) Regulations 2012 (SI 2012/2661)
• Greenhouse Gas Emissions Trading Scheme Regulations 2012 (SI 2012/3038) (as amended)

Key European Union Legislation

• Directive 2003/87 establishing a scheme for greenhouse gas emission allowance trading within the Community
• Directive 2004/101 amending Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading within the Community, in respect of the Kyoto Protocol's project mechanisms
• Directive 2008/101 amending Directive 2003/87 so as to include aviation activities in the scheme for greenhouse gas emission allowance trading within the Community
• Directive 2009/29 amending Directive 2003/87/EC so as to improve and extend the greenhouse gas emission allowance trading scheme of the Community

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