How we use EU emissions trading
Cap and trade: How European emissions trading works
Just under 50% of CO₂ emissions in Europe are managed through EU emissions trading. The number of emission rights available each year is reduced by law annually. The government-set upper limit (cap) is a political decision on the maximum total amount of CO₂ equivalents (CO₂-eq) that can be emitted. Companies can either use them to pollute, or sell them if less is emitted than originally planned (trade).
More information on European emissions trading is available from the German Emissions Trading Authority DEHSt.
PERCENT OF CO² EMISSIONS IN EUROPE ARE SUBJECT TO EMISSIONS TRADING
In detail: How capping works
When it was introduced, the ETS did not work
All new beginnings are fraught with difficulty. To keep the cost burden on companies low when it was first introduced, emissions allowances (EUAs) were initially issued to companies for free. In fact, more allowances than needed were issued in the process. As a result, EUAs were not in short supply and their price slipped to a few cents when the faux pas became public. In subsequent years, too, the quantity of emission allowances was insufficiently scarce due to the generous recognition of certified emission reductions (CERs) generated abroad. And because unused emission rights can be carried over to the following year, the number of rights was too high for many years.
The market stability reserve
With the introduction of the Market Stability Reserve (MSR), this changed: Since 2019, the number of newly auctioned emission rights is automatically reduced if there are more rights on the market than needed- For every 100 unused EUAs, 24 fewer allowances are auctioned the following year and instead transferred to the so-called Market Stability Reserve and eventually automatically cancelled. As of 2018, prices for emission allowances began to rise sharply as a result (EUAs).
We work with the MSR, not against it.
Our approach achieves 100% effectiveness. Only when the total number of unused EUAs falls below 833 million can the emission allowances removed from the market be cancelled without risk to efficiency. Prior to that, cancellation would counteract the automatic reduction in auction volumes. The Climate Protection Foundation, to which we transfer the EUAs, can rely on the advice of proven experts.
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