Emission Trading Directive

The EU’s Emission Trading Directive aims to help member states to work towards the goals of the UN Kyoto convention on climate change by reducing their greenhouse emissions in cost-effective ways. The directive has controlled the EU’s internal emission trading system (ETS) since its launch in 2005.

All industrial and energy installations covered by the ETS must meet the requirements of the directive, including rules on applying for emission allowances and the reporting of carbon dioxide emissions on an annual basis. Used emission allowances become invalid and are returned to national governments, while unused allowances may be traded in accordance with ETS rules.

The Emission Trading Directive was amended in 2008 in connection with the EU’s new climate and energy package to incorporate new rules for the ETS’s third trading period (2013-2020). During the system’s first two periods industrial installations were allocated free allowances by national governments. From 2013 allowances will increasingly be auctioned, and the numbers of allowances available will be reduced to help reach the EU’s target of a 20 % reduction in greenhouse gas emissions by 2020.