The European Emissions Trading Scheme
(EU ETS)

The EU's Emissions Trading Scheme was launched in January 2005 as part of the Kyoto Protocol on Climate Change. The EU ETS includes individually coordinated National Allocation Plans (NAP) of the EU member states and works on a cap-and-trade basis, forcing companies either to emit less carbon dioxide than their determined cap of emissions for all installations according to the NAP allows or to buy EU Emission Allowances (EUA) from elsewhere. The first trading phase of the scheme ran until the end of 2007; the second phase started in 2008 and ceases in 2012, coinciding with the Kyoto Protocol commitment period.

In 2007¹, the EU ETS has grown rapidly to a trading volume of 1.6 billion tonnes CO₂ (approximate market value of EUR 28 billion), whereas one tonne CO₂ equals one EU Emission Allowance (EUA). The EU ETS is regarded as the world-wide reference system for a standardized emissions trading architecture in an overall global emission market² of 2.7 billion tonnes CO₂. Trading volume and trading frequency within the EU ETS is expected to further increase significantly with the beginning of the second trading period in 2008.

Based on its leading role, the EU ETS market has the potential to turn into the nucleus of a global emission trading market.

Next to EUAs, Certified Emission Reductions (CERs), which are tradable instruments generated from Clean Development Mechanism (CDM) projects, are currently emerging as the international currency in the global carbon market. After reaching a trading volume of 350 million tonnes CO₂ in 2007³ in the secondary market, experts estimate that the market will reach 2.6 billion tonnes CO₂ by 2012⁴, and will be worth EUR 41 billion.

The EEX/Eurex CO₂ cooperation aims to contribute to the expansion and diversification of the global emission market bearing powerful advantages for trading and clearing of emission products.

Additional information on the EU ETS can be found in the November 2007 edition of the Eurex Newsletter Xpand.

¹ Point Carbon, Carbon Market Monitor January 2008: A review of 2007
² New Carbon Finance, North America and Global Carbon Market - June 2007
³ Point Carbon, CDM&JI Monitor
⁴ UNFCCC, CDM Statistics