As of: July 2010

Emissions trading is a market-based instrument that serves to protect the climate. The principle behind it is very simple: greenhouse gas emissions from installations covered by emissions trading are limited to a total amount - the so-called cap - and distributed in the form of tradable allowances. Installations releasing greenhouse gases into the atmosphere require allowances. The lower the emissions, the more economical for a company. Those that reduce their greenhouse gas emissions can sell the corresponding surplus allowances. Emissions trading is therefore trade in allowances to emit greenhouse gases. It is one of the so-called Kyoto Mechanisms. Emissions trading was introduced in the European Union in January 2005. The Kyoto Protocol also allows international trade in greenhouse gases.

1. Determining the permissible amount of emissions

Der Staat bzw. die EU regeln, welche Gesamtmenge an Treibhausgasen emissionshandelspflichtige Anlagen in einem bestimmten Zeitraum ausstoßen dürfen, lassen aber die Frage offen, wer wo wie viel mindert. Damit gibt es eine große Flexibilität bei der Erreichung der Ziele und einen Anreiz, die kostengünstigste Reduktion zu suchen und durchzuführen. Die erlaubte Emissionsmenge wird nach bzw. in jeder Handelsperiode reduziert. Die erste Emissionshandelsperiode umfasste die Jahre 2005 bis 2007, die zweite Handelsperiode hat im Jahr 2008 begonnen und läuft bis 2012. Die dritte Handelsperiode beginnt in 2013; auch dafür stehen die Regeln bereits weitgehend fest.

Companies require certificates for the approved amount of greenhouse gas emissions, so-called emission allowances. An allowance gives the owner the right to emit one tonne of carbon dioxide (CO2). Companies can trade in these allowances. In the first two trading periods, national allocation plans specified the total amount of allowances and their distribution. This is stipulated in the European Emissions Trading Directive. In Germany, the provisions of the National Allocation Plan are implemented through Allocation Acts. In the second trading period, the allowances are no longer allocated 100 percent free of charge; around 10 percent of allowances are auctioned.

From 2013 emissions trading will be more harmonised in Europe in order to secure uniform competitive conditions within the EU. To this end there will be an EU-wide cap and EU-wide uniform allocation rules. The majority of emission allowances will be auctioned rather than allocated free of charge. For a transitional period there will be free-of-charge allocation for industrial sectors facing tough international competition; this will be in line with stringent benchmarks. These will be based on the average of the EU-wide 10 percent best technologies in a sector. 

If a company achieves its required emission reductions through its own cost-effective CO2 reduction measures it can sell surplus allowances on the market. Alternatively, it can purchase allowances on the market if implementing its own reduction measures would be more expensive. Companies covered by emissions trading are obliged to register their emissions annually and to surrender the corresponding amount of allowances to the German Emissions Trading Authority (DEHSt). If a company does not comply with its obligation to surrender allowances, sanctions will be applied. Emissions trading therefore makes it both ecologically and economically attractive to a company to reduce its emissions.

Operators of 1665 installations are currently taking part in emissions trading in Germany, in particular all large combustion plants (with more than 20 megawatts of thermal output) and large installations of the energy-intensive industry such as steelworks, refineries and cement works. From 2012 air traffic will also be included in emissions trading. Further areas and greenhouse gases will be incorporated from 2013. 

Emissions trading is one of the Kyoto Protocol's flexible mechanisms, geared towards a lasting reduction in greenhouse gas emissions:

• In 1997 the industrialised countries involved committed themselves under the Kyoto Protocol to reducing emissions of climate-damaging gases by around 5 percent by 2008-2012 compared with 1990.

• The European Union has pledged to cut its emissions by 8 percent during the period 2008 to 2012 compared with 1990 levels.

• In the framework of EU effort sharing under the Kyoto Protocol, Germany has committed to cutting its emissions of climate-damaging gases by a total of 21 percent in the period 2008 to 2012 compared with 1990, thus taking on a pioneering role.

With emissions trading the German government is successfully implementing an instrument for achieving ambitious German emission reduction targets. In the second emissions trading period from 2008 to 2012, installation operators must cut greenhouse gas emissions by 57 million tonnes annually. Compared with the level of emissions released by installations covered by emissions trading in the first trading period 2005 to 2007, the amount allocated was reduced by more than 7 percent. In the second trading period further types of installations were included in emissions trading, primarily crackers in the chemicals industry, processing installations in the steel industry and installations producing soot.

Everyone benefits from emissions trading. It is an efficient and cost-effective instrument for avoiding greenhouse gas emissions and protecting our climate. With the revenues from emissions trading the German government has been able, since the start of 2008, to promote a wide range of climate protection measures - in industry, local authorities and for consumers.

The Climate Initiative, for example, promotes investments in improved energy efficiency, thus creating a basis for lower heating costs in private households. 

www.bmu.de/emissions-trading

Kyoto Protocol

Kyoto Mechanisms

Climate Initiative

Climate protection for the post-2012 period

Air pollution control

Renewable energies