General Information - Emissions trading

In the Kyoto Protocol, negotiated in 1997, the participating industrialised countries committed themselves to reducing emissions of climate-damaging gases such as carbon dioxide by the 2008-2012 period by approximately 5% compared to 1990 levels. The European Union agreed to cut its emissions by 8% during 2008-2012 compared to 1990 levels. To meet this target, the EU Member States set themselves national climate protection goals. Germany committed to reducing greenhouse gas emissions by 21% during the same period (based on 1990 levels). In the context of implementing the Kyoto Protocol, emissions trading within the European Union was launched on 1 January 2005. The first trading period comprises the period from 2005 to 2007, the second trading period the years 2008 to 2012.

The emissions trading scheme establishes an economic basis for reducing climate-damaging CO2 emissions where prevention is most cost-efficient. This means that ecologically effective action is implemented economically. Emissions allowances are tradable and therefore serve as a type of currency. If a company meets its mandatory reduction targets through its own cost-efficient CO2 reduction measures, it may sell unused allowances on the market. If reduction measures are too expensive, the company has the option of buying additional allowances. If a company does not comply with its reduction obligation, penalties will be imposed which are set at 100 euro per CO2 tonne during the second trading period. Additional reductions compensating for excess emissions have to be surrendered for the following year.

In Germany, operators of 1,665 installations currently participate in emissions trading. This includes all large combustion plants (thermal output of more than 20 MW) and larger installations of energy-intensive industries such as steelworks, refineries and cement works.

Pursuant to the Emissions Trading Directive, which entered into force in October 2003, EU Member States must adopt national allocation plans to implement emissions trading. These plans set the overall amount of tradable allowances and their allocation. The provisions of the German National Allocation Plan are legally implemented by the Allocation Act 2012. The Allocation Act 2012, which covers the second trading period, entered into force in August 2007.

Compared to the first trading period the total amount of annual allowances will be reduced by 57m tonnes of CO2 during the second trading period. For the period 2008-2012 the annual amount of allowances for the emissions trading sector is limited to 451.86m tonnes of CO2. This amount also includes allocations for installations that participate in emissions trading for the first time in 2008. In particular these installations include cracker plants of the chemicals industry, processing plants of the steel industry and carbon black plants. Put together, these installations emit 9.79m tonnes of CO2 per year. Compared to emission levels of installations currently subject to emissions trading (2006: 477.3m tonnes CO2) the amount of allowances for 2008-2012 is reduced by more than 7%.

While companies received 100% of allowances free of charge during the first trading period, almost 10% of allowances will be sold in Germany during the second trading period.