Allowances and caps
The overall volume of greenhouse gases that can be emitted by the power plants, factories and other fixed installations covered by the EU emissions trading system (EU ETS) is limited by a 'cap' on the number of emission allowances. A separate cap applies to the aviation sector. Both caps are set at EU level. Within these Europe-wide caps, companies receive or buy emission allowances which they can trade as needed.
Each allowance gives the holder the right to emit one tonne of carbon dioxide (CO2), the main greenhouse gas, or the equivalent amount of two more powerful greenhouse gases, nitrous oxide NO2) and perfluorocarbons (PFCs).
Power stations and other fixed installations have a separate emissions cap from aviation because different types of allowances are issued for the two parts of the EU ETS. Allowances issued for fixed installations are general allowances, while the aviation sector has aviation allowances. Airlines can use both types of allowances for compliance purposes, but fixed installations cannot use aviation allowances.
Cap for fixed installations decreases each year
The 2013 cap for emissions from power stations and other fixed installations in the 28 EU Member States and the three EEA-EFTA states was set at 2,084,301,856 allowances.
During phase 3 of the EU ETS (2013-2020), this cap decreases each year by 1.74% of the average total quantity of allowances issued annually in 2008-2012. In absolute terms this means the number of general allowances will be reduced annually by 38,264,246.
Thanks to the decreasing cap, in 2020 emissions from fixed installations will be 21% lower than in 2005.
The annual reduction in the cap will continue beyond 2020. To achieve the target of a 40% reduction in EU greenhouse gas emissions below 1990 leveIs by 2030, set out in the 2030 framework for climate and energy policy, the cap will need to be lowered by 2.2% per year from 2021, compared with 1.74% currently. This would reduce emissions from fixed installations to around 43% below 2005 levels by 2030.
It is estimated that during phase 3 around at least 48% of allowances will be auctioned. This estimate takes into account all allowances handed out for free, including those for the modernisation of the electricity sector in eight Member States, and is based on the existing 'carbon leakage' list. Changes to the carbon leakage list resulting from the ongoing review, or the non-implementation of modernisation investments in the electricity industry, may further increase the share of allowances auctioned.
Aviation cap set at 210 million allowances for 2013-2020
Unlike the cap for fixed installations, the aviation sector cap remains the same in each year of the 2013-2020 trading period.
The cap has been provisionally set at 210,349,264 aviation allowances per year, which is 5% below the average annual level of aviation emissions in the 2004-2006 base period. The cap will be adjusted to include additional aviation activities arising from Croatia's full integration into the aviation part of the EU ETS on 1 January 2014