BRUSSELS (Reuters) - The European Union emissions trading system is the biggest carbon market in the world and the 27-country bloc’s flagship policy for cutting greenhouse gas emissions.
Today, the ETS forces 11,000 power plants and factories, plus airlines running flights within Europe, to buy carbon permits to cover the emissions they produce. The system covers 41% of total EU emissions.
This year is the 15th anniversary of the policy. Here is a timeline of its major events.
The EU launches a pilot first trading phase, covering emissions from power plants and industry such as steel plants, oil refineries and cement factories in the then-25 EU countries.
Nearly all pollution permits are handed out for free in this phase.
Data reveals countries’ emissions are far lower than the amount of permits in the ETS, showing the market is heavily oversupplied. The carbon price plunges from a high around 30 to around 8 euros. In the absence of measures to fix this, prices fall further and remain near zero until the end of 2007.
Start of the second ETS trading phase, from 2008-2012. Credits from the first phase cannot be carried over into this phase, giving the market a fresh start by wiping out some of the oversupply. The carbon price climbs to nearly 30 euros.
The global financial crisis causes a drop in polluting economic activity, meaning less demand for emissions permits. The market becomes oversupplied again, and prices tumble to below 10 euros in early 2009.
Emissions from international aviation are added to the ETS. However, in November, the EU limits this to only European flights, after an outcry from countries including China and the United States. Airlines get most of their carbon permits - more than 80% - for free.
Start of the third trading phase, from 2013-2020, more sectors are added and the amount of free permits available is reduced.
As a short-term fix for the market’s oversupply, called “backloading”, the EU postpones the auctioning of 900 million permits, due to be released into the market in 2014-2016, until 2019-2020.
Member states and EU lawmakers agree to introduce a market stability reserve (MSR) to the scheme, to tackle its oversupply, starting in 2019. The 900 million “backloaded” permits will be placed in the MSR, rather than being released back into the market.
In response to the upcoming reforms, the ETS price begins a steady climb. From roughly 7 euros in Nov. 2017, it more than trebles to a decade-high of 25 euros by Sept. 2018. By mid-2019, the EU carbon price is close to a record-high of 30 euros.
The EU and Switzerland formally link their carbon markets, enabling credits to be traded between the two schemes.
The European Commission proposes a more ambitious EU climate target for 2030, which will require reforms to the ETS - including fewer free permits for airlines, expanding the ETS to cover shipping, and measures to cut the market’s supply of permits further.
Britain will leave the carbon market after the Brexit transition period ends at the end of 2020.
The fourth trading phase, for 2021-2030, will begin. The supply cap will decline at a higher rate of 2.2% each year, handouts of free permits and compensation for carbon costs will be tightened. International offset credits will be banned.
Reporting by Kate Abnett; Editing by Pravin Char
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