EU ETS allowances

The EU Emissions Trading System (EU ETS) is the world’s largest carbon market and a cornerstone of the EU’s climate policy. It operates on a cap-and-trade principle, where companies must hold allowances — called EU Allowances (EUAs) — for every tonne of CO₂ they emit 🌍.

🧾 What Are EU ETS Allowances?

• EU Allowance (EUA): The right to emit 1 tonne of CO₂ equivalent.

• Issued by: EU Member States into registry accounts.

• Surrender Deadline: By April 30 each year, companies must surrender allowances equal to their previous year’s verified emissions.

🏛️ How the System Works

• Cap: A fixed number of allowances is issued annually, forming a cap on total emissions. This cap is reduced each year to meet EU climate goals.

• Auctioning vs Free Allocation:

  • Most allowances are auctioned via the European Energy Exchange (EEX).

  • Some are allocated for free to sectors at risk of carbon leakage (e.g., steel, cement).

• Trading: Companies can buy/sell allowances on:

  • Primary market (auctions)

  • Secondary market (bilateral trades, derivatives)

📉 Cap Reduction & Climate Targets

• The cap is shrinking faster:

  • 2024–2027: Reduced by 4.3% per year

  • 2028 onward: Reduced by 4.4% per year

• Goal: Cut emissions by 62% by 2030 compared to 2005 levels.

🛳️ Maritime Sector Inclusion

• As of 2024, emissions from maritime transport are included.

• The cap was increased by 78.4 million allowances to account for this.