EU ETS: carbon markets
This guide covers the European Union Emissions Trading System (EU ETS) Union Registry, the use of Kyoto units for compliance within the EU ETS and carbon allowance auctions.
As a cap-and-trade system, the EU ETS sets an emissions cap or limit on the total emissions allowed by all EU ETS operators, but within that limit the carbon market allows participants in the System to buy and sell allowances as they require.
The carbon price signifies the amount participants in the EU ETS are willing to pay per EU allowance (1 allowance (EUA) equals 1 tonne of CO2 or its equivalent) given demand and supply. In addition, EU Aviation allowances (EUAAs) have been created to be used for compliance by airline operators.
Over the course of Phase III, 50% of allowances will be auctioned. ICE Futures Europe is conducting auctions of EU ETS Phase III EUAs and EUAAs on behalf of DECC.
Operators also have the option to use certain Kyoto Units for compliance within the EU ETS, subject to limits.
An EU ETS operator can access the secondary carbon market to buy allowances or Kyoto Units through multiple routes:
- trading directly with other companies covered by the System
- buying or selling from intermediaries, e.g. banks and specialist traders
- using the services of a broker
- joining one of the several exchanges that list carbon allowance products
The European Union Registry is an online database hosted and managed by the European Commission by which EUAs, EUAAs and Kyoto Units are held, traded and surrendered for compliance purposes.
Participants are advised to seek their own, independent professional advice on these matters.
For more information about how the EU ETS works see How to participate in the EU ETS.
Phase III registries
The EU ETS Union Registry operates in a similar way to an online bank account. The registry system is a web-based application that records:
- CO2 allowances and units allocated to and held in operator, person, trading and government accounts
- the movement of allowances and units between accounts (including allocations, transfers, surrender and cancellations)
- annual verified emissions of installations and aircraft operators
- annual compliance status of installations and aircraft operators
An account holder can hold, transfer, cancel or acquire EU Allowances and eligible Kyoto units. Further details regarding Kyoto unit types can be found in A guide to using Kyoto units in the EU Emissions Trading Scheme on the Environment Agency’s website.
The European Union Transaction Log (EUTL) checks, records, and authorises all transactions that take place between accounts in the European Union registry. The EUTL can be viewed online and provides detailed information on the compliance of EU ETS operators, Union Registry account holders and transactions between accounts.
Computerised registries are key components of the EU ETS and wider international emissions trading under the UN Framework Convention on Climate Change’s (UNFCCC’s) Kyoto Protocol.
From June 2012, registry systems were brought together to a single registry system, operated and managed by the European Commission. Each Member State now has its own national administrator and national registry section within the single Union Registry. The Environment Agency is the national administrator for the UK and is responsible for the maintenance and administration of the UK national registry section within the European Union Registry.
The functional requirements of the registry are determined by the European Commission (through the Registry Regulations) and the UNFCCC secretariat (through various COP/MOP decisions).
How to open an account in the registry
Installations and aircraft operators who carry out Annex I activities, pursuant to Directive 2003/87/EC, are required to open accounts in the Union Registry.
In addition to operator accounts, the Union Registry also contains person holding accounts and trading accounts. Any individual or organisation can apply to open such accounts, which can be used purely for trading units. Such accounts have no compliance obligations. Any further questions or queries on the operation and functionalities of the Union Registry should be directed by email to the UK registry administrator.
Information on the Registry pre-2012 and migration to the Union Registry can be viewed on the National Archives website.
Kyoto units in Phase III
Operators have the option to use certain Kyoto Units for compliance within the EU ETS, subject to limits on the type and quantity of units specified in the ETS Directive and Registry Regulation. These limits are set out below, along with information on how to use these units for compliance within the EU ETS.
Type of units
Certain Certified Emissions Reductions (CERs) and Emissions Reduction Units (ERUSs) can be used for compliance in the EU ETS. Further information on this, including FAQs, can be found on the European Commission website.
Quantity of units
Operators and aircraft operators may exchange eligible CERs and ERUs for EUAs and EUAAs up to limits. Limits are cumulative across Phase II and Phase III of the EU ETS and are specified in a European Commission regulation on international credit entitlement adopted on 8 November 2013. For more information, including on how the limit will be calculated for each operator, please see the announcement from the European Commission.
A provisional international credit entitlement for each operator is available:
Please note that this table contains provisional unverified data and is subject to change following verification and review by the European Commission. Excluded installations are not included on this list, and significant capacity extensions and new entrants are not accounted for in all cases.
How to use units in the EU ETS
In Phase III, certain CERs and ERUs can be swapped for EUAs, subject to the limits discussed above, in the Union Registry. Operators will transfer CERs and ERUs into a central account in the Union Registry, and once verified as eligible for use by that operator within the EU ETS the operator’s EUA holding account will be credited with the equivalent number of EUAs. Aircraft operators may request this swap and be credited with EUAAs. The European Commission Registry Regulation sets out the process for this, however operators will be unable to make swaps until the functionality is available in the Union Registry.
Any further questions or queries on the holding or swapping of Kyoto Units within the Registry should be directed by email to the UK registry administrator: firstname.lastname@example.org
Phase III auctioning
Auctioning is an effective way of distributing allowances to the market and reinforces the ‘polluters pay’ principle. It encourages businesses to take account of the full cost of carbon in the decisions they make.
The European Commission’s Auctioning Regulation governs the auctioning of Phase III EUAs and EUAAs. It provided for the establishment of a common EU auction platform and granted member states the right to opt out and set up national platforms - the UK, Germany and Poland exercised this right. The UK was the first EU member state to hold an auction in phase II (2008 to 2012) and auctioned 10% of allowances compared to the EU average of 3%.
The UK appointed ICE Futures Europe to conduct auctions of EU ETS Phase III EUAs and EUAAs on behalf of DECC from November 2012. Previously this service was provided by the UK Debt Management Office. The UK’s auctions are open to those that fulfil the criteria set out in the relevant EU legislation and ICE’s membership requirements. You’ll find guidance on how to participate in these auctions on the ICE emissions auctions web pages.
Certain firms will need to apply to the Financial Services Authority (FSA) for a variation of permission in order to participate in the regulated activity of bidding in emissions auctions. Please see the FSA policy statement on regulating bidding for emissions allowances under phase III of the EU Emissions Trading Scheme.
DECC performs the role of UK Auctioneer for these auctions. This role is required by EU legislation and is responsible for the conduct of the auctions.
The EU is in the process of appointing a Single Auction Monitor (SAM) to monitor and report on the conduct of certain emissions auctions across Europe. For more information, please see the European Commission website.
For other information about the UK’s EU ETS auctions please contact email@example.com
Phase III auction calendar
The full schedule for Phase III EUA and EUAA auctions is available on the ICE emissions auctions web pages.
Phase III auction results
The UK’s first Phase III EUA auction was held on 21 November 2012. For more information please see the associated DECC press notice. For results from further phase III auctions, please see the ICE Futures Europe emissions auctions web pages.
For additional coverage of auction results please see the European Commission web pages.
Phase II auction results
During Phase II of the EU ETS, the UK held 30 successful competitive auctions, selling almost 123 million EUAs and raising approximately £1.3 billion for the exchequer. For results from Phase II auctions, please see the Debt Management Office website.
- HMT consultation on Regulating auctions of EU emissions allowances
- FSA policy statement on regulating bidding for emission allowances under the EU ETS
- European Commission EU ETS page
- Environment Agency EU ETS page
- Auctioning Regulation
- ETS directive
For other information about the auctions please contact firstname.lastname@example.org
Carbon credit scam
Carbon markets are not intended for personal investors. We have been alerted to fraudsters using the name ‘Carbon Registry’ or similar who are contacting the public, wrongly claiming that the ‘Carbon Registry’ is part of the Department of Energy and Climate Change, and giving fake contact details of the department. These fraudsters may try to apply pressure on people to buy shares, carbon credits, or certified emission reductions (CERs) at high prices. Those targeted may be telephoned and told that the ‘Carbon Registry’ will take legal action against them because they refused to buy shares and sometimes details of fictitious court cases are given to add weight to the ploy.
The Department advises anyone who receives communications of this kind to report the matter to the police ( call 101, the non-emergency contact number), either directly or through Action Fraud.