EU ETS: allowances
Allowances and Kyoto units: how to buy or apply for free allowances, trade and transfer allowances or units, and surrender allowances.
EU ETS: types of allowances
The European Union (EU) issues 2 types of allowances:
- general allowances - issued to installation operators
- aviation allowances - issued to aviation operators
Installation operators must surrender general allowances to cover their verified emissions. They can’t hold or surrender aviation allowances.
Aviation operators can hold and surrender both aviation allowances and general allowances.
In addition to EU allowances, Union Registry accounts can also hold and trade Kyoto units.
Installations: free allowances from the NER
The Commission has set aside some free allowances for installation operators in the New Entrant Reserve (NER).
You could be eligible for free allowances if you started carrying out regulated activities, or significantly increased capacity, after June 2011. You must apply to the NER for free allowances within 12 months of starting operations or of increasing capacity.
The Commission website has further information about how free allowances are allocated and what is viewed as new activity or significantly increased capacity.
You apply for free allowances from the NER using your ETSWAP account. You also need to submit a verification statement to support your application.
You need to pay a fee with your application for free allowances: see the guide EU ETS charges.
Aviation: free allowances allocations
The amount of free allowances to be issued to aircraft operators between 2013 and 2016 inclusive will be reduced in proportion to the reduced scope of EU ETS aviation. The amended allocation for each eligible aircraft operator will be published from 1 September 2014.
Aviation: free allowances from the Special Reserve
Some free allowances have also been set aside in the Special Reserve for aircraft operators.
You are eligible to apply for free allowances if you:
- have become a UK aircraft operator after the benchmarking year for a trading period and have not already received an allocation of allowances for that trading period or
- are a UK aircraft operator whose tonne-km data in the second calendar year of the trading period exceeds that of the benchmarking year by more than 93.9%
A benchmarking year means the calendar year ending 24 months before the beginning of the EU ETS phase.
If another operator had previously carried out part or all of the aviation activities you now carry out, you can only apply for free allowances if you meet the second criteria above.
For EU ETS phase 3, you must apply for free allowances from the Special Reserve by 30 June 2015. The verified 2014 tonne-kilometre report, which forms part of the application, must be based on the full scope of EU ETS as defined in the EU ETS Directive.
You apply for free allowances from the Special Reserve through ETSWAP; you also need to submit a benchmarking plan to the regulator.
You need to pay a fee with your application for free allowances, see the guide EU ETS charges.
EU ETS: buy allowances
If you aren’t eligible for free allowances, of if your free allocation doesn’t cover your emissions, you need to buy allowances on the carbon market or through an auction.
You can access the secondary carbon market to buy allowances or Kyoto units through:
- trading directly with another operator that has a Union Registry account and is selling surplus allowances
- buying or selling from intermediaries, eg banks and specialist traders or brokers
- joining one of the exchanges that list carbon allowance products
EU ETS: allowance auctions
The UK appointed ICE Futures Europe to conduct auctions of EU ETS Phase 3 allowances on behalf of the Department of Energy & Climate Change (DECC).
You’ll find guidance on how to participate in these auctions and the timetable for auctions on the ICE emissions auctions website.
EU ETS: surrender allowances
By April 30, you need to surrender allowances equal to your reportable emissions, using your Union Registry account. To do this, follow these steps:
One of your Authorised Representatives (AR) must carry out (propose) the surrender transaction from the ‘Holdings’ page of your Union Registry account.
To confirm the proposal, they will be asked to enter their ECAS password and the mobile phone number they use to log into the Registry.
They will then receive a 16 digit confirmation code on their mobile phone which they need to enter into the Registry.
Before the surrender transaction can be finalised, a second person will need to approve the surrender. If you have appointed an Additional Authorised Representative (AAR) to your account they will need to approve the surrender. If you don’t have an AAR a second AR will need to approve the transaction.
To confirm the surrender transaction, the approver will need to select the transaction from their Registry task list. They need to ‘claim the task’ and then ‘approve’ it. Once they have approved the surrender, they will need to enter a 16 digit confirmation code that will be sent to their mobile phone.
If you think you have made an error in your surrender transaction, contact the Registry team immediately. If you don’t do this within 5 working days, they will not be able to reverse the surrender transaction.
Surrendering allowances is a critical requirement and you will be liable for a substantial civil penalty if you don’t comply.
EU ETS excluded installations: surrender allowances
Excluded installations don’t need to surrender allowances. Instead they have to meet annual emissions targets. The guide EU ETS: monitoring and reporting has more information.
EU ETS: trade or transfer allowances
The following types of Union Registry account holders can transfer or ‘trade’ allowances and Kyoto units to another Union Registry account holder:
- Operator Holding Account
- Aircraft Operator Holding Account
- Person Holding Account
- Trading Account
Person Holding Accounts and Trading Accounts can’t be used for compliance purposes; they can only be used for trading.
Process for transferring allowances or units
To transfer allowances or Kyoto Units to another Registry account holder, you need to set up that third party’s Registry account as a Trusted Account.
To set up a Trusted Account, one of your ARs needs to follow these steps:
Log into your account and go to the Trusted Account page.
Select the option ‘add a Trusted Account’.
Enter the full account number of the account to be added.
Confirm the addition by entering the 16 digit code sent to their mobile phone.
If you have appointed an AAR, they will need to approve the addition of the Trusted Account by selecting the approval task from their task list.
If you haven’t appointed an AAR, your second AR will need to approve the addition.
Either your AAR (if applicable) or your second AR then needs to confirm the addition and enter the 16 digit code sent to their mobile phone.
Once your AAR or second AR has approved the addition, the account will take 7 working days to be set up as a Trusted Account.
Once your Trusted Account has been set up, if you haven’t appointed an AAR to your account, then one of you ARs can transfer the allowances with no further approvals from other ARs. They will be asked to confirm the transfer using a code sent to their mobile phone.
If you have appointed an AAR, they will need to approve every transfer made to the Trusted Account and confirm it by entering the code sent to their mobile phone.
Time taken to process the transfer
Once your AR has proposed the transaction, and it has been ‘initiated’ by an AAR (if applicable), it will take 26 hours to process the transfer.
If you have a Trading Account, transfers to accounts on your Trusted Account list complete without the 26 hour delay. You can also make transfers to accounts not on your Trusted Account list if you have an AAR appointed to approve the transaction. These transactions will be subject to the 26 hour delay.
Payment for allowances transferred
Payment for allowances traded or transferred takes place outside of the Registry system and is arranged directly between the parties involved.
EU ETS: Kyoto units
In addition to EU allowances, Union Registry accounts can also hold and trade Kyoto units.
Union Registry accounts that begin with an EU-100 number can hold EU allowances and Kyoto units eligible for use in EU ETS. This applies to these types of accounts:
- Operator Holding Accounts (OHA)
- Aircraft Operator Holding Accounts (AOHA)
- Person Holding Accounts
- Trading Accounts
Union Registry accounts that begin with GB-120 (former OHA) or GB-121 (Person Accounts in the National Registry) can hold any type of Kyoto unit, but can’t hold EU allowances.
More information on Kyoto units can be found on the European Commission website.
EU ETS: exchange Kyoto units
If you want to exchange Kyoto units held in your Union Registry account, one of your ARs needs to ‘propose’ an exchange transaction from the Holdings page of your Registry account.
Operators holding Kyoto units in their account can exchange them for:
- Aviation allowances if they are aviation operators
- General allowances if they are installation operators
Exchanges need to be within the limits set on the operator’s account. The limits on the type and quantity of units are specified in the ETS Directive and Registry Regulation
The transaction needs to be authorised using a code sent to the AR’s mobile phone. It then needs to be approved by an AAR if you have one, or a second AR, also using a code sent to their mobile phone.
Further help and guidance
These documents have more information on requirements for EU ETS:
The Commission has also produced guidance for operators that will help with compliance requirements. The Monitoring and Reporting Regulation – general guidance for installations
For help with Union Registry queries:
Call: 01925 542 594 between 9am and 5pm GMT/BST. Find out about call charges.
For other EU ETS queries
Installation operators should email email@example.com
Aviation operators should email firstname.lastname@example.org
Published: 23 April 2014
Updated: 6 August 2014
- New section: Aviation: free allowances allocations. Update to section: Aviation: free allowances from the Special Reserve.
- First published.