Emissions trading

The aim of the EU emissions trading system (EU ETS) is to keep the greenhouse gas emissions of industrial and energy production plants and flights within the European Economic Area (EEA) below the EU-wide emissions cap for the emissions trading sector.

The emissions trading system covers more than 40% of the total greenhouse gas emissions in the EU and just under half of the greenhouse gas emissions in Finland.

Basic principles of emissions trading:

  • Greenhouse gas emissions are reduced where reductions are the cheapest to achieve.
  • If it is cheaper for enterprises to buy emission allowances on the market than to implement emission reduction measures, it is more economical for them to buy emission allowances than to cut their own emissions.
  • In reverse, emission reduction measures that are cheaper than emission allowances are worth implementing.

Installations covered by the emissions trading system must hold a greenhouse gas emissions permit granted by the competent authority. The permit includes requirements to monitor and report on emissions and an obligation to surrender each year to the competent authority allowances that are equal to the installation’s emissions during the preceding calendar year. Each emission allowance gives the holder the right to emit one tonne of carbon dioxide (CO2).

EU-wide market

Emission allowances are allocated to operators for free or by auctioning. Operators can buy and sell allowances freely throughout the EU-wide market. There are several auction platforms for emission allowances in the EU ETS. Allowances are also traded outside the auction platforms. The price of an allowance is determined by the market in the same way as in the trade in other commodities.

The EU emissions trading system applies to large industrial installations and installations with a total rated thermal input exceeding 20 megawatts and to flights within the European Economic Area (EEA). In Finland, the system also applies to district heating plants with a generating capacity of 20 megawatts or below.

The national emissions trading authority in Finland is the Energy Authority. The Ministry of Economic Affairs and Employment is responsible for emissions trading legislation and the free allocation of allowances in Finland.

Further information: mikko.paloneva(at)tem.fi, juhani.tirkkonen(at)tem.fi