Emissions trading

The aim of emissions trading is to maintain the carbon dioxide emissions of large industrial and energy production plants below the emission cap set for the whole EU emissions trading sector.

The emissions trading system covers over 40 per cent of the EU’s greenhouse gas emissions and approximately a 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 companies to obtain emission allowances on the market than to implement emission reduction measures, it is more economical for them to purchase 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 have a greenhouse gas emissions permit granted by the competent authority. The permit involves certain emissions monitoring and reporting duties and an obligation to surrender each year to the competent authority enough allowances to cover the installation’s emissions during the preceding calendar year. One emission allowance is equivalent to one tonne of carbon dioxide.

EU-wide market

Emission allowances are allocated to operators for free or by auction. Operators can sell and purchase allowances freely throughout the EU-wide market. There are several exchanges in Europe trading emission allowances. Allowances are also traded outside the exchanges. The price of an allowance is determined by the market, like in the trade in other commodities.

In addition to enterprises, states can also participate in emissions trading and acquire emission units from emission reduction projects that have been implemented in other countries in order to reach their own emission reduction targets. The Finnish government also has its own purchasing programme.

The emissions trading scheme covers the carbon dioxide emissions of large industrial installations and installations with a total rated thermal input exceeding 20 MW. In Finland, the scheme also covers district heating plants with a generating capacity of 20 MW 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 national allocation of allowances.

Further information: mikko.paloneva(at)tem.fi, timo.ritonummi(at)tem.fi