History of the Scheme
Every government in the world is trying to work out the best way to reduce their emissions without harming their economy, and the EU has chosen to approach this problem using a variety of policies, and a key mechanism - the European Union Emissions Trading Scheme (EU ETS).
Incorporating 30 European countries (27 EU states plus Norway, Liechtenstein and Iceland), the EU ETS is the largest carbon trading scheme in existence. It works on a ‘Cap and Trade’ system, whereby a limit on the total level of emissions is set for Europe (the ‘Cap’), and anyone wishing to emit carbon must surrender allowances (known as EUA’s) for having done so. Allowances can be bought and sold freely (the ‘trade’), allowing free market principals to set the price of carbon.
While the scheme seems like a new challenge, static installations have been complying with the scheme since 2005, and the regulators have certain expectations from the data being reported. It also means there is a pre-existing trading infrastructure available, and the easiest way to explain the scheme is to start with by explaining how the Allowances are traded.