Emissions trading (EU ETS) is a market instrument used by the EU to reduce greenhouse gas emissions and achieve its climate targets in a cost-effective manner. Trading in emissions allowances (‘emissions trading’) refers to trade in emissions capacity, the right to emit certain volumes of greenhouse gases. Because these allowances are both bought and sold, greenhouse gas emissions are allocated a price.
The third phase of the European Emissions Trading System (EU ETS) started on 1 January 2013. The first phase commenced in 2005, and was called the ‘pre-trading phase’. In phase two, improvements to the system were introduced. The third phase (2013-2020) involves greater harmonisation of legislation, and auctions have become the key means of bringing allowances to the market (in addition to free allocation). Around 450 companies in the Netherlands participate in the EU ETS, including industrial sectors and energy companies. The aviation industry has also been a participant in the system since 2012.