The EU Emissions Trading Scheme (EU ETS) is the largest multi-country, multi-sector Greenhouse Gas Emissions trading scheme worldwide. It commenced operation in January of 2005. The scheme is based on Directive 2003/87/EC, which was put into play on Oct. 25, 2003.
Allowances traded in the EU ETS are not printed but held in accounts in electronic registries set up by member states. All of the registries are overseen by a central administrator at the EU level. The EU ETS was rolled out in phases. Phase one expired in December 2007 and covered all EU ETS emissions since January 2005. Once phase one was completed, European Union Allowances (EUA) became invalid and new allowances were issued.
In January 2008, phase 2 started and will expire December 2012. Allowances given to EU companies such as utilities and manufacturers are distributed free from the EU member states' governments. Using the cap-and-trade model, if a company receives more free allowances than it needs, it may sell them to anybody.
On Jan. 23, 2008 the EU Commission published climate and energy proposals the next step in the EU ETS after 2012, which includes provisions that call for at least 20 percent of Europe’s energy consumption from renewable energy by 2020. In 2005, only 8 percent came from renewable energy sources, according to Point Carbon. At the European Council in early December, EU leaders met to determine new rules for the EU emissions trading scheme in the 2013-2020 period.
In December 2008, the European Parliament approved the so-called 20-20-20 climate package. The legislation mandates that the 27 EU countries to cut CO2 emissions by 20 percent from 1990 levels by 2020. The approved plan was criticized for granting concessions to countries such as Poland and Germany, both heavy users of fossil fuel-based utilities. The EU countries also said they are prepared to increase the 20 percent cuts to 30 percent in an international climate deal is passed.