EMISSION TRADING SYSTEM IN EUROPE
In 2005, the European Union Emissions Trading System (EU ETS) was launched. It is a trading system that puts a limit on the total amount of carbon dioxide (CO2) and nitrous oxide (N2O) emissions that can be emitted by factories, power plants and other installations in the system. Within this cap, companies receive emission allowances which they can sell to or buy from one another as needed.
At the end of each year each company must surrender enough allowances to cover all its emissions, otherwise heavy fines are imposed. In addition, companies that reduce their emissions through innovations and developments, and have excess allowances, can choose to keep the excess to cover future needs or sell them to another company that is short of allowances. This flexibility means that emissions tend to be cut where it is the most efficient to do so.
The total number of allowances is reduced over time so that total emissions must fall if companies wish to avoid the heavy fines. The scheme expanded in 2012 to cover airlines, and will continue to expand in 2013 to include petrochemicals, ammonia and aluminum industries, and also additional gases. As a result there will be more allowances available to cover these additions.
The European System of Accounts only recently made a decision on how to record financial transactions relating to this trade of emissions, so historical European data are limited. There are projects running this year (2012) in several European statistical offices (e.g. in Germany, Netherlands, Sweden and Denmark) focused on adjusting emission statistics and the national accounts to reflect these transactions.