The European Commission has set a European-wide cap on the number of emission allowances under the Emissions Trading System for Buildings, Road Transport and Small Industries (ETS2) for 2027. This limit will amount to 1,036,288,784 allowances.
The relevant notice was published on the website of this executive body.
What is ETS2 or ETS2?
As part of the revision of the ETS Directive (EU ETS), in 2023, the European Union created a new emissions trading system called ETS2, which is separate from the existing EU ETS. This new system will cover CO2 emissions from fuel combustion in buildings, road transport, and additional sectors (mainly small industry, which is not covered by the existing ETS).
The ETS2 will be fully operational in 2027. Regulated entities will buy these allowances at auctions. The ETS2 cap will be set to reduce emissions by 42% by 2030 compared to 2005 levels.
How the number of allowances was set
The calculation of the 2027 cap is based on the average CO2 emissions from fuel combustion in ETS2 sectors from 2016 to 2018. This average is reduced until 2027 as follows
- until 2024 – through a linear reduction trajectory based on all emissions covered by the Joint Implementation Regulation;
- for 2025-2027 – through an annual linear reduction factor of 5.1% in accordance with Article 30c(1) of the ETS Directive.
The ETS2 cap for 2027 includes the countries of the European Economic Area and the European Free Trade Association.
At a later stage, the ETS2 cap for 2028 will be determined. It will be set based on the average CO2 emissions reported by ETS2 regulated entities for the period from 2024 to 2026.
The decision to set the number of allowances will soon be published in the Official Journal.
Earlier, EcoPolitic first wrote about the EU's intentions to expand the carbon trading system to the heating and transportation sector in December 2022.
