EU Emissions Trading Scheme (EU ETS)
The EU ETS is a cap-and-trade program covering EU countries that sprung from the Kyoto Protocol. Since the EU signed the Kyoto Protocol as a single entity, they needed a mechanism to apportion their reduction target to the member states. It is independent of the Kyoto Protocol and even if Kyoto expires in 2012 and is not renewed, the EU ETS can be renewed for subsequent 5 year periods.
Under the EU ETS, each country adopted a National Action Plan specifying the total number of emissions allowances to be allocated, which it then gave to corporations and other emitting organizations within their country. If an installation emits more than their allowance, they are required to purchase additional allowances from other installations, or purchase a Certified Emission Reduction (CER) or Emission Reduction Unit (ERU) from a carbon project completed under the Kyoto Protocol.
The first phase of the EU ETS (2005-2007) included about 12,000 installations representing about 40% of the EU’s emissions and covering the oil, minerals, metals and paper industries. The second phase (2008-2012) expands the program to include all greenhouse gasses, not just carbon dioxide, and adds some non-EU members (Switzerland, Norway, Iceland) to the scheme, as well as the aviation industry among others.