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The European Emissions Trading scheme is the first international trading system of CO2 emissions in the world. It will cover all 25 EU member states, affecting some 12,000 to 15,000 installations. The scheme will be implemented in two phases: 2005-07 and 2008-12, with the latter coinciding with the first commitment period under the international Kyoto Protocol.
The first period will cover such sectors as utilities, refineries, cement, glass, ceramics and the pulp and paper industries. The second phase will include greenhouse gases other than CO2, making emitters from other industrial sectors, such as aluminum and chemicals, potentially liable.
An operator holding a greenhouse gas permit will be allocated a number of emission allowances at the beginning of each trading phase. The scheme is designed to offer fewer emission allowances than would be needed to permit CO2 emissions to continue at their prevailing levels. Each operator is then faced with a choice of either reducing its own installations' actual emissions or buying allowances freed up by companies that have achieved emission reductions elsewhere on the open market. This “cap and trade” scheme will be open to the entire EU so that a company is free to trade with any other company in any other member state.