In light of the rapidly increasing impact of climate change caused by greenhouse gases emitted by humans into the atmosphere, a solution to incentify the reduction of GHG emissions was sought within the EU. A GHG Emissions trading system, in accordance with the Kyoto Protocol, was introduced.
The GHG Emissions trading system was introduced in 2005 for the controlled reduction of carbon dioxide and, since 2012, nitrous oxide and perfluorinated hydrocarbons. Certain industrial sectors are prescribed by law a maximum value of CO2 emissions in the form of certificates that may be emitted by their plants. The certificates are distributed and auctioned by the respective state. However, it is also possible to buy and sell emission certificates between companies. This allows companies that emit fewer greenhouse gases to resell their allowances and generate money through the associated environmental protection.
In Germany, emissions trading will be extended from 2021 to include road transport, heating and almost all other areas in which fossil fuels are burned. The obligation to purchase certificates lies with the party placing the fuel on the market.
After a drop in prices due to too low caps and other factors, the price of certificates has increased again since 2017. The start of new trading period in 2021, is going to be accompanied by further reduction of emission caps.
With new sectors joining and further reduction of emission caps challenges and opportunities for emissions trading are on the horizon. In case you have questions on how emission trading might impact your business, please get in touch with us.