On 23.11.2017, Switzerland and the EU decided to link their systems to greenhouse gas emissions trading. The parliamentary debate is currently underway, including the implementation of the Paris Agreement on Climate Change. The goal is the total revision of the CO2 Act. To achieve ultimately climate neutrality, measures will be taken in all sectors, including industries.
The combination of the Emissions Trading System (ETS) creates equal conditions for Swiss and European companies. Thanks to the great flexibility of these conditions, companies have the opportunity to develop innovative solutions. The linking of the ETS of Switzerland and the EU could still be approved in the current commitment period (2013-2020). Execution could then start on January 1st, 2020, after the approval of the parliaments in Switzerland. In addition to the large, emission-intensive industries, traffic, air traffic, agriculture, waste incineration and building management will be also included in the ETS.
How does emissions trading work?
Figure 1: Free allocation according to benchmarks from Fact Sheet Emissions Trading (BAFU)
An ETS (according to the principle of cap and trade) is a quantity control instrument. This means that within the scope of an emission cap, the state issues emission rights and allocates them to companies participating in emissions trading for a certain period of time. Companies are thus granted the right to emit a certain amount of greenhouse gases free of charge and to trade in emission rights (trade). This system rewards companies that produce greenhouse gas-efficient products (see graph above). Regardless of their actual emissions, companies A and B receive the same number of emission rights per production unit. Over or underfunding compared to the actual issue can be offset by trading.
Currently, operators of 54 emission-intensive industrial plants (including cement, paper, refineries, chemicals, glass, steel, ceramics) are obliged to participate in the Swiss ETS. In the EU ETS, on the other hand, they operate more than 11,000 industrial plants and fossil-thermal power plants. Since 2012, aviation has also been involved. In return, the compensation obligation applicable today should no longer apply to ETS investments.
Full integration of emission trading systems also means full alignment of allowance allocation, monitoring and reporting system emissions and verification by independent, accredited testing centers.
EU ETS 2021
On 09.04.2018 the EU ETS directive came into force. In addition to a decisive improvement in the effectiveness of emissions trading, the rules and framework conditions for EU emissions trading for the 4th trading period (2021-2030) were defined. By October 2018, the revised rules for free allocation will be adopted on this basis. These are then immediately applicable without national implementation. Basis for the free allocation are the production quantities of the base period in the years 2014-2018. The calculation is based on benchmarks of 54 defined products or product groups, on measurable heat (process steam, heating energy), on used fuel energy (industrial process) or on process emission (release of greenhouse gas from raw materials, eg. when burning lime). Based on this data, free allocation will be made for the years 2021-2025. Until 30.09.2019 the data collection for the allocation procedure with verification by accredited test centers shall be completed. In addition to the production data, additional data for the emission of greenhouse gases and for numerous important accompanying parameters must also be reported. The benchmarks are then determined from the best 10% of the investments.
Since 2004, TÜV SÜD has been accredited as a testing center and has been verifying allocation applications and emissions reports in many European countries. To know more on this topic, a detailed presentation will be done during our info day on 18.10.2018 in Pullman Basel Europe.