European emissions trading

European emissions trading is based on the EC Emissions Trading Directive (ETSD). This defines EU-wide binding and uniform regulations for the implementation of emissions trading. The technical implementation is laid down in the Monitoring Regulation. The European rules were implemented in the Greenhouse Gas Emissions Trading Act (TEHG) as far as necessary and described in various DEHSt guidelines. Essential regulations are:

• EC Emissions Trading Directive (EHRL)
• Monitoring Ordinance (MVO)
• EU Allocation Regulation (EU Allocation Regulation)
• EU Registry Regulation (EU Reg)
• Greenhouse Gas Emissions Trading Act (TEHG)
• DEHSt guidelines

This list is only intended to give you an initial overview of the relevant regulations. It is neither complete nor are the listed regulations sufficient to provide a comprehensive overview of European emissions trading.

This applies to energy-intensive industrial companies that are listed in Annex 1, Part 2 of the Greenhouse Gas Emissions Trading Act, e.g.

• Incineration plants (e.g. power plants)
• Petroleum refineries
• Metal production plants
• Basic industry plants (cement, lime, glass, ceramic products)
• Paper industry
• Selected plants in the chemical industry
• Air traffic

For installations subject to European emissions trading, the operator must record, report and offset greenhouse gas emissions annually:

• The operator describes the recording of greenhouse gas emissions in a monitoring plan, which is then reviewed and approved by DEHSt. This must be continuously adapted in the event of operational changes and the changes must be submitted to DEHSt for approval.
• On the basis of this monitoring plan, the operator prepares an annual emissions report by 31 March for the previous year. This must be verified by an accredited body and then submitted by the operator to DEHSt.

The monitoring plan and emissions report are created in DEHSt’s Form Management System (FMS) and forwarded to DEHSt via the Virtual Post Office (VPS).

• The operator must finally compensate for the greenhouse gas emissions documented in the emissions report by returning emission allowances (EUAs) to the Union Registry by 30 April. If an operator fails to meet this deadline, he will be fined at least EUR 100 per missing emission allowance (EUA).

Operators of installations subject to emissions trading require emission allowances (EUAs) to offset their greenhouse gas emissions, which they must surrender annually to the Union Registry of the European Union in proportion to their emissions. To obtain these emission allowances (EUAs), operators can, under certain conditions, apply for free emission allowances (EUAs) from the EU via DEHSt, purchase them at auction or buy them from traders or other operators.

• In order to receive free emission allowances (EUA), an operator submits an allocation application to DEHSt. This application must be verified by an accredited body and then submitted by the operator to DEHSt. For existing installations, the deadline for submitting an allocation application for the period 2021-2025 has already expired. For new installations or installations that are newly subject to emissions trading, allocation applications can still be submitted subject to deadlines.
• Operators who have received a free allocation must prepare a methodology plan and submit it to DEHSt for review and approval. The method plan describes all allocation-relevant processes for determining the amount of free allocation. This must be continuously adapted in the event of operational changes and the changes must be submitted to DEHSt for approval.
• On the basis of this method plan, the operator prepares an annual allocation data report by 31 March for the previous year. This must be checked by an accredited body and then submitted by the operator to DEHSt.

The allocation application, method plan and allocation data report are created in DEHSt’s Form Management System (FMS) and forwarded to DEHSt via the Virtual Post Office (VPS).

• If the emission allowances (EUAs) allocated free of charge are not sufficient to compensate for the operator’s own greenhouse gas emissions, the operator can acquire the missing emission allowances (EUAs) at auction or by purchasing them from a trader or from other operators.

The price of an emission allowance (EUA) is formed freely on the market and is very volatile. For example, in November 2020, the price for an emission allowance fluctuated between €23.22 and €28.16.

The Form Management System (FMS) is a web application of DEHSt that is used to create forms.

• Monitoring plans
• Issue reports
• Allocation requests
• Method reports and
• Allocation data reports

serves. The FMS is used to submit the operator’s emission reports, allocation data reports and allocation requests to the verifier for review. The use of the FMS is mandatory in Germany. Applications for electricity price compensation [later add: and documents within the framework of national emissions trading] are also prepared with the help of the FMS.

The virtual post office (VPS) is a special e-mail programme for secure communication within the framework of emissions trading. The VPS is used to send

• of all reports generated in the FMS between operator, verifier and DEHSt,
• the transmission of notices and permits from DEHSt to the operator,
• the transmission of information and documents relating to the Union Registry
• Further communication between the operator and DEHSt

To send the e-mails, the respective mailbox owner needs a signature card for qualified electronic signature, which can take up to three months to apply for.

The Union Registry is used for the administration of emission allowances (EUA). The Union Registry is comparable to a current account, but it does not hold money in the currency EUR but emission allowances, usually in the “currency” EUA. The emission allowances (EUAs) allocated free of charge are credited to the account annually by DEHSt. The purchased and sold emission allowances (EUAs) are also booked there. In addition, the account is used to return to DEHSt the emission allowances (EUAs) used as part of offsetting greenhouse gas emissions. The Union Registry thus manages considerable values. At a price of EUR 25 per emission allowance and a stock of 10,000 emission allowances (EUAs) at a small installation, this already results in a value of EUR 250,000. Therefore, the Union Registry contains several safeguards to prevent abuse. For example, a transaction of emission allowances must be carried out by several persons and there is a delay in transactions of several days so that they can be reversed in the event of misuse.

Some documents within the scope of emissions trading must be verified by an independent accredited body. The bodies accredited in Germany are accredited by the German Accreditation Body (DAkkS) and are allowed to verify documents depending on the installation areas (scope) listed in the accreditation.

The accredited bodies are selected by the operator and commissioned and paid by the operator. They then inspect independently and free of instructions on the basis of the legal regulations and the accreditation regulations.

• the emissions report,
• the allotment application, and
• the Allocation Data Report.

The accredited body sends the verified documents signed via the virtual post office (VPS) to the operator, who then submits them signed to DEHSt.