Phasing in changes to EU emissions trading

Economic theory suggests that the most cost-efficient way to reduce greenhouse gas emissions is to price them. This is the theory behind the European Union Emissions Trading Scheme (EU ETS), which started in 2005.

The scheme is now mid-way through its second phase and stakeholders are preparing for Phase 3, which includes important changes.

In Phase 3, the scheme moves towards a more centralised administration to reduce the burden on Member States and increase security. It also extends coverage. At the same time, new restrictions are being applied to interactions between the EU carbon market and the international market, to ensure that adequate emission reduction occurs within Member States. The EU Commission is improving transparency in Phase 3 by distributing most of the emissions rights through auction. The revenue is expected to fund climate-change projects in the EU and developing countries.