Greenhouse Gases (GHGs) meaning

Since the Brexit transition ended on 31 December 2020 (the IP completion day), the UK formally ceased taking part in the European Union Emissions Trading System (EU ETS) framework. The EU ETS aims to curb the overall volume of specified greenhouse gases (GHGs) released by factories, power stations and other regulated sites within the system by operating an allowance market under a cap-and-trade model. It began with Phase I in 2005 and is founded on Directive 2003/87/EC (as later revised by Directive 2009/29/EC). Phase III of the EU ETS started in January 2013 and concluded in the year 2020. Phase IV spans the period 2021–30. For further information on the EU ETS and carbon trading, consult the following Practice Notes and materials: EU Emissions Trading System (ETS) Phase IV—Directive 2003/87/EC EU Emissions trading system—overview EU Emissions Trading System (ETS) for aviation EU Emissions Trading System (ETS) for maritime transport EU Emissions Trading System (ETS II) for buildings, road transport and additional sectors ...

Background to emissions trading in the EU and the UK Emissions trading is a market-led method for tackling pollution. It seeks to cut harmful releases of carbon dioxide and other damaging greenhouse gases (GHGs) that drive climate change. Trading in GHGs is often referred to as carbon trading. Such market-based systems let participants purchase and sell permissions to emit specified pollutants through emissions trading schemes (ETS). The clear aim is to attach a price to emissions so businesses are encouraged to help avert climate change. Where the cost of allowances is sufficiently high, firms should be incentivised to cut their emissions, for instance by improving operational energy efficiency levels. Emissions trading ranks highly on the EU’s and UK government’s list of priorities. The European Commission’s report on the EU Emissions Trading System (EU ETS) states that the growth in GHG emissions must be halted by 2020 at the latest...

First developed in collaboration with Dr Justin Macinante of Edinburgh Law School, The University of Edinburgh. Revised by Dalia Majumder‑Russell, Alex Ibrahim and Shinae Lee of CMS Cameron McKenna Nabarro Olswang LLP. Conceptual context Emissions trading prices negative externalities—assigning costs to impacts that would not otherwise appear in the price of an activity, for example the release of greenhouse gases (GHGs). Such trading schemes may take the following forms: Cap‑and‑trade—participants face a limit on their emissions and are either issued allowances or buy them to cover those emissions. If they exceed the cap, they must acquire additional allowances from entities with a surplus or pay a penalty at the end of the relevant compliance period. Accordingly, cap‑and‑trade arrangements are compliance schemes. Baseline‑and‑credit—participants implement projects that reduce emissions below a defined baseline through avoidance, reduction, or removal (i.e., drawing pollutants from the atmosphere), thereby generating credits. These credits can be sold to other entities wishing to offset their carbon footprint...