What is the EU Emissions Trading System (EU ETS)?
The EU ETS is the European Union's mandatory cap-and-trade system under Directive 2003/87/EC. Article 3(a) defines one allowance as permission to emit one metric tonne of carbon dioxide equivalent (CO2e) for the scheme's purposes. Carbon markets explains how this differs from buying a voluntary carbon credit.
Your parent company's address does not settle coverage. You test each activity against Annex I, its capacity threshold and any exclusion. A fixed installation that is covered needs a greenhouse gas permit from its national regulator. Articles 4 to 6 require that permit to include the activity, its emissions, reporting duties and an approved monitoring plan.
Why does the EU ETS matter to you?
If your company operates a covered asset, the regulator can ask for its permit, monitoring plan, annual emissions report and the opinion of an independent verifier approved for EU ETS work. For a fixed installation, Article 12(3)(a) requires surrender by 30 September after the reporting year. Articles 14 and 15 govern annual monitoring, reporting and verification.
If climate change is material under the European Sustainability Reporting Standards (ESRS), disclose the percentage of gross Scope 1 emissions covered by regulated emissions-trading schemes. Use the EU ETS method for EU ETS activities, and use the same reporting period for the EU ETS emissions and gross Scope 1 total. The current rules are in E1-6 paragraph 48(b), AR 43(e) and AR 44.
The European Commission adopted revised ESRS on 3 July 2026, but they are not yet in force. If they take effect, revised E1-8 would name the EU ETS percentage directly and keep the same-period calculation. Revised E1-7 would require companies in high-climate-impact sectors to split fossil-energy use by source; it would not require EU ETS data.
How does the EU ETS work?
- Check the asset: match the installation, flight or voyage to the relevant activity, threshold and exclusion.
- Use the approved method: collect the meter, fuel, laboratory and production records named in the monitoring plan.
- Report and verify: calculate the year's emissions, submit the annual report and have an approved independent verifier check it.
- Surrender allowances: transfer the required quantity through the Union Registry, the scheme's electronic ledger, by the applicable deadline.
For a fixed installation under Article 12(3)(a), the surrendered total matches its verified emissions. Free allocation reduces the number of allowances you need to obtain elsewhere. It does not reduce the reported emissions or the number surrendered. Aviation and shipping have separate phase-ins and exceptions, so check their specific provisions.
What mistakes should you avoid?
- Testing the group or head office instead of each asset's activity, threshold, permit and exclusions.
- Deducting free allowances from reported emissions or treating an EU allowance as a voluntary offset credit.
- Sending only a corporate GHG inventory when the reviewer needs the installation's permit, plan, annual report and verification record.
- Using the fixed-installation surrender rule for aircraft or ships without checking their phase-in and exception rules.
Does the EU ETS apply to a supplier based outside Europe?
Not merely because it sells to an EU customer. A factory in Mexico is not brought into the EU ETS by the customer's location. Direct duties can arise when the same group operates a covered European installation, aircraft or ship. Identify the legal operator and test each asset separately.
How do you calculate the ESRS EU ETS percentage?
Divide emissions from EU ETS sources by gross Scope 1 emissions for the same reporting period, then multiply by 100. The current ESRS calculation also includes other regulated emissions-trading schemes where they apply. The adopted but not-yet-in-force revision would show the EU ETS percentage separately.
What records should you keep for an EU ETS check?
Keep the permit, approved monitoring plan and changes, meter and calibration records, fuel and laboratory files, calculation workbook, annual emissions report, verifier's opinion, regulator correspondence, allowance transactions and Registry surrender confirmation for the reporting year.