EU emissions trading

The EU emissions trading system is an important component in Sweden’s efforts to limit greenhouse gas emissions. The system was introduced in 2005 and covers all EU countries as well as Iceland, Liechtenstein and Norway. The aim of the system is to achieve the emission reductions necessary for the EU to live up to its commitments under the Kyoto Protocol in a cost-effective manner. 

The emissions trading system is based on supply and demand, and is a market-based system in which the price is set by the market. The trading system sets a ‘cap’ that is gradually reduced for the total emissions from the facilities included. Emissions trading covers about half of the EU’s sources of emissions in energy production and energy-intensive industries.

To deal with the acute surplus of emission allowances, a decision was taken in autumn 2013 to postpone the auction of 900 million emission allowances scheduled for 2014–2016 until 2019–2020. The trading system was expanded in 2012 to also include the aviation sector. However, to facilitate the international negotiations on a global agreement concerning the impact of aviation on climate, the EU decided that flights into or out of the EU are to continue to be exempt from the requirement on purchasing emission allowances until after 2016. 

Sweden wants to see prompt action to improve the system

In January 2014, the European Commission presented a proposal on introducing a market stability reserve aimed at stabilising access to emission allowances. Under the Commission’s proposal, the market stability reserve is to come into force in 2021. In the beginning of May 2015, the European Commission and the Council of Ministers agreed to move forward the launch of the market stability reserve to 2019, which the Swedish Government takes a positive view of. The Government is also working for emission allowances that have been withheld from the market between 2014 and 2016 to be cancelled so as to reduce the surplus of emission allowances in the trading system.