What sectors are covered by the EU ETS?

Since its inception, the European Union Emissions Trading Scheme (EU ETS) has expanded its coverage to encompass as many carbon emissions as possible.

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Early Focus: Power Production and Industry

Electricity and heat generation are the decarbonization champions 

The power production sector, which accounts for just under 30% of total EU carbon emissions, has always been a primary decarbonization target for the EU ETS. The scheme has achieved significant emissions reductions in this sector, mainly thanks to the rapid phasing out of free allowances. The power sector is responsible for nearly 75% of the emissions reductions achieved by the cap-and-trade scheme up to date.

Making the industry cleaner 

Since the first years of operation, the EU ETS also covers energy-intensive industries, including oil refineries, steelworks, and the production of iron, aluminum, metals, cement, lime, glass, ceramics, pulp, paper, acids, and bulk organic chemicals. With significant results already visible in the power sector, the focus is increasingly shifting towards decarbonizing these energy-intensive industries.

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Expanding Scope: Aviation and Maritime Shipping

Intra-EEA flights covered 

Since 2012, the EU ETS includes carbon emissions from aviation, however only for intra-European flights. Discussions are ongoing to extend this coverage to all flights arriving in and departing from the EU, as currently only around 20% of flights departing from Europe are covered.

Adding the maritime shipping industry 

In 2024, the EU ETS expanded to include the maritime shipping sector, which accounts for 3-4% of the EU's total CO2 emissions. This sector has a significant decarbonization potential, and shipping companies are required to submit EUAs for a progressively increasing proportion of their emissions, reaching 100% by 2027.

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Future Directions: Buildings, Road Transportation, and Agriculture

The EU ETS 2, a new cap-and-trade scheme

Looking ahead, a new ETS scheme, separate from the current EU ETS, will be introduced  in 2027 to cover CO2 emissions from building construction and road transportation. This new scheme is necessary because pricing in these sectors could affect a large proportion of households. It will include robust funds redistribution mechanisms to mitigate any adverse effects on low-income citizens.

Pricing emissions from agriculture

The inclusion of emissions from the agriculture sector under the EU ETS is also under discussion. This is a sensitive topic, as it could cause social disruptions, but agriculture remains a significant source of carbon emissions. Denmark's recent implementation of a tax on agricultural emissions sets a precedent, suggesting that the EU can eventually follow suit.

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The EU ETS has been consistently expanding its scope to tackle new challenges and sectors. It will continue to include more gases until it fulfills its mission - bring Europe to climate neutrality by 2050.

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