Aviation and the EU Emissions Trading Scheme
The Kyoto Protocol adopted in Kyoto, Japan, on 11 December 1997, excluded emissions from international aviation services from national emissions targets, and stipulated that an approach to addressing emissions from international aviation should be developed separately through the International Civil Aviation Organization (ICAO). Owing to a lack of consensus over whether and how to allocate responsibility for these emissions, only domestic CO2 emissions are included in the Kyoto Parties’ national emission totals. Emissions from international flights are not subject to the quantified emissions limitations taken on by the countries which ratified the Kyoto Protocol.
The European Commission proposed in February 2005 that international aviation should be included in any post-2012 climate change regime. A new directive 2008/101/EC of the European Parliament and of the Council of the European Union requires all aircraft operators flying into or out of any EU airport to participate in the EU’s emissions trading scheme (ETS) from 2012.
The EU's emissions trading scheme could be a model for a global scheme as the International Civil Aviation Organisation is developing a framework for a global emissions trading scheme for aviation as part of an attempt by the ICAO to retain responsibility for the environmental impact of aviation under a post-2012 international agreement that will have to be agreed in Copenhagen in December 2009.
The European Greenhouse Gas Emissions Trading Scheme has been operational since January 2005 for some 12 000 installations in the 27 Member States ranging from oil refineries and power plants to cement, iron and ceramic production facilities. Emissions from these sectors account for nearly 40 % of the European Union total greenhouse gas emissions.
The scheme is based on Directive 2003/87/EC, which entered into force on 25 October 2003. Emission trading is an economic policy instrument used to control emissions by providing economic incentives for achieving emission reductions. An emission trading system sets a cap on the amount of a pollutant that can be emitted.
Companies under the trading system are given allowances which represent the right to emit a specific amount. Companies that emit in excess of their allowances must buy allowances from an operator that has more allowances than it needs. In the first period, 15% of allowances are to be auctioned.
For the period from 1 January 2012 to 31 December 2012, the total quantity of allowances to be allocated to aircraft operators will be equivalent to 97% of the mean average of the annual emissions in the calendar years 2004, 2005 and 2006. For the eight year period beginning on 1 January 2013 the total quantity will be equivalent to 95 % of historic aviation emissions.
Categories of activities included in the EU ETS.
Aircraft operators may apply for an allocation of allowances that are to be allocated free of charge (82% of emission allowances will be allocated for free in 2012). An application may be made by submitting to the competent authority in the administering Member State verified tonne-kilometre data for the aviation activities.
A special reserve of free allowances is being provided for new entrants and fast growing airlines (3% of the total quantity of allowances). 15% of allowances are to be auctioned in 2012.
From 1 January 2012 all flights which arrive at or depart from an airport situated in the territory of a Member State to which the Treaty applies shall be included in the EU ETS.
A ‘flight’ is the operation of an aircraft from the moment the aircraft first moves under its own power (block-off) for the purpose of taking off until the moment it comes to rest after landing (block-on).
Not included are categories such as military flights, customs and police flights, flights related to search and rescue, fire fighting flights, humanitarian flights, flights performed exclusively under visual flight, training flights, flights performed by aircraft with a certified maximum take-off mass of less than 5 700 kg and flights performed in the framework of public service obligations on routes within outermost regions or on routes where the capacity offered does not exceed 30 000 seats per year.
The Kyoto Protocol adopted in Kyoto, Japan, on 11 December 1997, excluded emissions from international aviation services from national emissions targets, and stipulated that an approach to addressing emissions from international aviation should be developed separately through the International Civil Aviation Organization (ICAO). Owing to a lack of consensus over whether and how to allocate responsibility for these emissions, only domestic CO2 emissions are included in the Kyoto Parties’ national emission totals. Emissions from international flights are not subject to the quantified emissions limitations taken on by the countries which ratified the Kyoto Protocol.
The European Commission proposed in February 2005 that international aviation should be included in any post-
The EU's emissions trading scheme could be a model for a global scheme as the International Civil Aviation Organisation is developing a framework for a global emissions trading scheme for aviation as part of an attempt by the ICAO to retain responsibility for the environmental impact of aviation under a post-
The European Greenhouse Gas Emissions Trading Scheme has been operational since January 2005 for some 12 000 installations in the 27 Member States ranging from oil refineries and power plants to cement, iron and ceramic production facilities. Emissions from these sectors account for nearly 40 % of the European Union total greenhouse gas emissions.
The scheme is based on Directive 2003/87/EC, which entered into force on 25 October 2003. Emission trading is an economic policy instrument used to control emissions by providing economic incentives for achieving emission reductions. An emission trading system sets a cap on the amount of a pollutant that can be emitted.
Companies under the trading system are given allowances which represent the right to emit a specific amount. Companies that emit in excess of their allowances must buy allowances from an operator that has more allowances than it needs. In the first period, 15% of allowances are to be auctioned.
For the period from 1 January 2012 to 31 December 2012, the total quantity of allowances to be allocated to aircraft operators will be equivalent to 97% of the mean average of the annual emissions in the calendar years 2004, 2005 and 2006. For the eight year period beginning on 1 January 2013 the total quantity will be equivalent to 95 % of historic aviation emissions.
Categories of activities included in the EU ETS.
Aircraft operators may apply for an allocation of allowances that are to be allocated free of charge (82% of emission allowances will be allocated for free in 2012). An application may be made by submitting to the competent authority in the administering Member State verified tonne-
A special reserve of free allowances is being provided for new entrants and fast growing airlines (3% of the total quantity of allowances). 15% of allowances are to be auctioned in 2012.
From 1 January 2012 all flights which arrive at or depart from an airport situated in the territory of a Member State to which the Treaty applies shall be included in the EU ETS.
A ‘flight’ is the operation of an aircraft from the moment the aircraft first moves under its own power (block-
Not included are categories such as military flights, customs and police flights, flights related to search and rescue, fire fighting flights, humanitarian flights, flights performed exclusively under visual flight, training flights, flights performed by aircraft with a certified maximum take-
Aircraft operators operating fewer than 243 flights per period for three consecutive four-month periods and aircraft operators operating flights with total annual emissions lower than 10 000 tonnes CO2 per year may estimate the fuel consumption using tools implemented by Eurocontrol. Eurocontrol is currently performing a feasibility study for an ETS support facility. Whereas this facility would reuse part of the PAGODA processes, some changes are required to them in order to meet the ETS directive prescriptions. The decision on the deployment of this facility will be based on the outcome of the feasibility study.
An aircraft operator making use of the simplified procedure and exceeding the threshold for small emitters during a reporting year shall notify this fact to the competent authority. Unless the aircraft operator demonstrates to the satisfaction of the competent authority, that the threshold will not be exceeded again from the following reporting period onwards, the aircraft operator shall update the monitoring plan to meet the monitoring requirements. The revised monitoring plan shall be submitted without undue delay to the competent authority for approval.
An aircraft operator making use of the simplified procedure and exceeding the threshold for small emitters during a reporting year shall notify this fact to the competent authority. Unless the aircraft operator demonstrates to the satisfaction of the competent authority, that the threshold will not be exceeded again from the following reporting period onwards, the aircraft operator shall update the monitoring plan to meet the monitoring requirements. The revised monitoring plan shall be submitted without undue delay to the competent authority for approval.
General rules of the Emission trading system
The allocation methodology for the distribution of allowances to aircraft operators will be based on the verified tonne-
The annual issuance of allowances to operators must take place before March of each year. So an aircraft operator will receive the allowances for the year 2012 before March of that same year.
Each operator under the EU ETS has to have a greenhouse gas permit before it can operate. This permit is the monitoring plan. This plan lays down the rules that have to be followed when reporting the CO2 emissions data under the EU ETS. Each year, before April, the aircraft operator has to report the amount of CO2 emissions that have been emitted in the previous year. This report has to comply with the rules of the monitoring plan and has to be verified by an accredited verifier appointed by the operator. Most Competent Authorities will not publish a list of accredited verification bodies for the aviation sector before early 2010. Aircraft operators will therefore not be able to appoint an accredited verifier before this time.
Aircraft operators are obliged to match the (verified) emissions with an equal amount of allowances. This is called ‘surrendering’ of allowances. Each aircraft operator has to surrender the allowances (of the previous year) before May of the ongoing year. If an operator is short of allowances it will have to buy allowances from an installation or aircraft operator that has more allowances than needed to cover the verified emissions. A company that does not surrender enough allowances will be fined and will still be obliged to surrender the missing allowances.
Member States can allow a limited use of credits by the Clean Development Mechanism (CDM) and Joint implementation (JI) for compliance use in the EU ETS. This means that airline operators can use CERs (Certified Emission Reductions) and ERUs (Emission Reduction Units) next to EUAs (EU Allowances) to cover their emissions.
The Commission shall publish in February 2009 a list of aircraft operators which carried out aviation activity on or after 1 January 2006 specifying the administering Member State for each aircraft operator and before 1 February of each subsequent year, update the list to include aircraft operators which have subsequently carried out aviation activity. Route charges information available at EUROCONTROL’s CRCO has served as the principal source of data to identify the flights to which the Directive applies and the aircraft operator of such flights. (see Aircraft operator allocation by EC Member State process description)
In order to reduce the administrative burden on aircraft operators, one Member State will be responsible for each aircraft operator. Member States will be required to ensure that aircraft operators which were issued with an operating licence in that Member State, or aircraft operators without an operating licence or from third countries whose emissions in a base year are mostly attributable to that Member State, comply with the requirements of the EU ETS.
The administering Member State in respect of an aircraft operator shall be:
(a) in the case of an aircraft operator with a valid operating licence granted by a Member State, the Member State which granted the operating licence; and
(b) in all other cases, the Member State with the greatest estimated attributed aviation emissions from flights performed by that aircraft operator in the base year.
Each aircraft operator may apply for an allocation of allowances that are to be allocated free of charge by submitting to the Competent Authority verified tonne-
How to comply with the ETS obligations
Aircraft operators need to have an emission permit and be registered in the register of the administering EU Member State and must have implemented the plans for monitoring and reporting.
CO2 emission rights and costs must be incorporated into the company's operational, financial and risk management system and emission rights will be shown on the balance sheet. A trading strategy for emission rights should be developed.
Aircraft operators have to submit following information to the respective competent authority:
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monitoring plan for the reporting of tonne-
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monitoring plan for the reporting of annual emissions;
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verified annual emissions report; and
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verified tonne-
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The competent authorities will publish in the first half of 2009 standardized templates that must be used by aircraft operators to report (a) the monitoring plan for tonne-
A monitoring plan for the reporting of tonne-
The use of official templates for the submission of both monitoring plans is compulsory.
The Competent Authority may contact the airline operator to discuss modifications to the monitoring plan to ensure the accurate and verifiable monitoring and reporting of data.
Once approved, the Competent Authority will send the Aircraft operator the approved Monitoring Plans. These plans will be used as the methodology for calculating tonne-
All substantial changes in the operator’s monitoring methodology must be notified to the competent authority without undue delay.
Monitoring and reporting of emissions from aviation activities
Compliance with the Monitoring and Reporting Guidelines 2007 is needed for the submissions of annual emissions report.
(COMMISSION DECISION of 18 July 2007 establishing guidelines for the monitoring and reporting of greenhouse gas emissions pursuant to Directive 2003/87/EC of the European Parliament and of the Council (2007/589/EC). These guidelines will be amended by the Commission in 2009).
A verified annual emissions report must be submitted to the Competent Authority before April of each year and for the first time before April 2011. (or earlier in some administering member states).
A separate calculation should be made for each flight and for each fuel as well as aggregated emissions (tCO2) from all flights. Emissions should be monitored by calculation using the formula:
Fuel consumption x emission factor.
Fuel consumption shall include fuel consumed by the auxiliary power unit. Actual fuel consumption for each flight is to be used. If actual fuel consumption data is not available, a standardised tiered method should be used to estimate fuel consumption data based on best available information.
Monitoring of tonne-
A verified tonne-
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number of flights per airport pair;
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number of passenger-
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number of tonne-
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chosen method for calculation of mass for passengers and checked baggage; and
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total number of tonne-
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Verification of tonne-
The verifier shall in particular ascertain that only flights actually performed and falling within the ETS have been taken into account. In addition, the verifier shall ascertain that the payload reported by the aircraft operator corresponds to records on payloads kept by that operator for safety purposes.
To be able to show and ensure compliance and to be able to reconstruct emissions data reported, the operator shall keep records of all control activities and of the information for at least ten years after the submission of the annual emissions report.
For the purpose of identifying the unique aircraft operator, the call sign used for Air Traffic Control (ATC) purposes shall be used. The call sign is the ICAO designator in box 7 of the flight plan or, if not available, the registration marking of the aircraft. If the identity of the aircraft operator is not known, the owner of the aircraft shall be regarded as the aircraft operator unless it proves to the satisfaction of the competent authority who was the aircraft operator.
For the purpose of identifying the unique aircraft operator, the call sign used for Air Traffic Control (ATC) purposes shall be used. The call sign is the ICAO designator in box 7 of the flight plan or, if not available, the registration marking of the aircraft. If the identity of the aircraft operator is not known, the owner of the aircraft shall be regarded as the aircraft operator unless it proves to the satisfaction of the competent authority who was the aircraft operator.
Determination of CO2 Emissions
CO2 emissions from aviation activities shall be calculated using the formula:
CO2 emissions = Fuel consumption * emission factor
With
a) Fuel consumption
Fuel consumption is expressed as fuel consumed in mass units (tonnes) during the reporting period.
Fuel consumed shall be monitored for each flight and for each fuel and shall include fuel consumed by the auxiliary power unit . Actual fuel consumed shall be calculated using one of the following two methods:
METHOD A:
The following formula is used:
Actual fuel consumption for each flight (metric tonnes) = Amount of fuel contained in aircraft tanks once fuel uplift for the flight is complete (metric tonnes) – Amount of fuel contained in aircraft tanks once fuel uplift for subsequent flight is complete (metric tonnes) + Fuel uplift for that subsequent flight (metric tonnes)
METHOD B:
The following formula is used:
Actual fuel consumption for each flight (metric tonnes) = Amount of fuel remaining in aircraft tanks at engines shut down after the previous flight (metric tonnes) + Fuel uplift for the flight (metric tonnes) – Amount of fuel contained in tanks at engines shut down after the flight (metric tonnes)
b) Emission factor
Tier 1:
The following reference factors, expressed as t CO2/t fuel, based on the reference net calorific values and emission factors shall be used for each aviation fuel:
Emission factors for aviation fuels (tCO2/tfuel)
Aviation gasoline: 3.10
Jet gasoline: 3.10
Jet kerosine: 3.15
For alternative fuels for which no reference values have been defined, activity specific emission factors shall be determined.
c) Simplified procedures for small emitters
Aircraft operators operating fewer than 243 flights per period for three consecutive four-month periods and aircraft operators operating flights with total annual emissions lower than 10 000 tonnes CO 2 per year shall be considered small emitters.
Small emitters may use simplified procedures to determine fuel consumption and annual emissions.
Fuel consumption of aircraft operators that are small emitters may be estimated using tools implemented by Eurocontrol or another relevant organisation, which can process all air traffic information available to Eurocontrol. The applicable tools shall be used only if they are approved by the Commission including the application of correction factors to compensate for any inaccuracies in the modelling methods.
Monitoring Plan
Aircraft operators shall submit their monitoring plan to the competent authority at least four months prior to the start of the first reporting period for approval.
The competent authority shall ensure that the aircraft operator reviews the monitoring plan before the start of each trading period and submits a revised monitoring plan as appropriate. After the submission of a monitoring plan for the reporting of emissions from 1 January 2010, a review of the monitoring plan shall take place before the start of the trading period starting in 2013.
The competent authority may require the aircraft operator to use an electronic template for submission of the monitoring plan. The Commission may publish a standardised electronic template or file format specification. In this case the competent authority shall accept the use by the aircraft operator of this template or specification, unless the competent authorities’ template requires at least the same data input.
Reporting Format
Aircraft operators shall use a standardised format for reporting their annual emissions. The competent authority may require the aircraft operator to use an electronic template for submission of the annual emission report. The Commission will publish a standardised electronic (Excel) template. In this case the competent authority shall accept the use by the aircraft operator of this template or specification, unless the competent authorities’ template requires at least the same data input.
Emissions shall be reported as rounded tonnes of CO2(for example 1 245 978 tonnes). Emission factors shall be rounded to include only significant digits both for emission calculations and reporting purposes. Fuel consumption per flight shall be used with all significant digits (e.g. 12 345.6 kilograms) for calculation.
Content of the annual emission report
Each aircraft operator shall include the following information in its annual emission report:
(1) data identifying the aircraft operator and the call sign or other unique designators used for air traffic control purposes, as well as relevant contact details;
(2) name and address of the verifier of the report;
(3) the reporting year;
(4) reference to and version number of the relevant approved monitoring plan;
(5) relevant changes in the operations and deviations from the approved monitoring plan during the reporting period;
(6) the aircraft registration numbers and types of aircraft used in the period covered by the report to perform the aviation activities covered by Annex I of Directive 2003/87/EC carried out by the aircraft operator;
(7) the total number of flights covered by the report;
(8) the data;
(9) Memo-Items: amount of biomass used as fuel during the reporting year (in tonnes or m³) listed per fuel type.
The monitoring plan
Aircraft operators shall submit their monitoring plan to the competent authority at least four months prior to the start of the first reporting period for approval.
The competent authority may require the aircraft operator to use an electronic template for submission of the monitoring plan. The Commission may publish a standardised electronic template or file format specification. In this case the competent authority shall accept the use by the aircraft operator of this template or specification, unless the competent authorities’ template is technically more advanced and requires the same data input.
Methodologies for calculating tonne-kilometre data
Calculation formula
Aircraft operators shall monitor and report tonne-kilometre data using a calculation-based methodology. Calculation of tonne-kilometre data shall be based on the following formula:
tonne kilometres (t km) = distance (km) * payload (t)
Distance
Distance shall be calculated using the formula:
Distance shall be calculated using the formula:
Distance [km] = Great Circle Distance [km] + 95 km
The Great Circle Distance is defined as the shortest distance between any two points on the surface of a sphere measured along a path on the surface of the sphere. The Earth can be approximated by a sphere with a radius of 6,366.71 km.
Payload
Payload shall be calculated using the following formula:
Payload (t) = mass of freight and mail (t) + mass of passengers and checked baggage (t)
Mass of freight and mail
Actual or standard mass contained in the mass and balance documentation established in accordance with the Chicago Convention for the relevant flights shall be used for calculating payload.
The actual freight and mail mass shall exclude the tare weight of all pallets and containers that are not payload, and the service weight.
The freight and mail mass over the reporting period shall be determined within a maximum uncertainty of no more than ±2.5%
Mass of passengers and checked baggage
Passengers booked on to a flight, but for whatever reason do not board the plane, shall be excluded from the determination of payload.
Aircraft operators may apply one of two different tiers to determine the mass of passengers. The aircraft operator may select as a minimum the Tier 1 level to determine the mass of passengers and checked baggage. Within the same trading period the chosen tier shall be applied to all flights.
Tier 1:
A default value of 100 kg for each passenger and his checked baggage is used.
Tier 2:
The mass for passengers and checked baggage contained in the mass and balance documentation for each flight is used.
Uncertainty assessment
The aircraft operator shall have an understanding of main sources of uncertainty when calculating tonne-kilometre data. A detailed uncertainty analysis is not required for the methodology of tonne-kilometre data determination.
Reporting
Aircraft operators shall use standardised templates for reporting their tonne-kilometre data. The competent authority may require the aircraft operator to use an electronic template for submission of the tonne-kilometre data report. The Commission may publish a standardised electronic template or file format specification. In this case the competent authority shall accept the use by the aircraft operator of this template or specification, unless the competent authorities’ template [is technically more advanced and] requires the same data input.
Tonne-kilometres shall be reported as rounded values of [t km] (for example 1 245 978 t km). All data per flight shall be used with all significant digits for calculation.
Content of the report on tonne-
Each aircraft operator shall include the following information in its report on tonne-kilometre data:
(1) data identifying the aircraft operator and the call sign or other unique designator used for air traffic control purposes, as well as relevant contact details;
(2) name and address of the verifier of the report;
(3) the reporting year;
(4) reference to and version number of the relevant approved monitoring plan;
(5) relevant changes in the operations and deviations from the approved monitoring plan during the reporting period;
(6) the aircraft registration numbers and types of aircraft used in the period covered by the report to perform the aviation activities carried out by the aircraft operator;
(7) chosen method for calculation of mass for passengers and checked baggage,
(8) total number of passenger kilometres and tonne-kilometres for all flights performed during the year to which the report relates;
(9) for each aerodrome pair: ICAO designator of the two aerodromes, distance (= great circle distance + 95km) in km, total number of flights per aerodrome pair in the reporting period, total number of passengers during the reporting period, total number of passenger x kilometres per aerodrome pair, total tonne-kilometres per aerodrome pair (t km).
Glossary
Aerodrome: A defined area on land or water, including buildings, installations and equipment, intended to be used either wholly or in part for the arrival, departure and surface movement of aircraft.
Air operator's certificate (AOC) - All commercial air transport operators must have a certificate under Part I of Annex 6 to the Chicago Convention.
Backwardation - A market is in backwardation when prices for futures with distant expiry dates are below prices for futures with closer expiry dates.
Banking of allowances - A mechanism whereby participants are able to exchange excess allowances or credits from one trading period for new allowances or credits for use in later trading periods.
Aerodrome: A defined area on land or water, including buildings, installations and equipment, intended to be used either wholly or in part for the arrival, departure and surface movement of aircraft.
Air operator's certificate (AOC) -
Commercial air transport operators - Commercial air transport operators must hold an air operator's certificate (AOC) under Part I of Annex 6 to the Chicago Convention. Operators without such a certificate are not “commercial air transport operators”
Contango -
Contango -
Central counterparty – A central counterparty guarantees execution of the buyer and seller's transfer orders but does not guarantee the performance of the transaction for either side. Moreover, central counterparties do not provide netting services that clearing houses provide.
Certified Emission Reduction (CER) - The unit of the Kyoto Protocol’s Clean Development Mechanism (CDM), equivalent to 1 metric tonne of CO2 equivalent.
Clean Development Mechanism (CDM) - Flexible mechanism under Article 12 of the Kyoto Protocol through which EU companies may finance greenhouse gas emission reduction or removal projects in developing countries and receive credits (CERs) for doing so. These credits may be used up to a certain limit for compliance purposes within the EU ETS.
Clearing house - A clearing house acts as guarantor of the transaction in case of default by either the buyer or seller. Moreover, clearing houses provide netting services that central counterparties do not provide such as daily margining services for futures transactions pending their maturity date. Clearing houses are better suited for payment and delivery in futures auctions which require the netting of such margins.
Clearing price – The price at which the quantity of allowances supplied in an individual auction is equal to the quantity demanded in that auction. All bidders who bid at more than the clearing price receive the allowances that they bid for.
Community independent transaction log (CITL) A log that records the issuance, transfer, cancellation, retirement and banking of allowances that take place in the EU ETS registry.
Default – The act of failing to meet an obligation, e.g. to pay for or deliver allowances.
Delivery date – The day on which allowances or credits must be delivered to the buyer.
Derivative - Futures and options contracts are called derivatives because while their value can diverge from the value of the underlying in the spot or cash market, the value of these contracts is nevertheless derived from the value of the underlying.
Early auctions - Auctions held prior to the relevant year in the trading period. An allowance which falls under the cap calculated e.g. for the year 2014 may be auctioned in 2012 or 2013.
Emission Reduction Unit (ERUs) – The unit of the Kyoto Protocol Joint Implementation (JI) flexible mechanism, equivalent to 1 metric tonne of CO2 equivalent.
EU allowances (EUAs) – The currency used in the EU ETS. One EUA can be surrendered with respect to 1 metric tonne of CO2 equivalent of verified emissions.
EU Aviation Allowances (EUAAs) – The currency used in the EU ETS which can only be used with respect to emissions from aircraft operators. One EUAA can be surrendered with respect to 1 metric tonne CO2 equivalent of verified emissions.
European carbon market – The market encompassing all trading of EU allowances and other carbon currencies such as CERs and ERUs in Europe be it through exchanges or OTC including all associated activities.
Exchanges - Organised markets for the buying and selling of financial instruments and/or commodities.
Flight - One flight sector, that is a flight or one of a series of flights which commences at a parking place of the aircraft and terminates at a parking place of the aircraft.
Forwards - A transaction between two parties to exchange a fixed volume of allowances against fixed payment at a future date. It is a direct, 'over-the-counter' (OTC) trade between two counterparties conducted bilaterally or through a broker.
Futures – A standardised, exchange-traded transaction to buy or sell allowances or credits at a designated future point in time at a price agreed upon today by the buyer and seller.
Futures auctions - Auctions of allowances in accordance with standardised terms and conditions to be delivered at some future date. Payment is deferred until delivery although buyers and sellers are subject to a margining system in the interim.
Futures position – The holding of futures commitments by an exchange participant.
Great Circle Distance is the shortest distance between any two points on the surface of a sphere measured along a path on the surface of the sphere
Hedge - Offset exposure to price risk. An electricity producer that, e.g. commits to supply electricity in two years time will have a need for the corresponding EUAs in two years. It may hedge the price risk in the carbon market by buying carbon futures that will guarantee the delivery of allowances at the time it needs them at a pre-determined price.
Hybrid approach – Where several auction processes are coordinated by one centralised clearing platform taking into account aggregate demand (all bids collected by the auctioneers) and aggregated supply (all EUAs auctioned by all auctioneers). So calculating the clearing price, resolving ties, managing the corresponding software and possibly collateral, payment and delivery would be carried out at a central level, whereas registering participants and collecting bids would be taken care of by several auction processes at a decentralised level
Initial margin call – The initial security payment made to an exchange's clearing house by the buyer and seller of futures in order to guarantee the eventual trade.
Intermediaries – Companies trading in EUAs or other products on behalf of, or in order to satisfy demand from others, in particular ETS operators.
Issuance date – The date by which freely allocated allowances are issued to ETS operators in a given year. The date by which Member States have to issue EU allowances is 28 February of each year.
Joint Implementation (JI) - Flexible mechanism under Article 6 of the Kyoto Protocol through which EU companies may finance greenhouse gas emission reduction or removal projects in other developed countries and receive credits for doing so (ERUs). These credits may be used up to a certain limit for compliance purposes within the EU ETS.
Kyoto credits – Emission reduction credits generated by Clean Development Mechanism or Joint Implementation projects under the Kyoto Protocol.
Long position – The holder of the position owns a commodity or rights to a commodity under a financial instrument and will stand to profit if the price of that commodity rises.
Lot size - Number of allowances associated with one unit of the auctioned product.
Margining system – A system designed to manage risks pertaining to futures. Under a margining system, the buyer and seller pay an initial margin call of 10% and daily variation margin calls in accordance with changes in the market price of the futures not covered by the 10% initial margin call until maturity of the futures. A margining system is managed by a clearing house.
Market maker – A person who holds himself out on the financial market on a continuous basis as being willing to deal on own account by buying and selling financial instruments against its proprietary capital at prices defined by him.
Maturity date – The date when a futures expires. The maturity date of futures is the date where settlement and delivery of the allowances is foreseen.
MRV - Monitoring, reporting and verification of tonne-kilometre data and emissions
National Allocation Plans (NAPs) - Member State plans with respect to the first or second trading periods determining the quantity of EU allowances to be issued by that Member State and the method of allocation, in particular with respect to free allocations to installations taking part in the EU ETS in that Member State.
New Entrants Reserve (NER) – A quantity of allowances set aside with respect to allocations for free to new installations that are established during the course of a trading period.
Non-competitive bids – Bids for a fixed quantity without specifying a price. Participants submitting and winning such bids pay the clearing price.
Over-the-counter (OTC) – Trading not mediated by an exchange but undertaken directly between the trading parties. OTC-trades are often facilitated by a broker.
Primary market – The primary market refers to auctions of EUAs and EUAAs. Primary issuance of allowances takes place in respect of free allocation (which is not a 'market') and in respect of auctioned allowances.
Reserve price - The minimum price the seller will accept at auction.
Secondary market - The market in which carbon units (EU allowances, CERs or ERUs) are traded after they are initially offered in the primary market. In the secondary carbon market an traders transact with each other rather than with an issuing authority.
Settlement date – The date on which a carbon trade is closed out through payment of the amount due.
Short position - The holder of the position owes obligations to deliver a commodity or financial instrument that it does not necessarily own at a future date at a pre-determined price. It stands to gain if the price of the commodity or financial instrument were to fall in the interim.
Single-round sealed-bid mode l – An auction design where bidders only have one time slot to submit bids which are submitted confidentially and opened simultaneously.
Spot futures – A futures trade with a maturity date only a few days after the contract date. Spot futures are regulated as financial instruments in the Markets in Financial Instruments Directive (MiFID), though in practice they have characteristics comparable to spot trades.
Spot - A transaction in which a commodity is bought or sold for immediate delivery or delivery in the very near future.
Spot auctions - Refer to auctions resulting in immediate or near immediate payment and delivery.
Spreads – The price difference between two defined assets.
Surrendering - The annual process whereby ETS operators submit EUAs to the appropriate national registry in order to comply with their obligations arising from emitting greenhouse gases. Verified emissions must be matched by an equal amount of allowances.
Surrendering date – The deadline for ETS operators to surrender allowances with respect to their emissions in a given year. This date is 30 April of the following year.
Trading period – EU allowances are valid for a specific multi-annual trading period. As from 2013 onwards, trading periods will last 8 years. The EU ETS does not have an annual 'vintage'. Sometimes, trading periods are also referred to as 'phases'.
Certified Emission Reduction (CER) -
Community independent transaction log (CITL) A log that records the issuance, transfer, cancellation, retirement and banking of allowances that take place in the EU ETS registry.
Default – The act of failing to meet an obligation, e.g. to pay for or deliver allowances.
Delivery date – The day on which allowances or credits must be delivered to the buyer.
Derivative -
EU allowances (EUAs) – The currency used in the EU ETS. One EUA can be surrendered with respect to 1 metric tonne of CO2 equivalent of verified emissions.
EU Aviation Allowances (EUAAs) – The currency used in the EU ETS which can only be used with respect to emissions from aircraft operators. One EUAA can be surrendered with respect to 1 metric tonne CO2 equivalent of verified emissions.
European carbon market – The market encompassing all trading of EU allowances and other carbon currencies such as CERs and ERUs in Europe be it through exchanges or OTC including all associated activities.
Exchanges -
Great Circle Distance is the shortest distance between any two points on the surface of a sphere measured along a path on the surface of the sphere
Hedge -
Initial margin call – The initial security payment made to an exchange's clearing house by the buyer and seller of futures in order to guarantee the eventual trade.
Intermediaries – Companies trading in EUAs or other products on behalf of, or in order to satisfy demand from others, in particular ETS operators.
Issuance date – The date by which freely allocated allowances are issued to ETS operators in a given year. The date by which Member States have to issue EU allowances is 28 February of each year.
Joint Implementation (JI) -
Long position – The holder of the position owns a commodity or rights to a commodity under a financial instrument and will stand to profit if the price of that commodity rises.
Lot size -
Market maker – A person who holds himself out on the financial market on a continuous basis as being willing to deal on own account by buying and selling financial instruments against its proprietary capital at prices defined by him.
Maturity date – The date when a futures expires. The maturity date of futures is the date where settlement and delivery of the allowances is foreseen.
MRV -
National Allocation Plans (NAPs) -
Non-
Over-
Reserve price -
Short position -
Spot futures – A futures trade with a maturity date only a few days after the contract date. Spot futures are regulated as financial instruments in the Markets in Financial Instruments Directive (MiFID), though in practice they have characteristics comparable to spot trades.
Spot -
Surrendering -
Trading period – EU allowances are valid for a specific multi-
AIRETS
Solutions for aircraft operators in the EU ETS
Solutions for aircraft operators in the EU ETS