EU carbon rules / Regulations / EU ETS Directive
Foundational carbon pricing text setting the cap, scope and trading system
This regulation applies to:
This Directive is the founding directive of the EU Emissions Trading System (EU ETS); since 1 January 2005 it has required activities listed in Annex I to hold a greenhouse gas emissions permit.
The following provisions define its scope:
Article 1 — Subject matter
This Directive establishes a scheme for greenhouse gas emission allowance trading within the Community (hereinafter referred to as the ‘Community scheme’) in order to promote reductions of greenhouse gas emissions in a cost-effective and economically efficient manner.
Article 2 — Scope
1. This Directive shall apply to emissions from the activities listed in Annex I and greenhouse gases listed in Annex II. 2. This Directive shall apply without prejudice to any requirements pursuant to Directive 96/61/EC.
| Duty | Trigger | Evidence | Timing |
|---|---|---|---|
| Obtain a greenhouse gas emissions permit Before operating an installation covered by the ETS, obtain a GHG emissions permit from the competent authority of the Member State and draw up a monitoring plan. | Operating an activity listed in Annex I to the ETS Directive (power generation, energy-intensive industry, aviation, etc.) | GHG emissions permit, monitoring plan | Obtained before operation; valid on a continuing basis |
| Monitor and report annual emissions Calculate in accordance with the MRR and submit an annual emissions report after verification by an accredited verifier. | Each operating year in which an emissions permit is held | Monitoring methodology document, verified annual emissions report (AVR) | Submitted by 31 March of the following year |
| Surrender a sufficient number of allowances Surrender EUAs equal to annual emissions; in case of a shortfall, a penalty of €100/t applies and the allowances must still be surrendered. | Annual emissions verified and confirmed | Allowance account surrender records, cancellation certificate | By 30 September of the following year |
DIRECTIVE 2003/87/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL
Article 1 — Subject matter
This Directive establishes a scheme for greenhouse gas emission allowance trading within the Community (hereinafter referred to as the 'Community scheme') in order to promote reductions of greenhouse gas emissions in a cost-effective and economically efficient manner.
Article 4 — Greenhouse gas emissions permits
Member States shall ensure that, from 1 January 2005, no installation undertakes any activity listed in Annex I resulting in emissions specified in relation to that activity unless its operator holds a permit issued by a competent authority in accordance with Articles 5 and 6, or the installation is temporarily excluded from the Community scheme pursuant to Article 27.
Article 6(2)(e) — Contents of the permit
an obligation to surrender allowances equal to the total emissions of the installation in each calendar year, as verified in accordance with Article 15, within four months following the end of that year.
Article 12(3) — Surrender of allowances
Member States shall ensure that, by 30 April each year at the latest, the operator of each installation surrenders a number of allowances equal to the total emissions from that installation during the preceding calendar year as verified in accordance with Article 15, and that these are subsequently cancelled.
Article 14(3) — Reporting of emissions
Member States shall ensure that each operator of an installation reports the emissions from that installation during each calendar year to the competent authority after the end of that year in accordance with the guidelines.
Article 16(3) — Excess emissions penalty
Member States shall ensure that any operator who does not surrender sufficient allowances by 30 April of each year to cover its emissions during the preceding year shall be held liable for the payment of an excess emissions penalty. The excess emissions penalty shall be EUR 100 for each tonne of carbon dioxide equivalent emitted by that installation for which the operator has not surrendered allowances.
DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Directive 2003/87/EC and Decision (EU) 2015/1814 as regards driving competitiveness and cost-effective decarbonisation
Proposed amendment to Article 9 — linear reduction factor from 2031
The linear factor shall be 3.7% from 2031 to 2035 and 1.7% from 2036.
Proposed amendment to Article 10a(1a) — CBAM factor phase-out schedule
The CBAM factor shall be equal to 100 % for the period between the entry into force of that Regulation and the end of 2025 and, subject to the application of provisions referred to in Article 36(2), point (b), of that Regulation, shall be equal to 97,5 % in 2026, 95 % in 2027, 91.5 % in 2028, 81 % in 2029, 59% in 2030, 48% in 2031, 37,5% in 2032 and 27% in 2033, 15% from 2034 to 2037. From 2038, a CBAM factor of 0 % shall apply.
New Article 9b(1) — funding for international credits
Up to 260 million allowances from the Union-wide quantity of allowances referred to in Article 9 shall be made available to the facility for the purchase of up to 260 Mt of high quality and high integrity international credits, out of the international credits provided in Regulation 2021/1119/EU, to contribute to the climate ambition of the activities listed in Annex I from 2036 to 2040. All purchases shall be subject to the criteria of Regulation 2021/1119/EU being fulfilled.
New Article 10a(3b) — Invest in EU decarbonisation plan as condition for free allocation
For each five-year period for free allocation referred to Article 11, the decarbonisation investments referred to in point (a) shall correspond to a volume at least equivalent to the economic value of 100% of the amount of free allocation under the relevant five-year period. These decarbonisation investments shall qualify as eligible costs, be implemented in the EU and lead to significant emissions reduction at the level of the installation within the relevant five-year period for which that installation is applying for free allocation
COM 2026 616 ETS review part2
Annex I — inclusion of municipal waste incineration from 2031
Annex I to Directive 2003/87/EC is amended to add installations for the incineration or co-incineration of municipal waste, applying from 1 January 2031 to non-hazardous waste with a capacity exceeding 3 tonnes per hour, excluding chemical recycling. The Commission must, by 31 July 2029, report on landfill registry and BAT conditions; where those conditions are met the installations are covered from 1 January 2031, otherwise the obligations under Articles 14 and 15 apply from 1 January 2034. — Reference: COM(2026) 616 Annex I(1).
Annex I — maritime coverage of methane and nitrous oxide; aviation from 2029
For maritime transport, greenhouse gases are expanded to include methane and nitrous oxide from 1 January 2026, with distinct activity descriptions for 2026-2030 and from 2031. For aviation, the scope is extended from 1 January 2029 to flights departing from a Member State, with derogations for operators whose annual emissions are below 1 000 tonnes and, for two different countries, below 10 000 tonnes. — Reference: COM(2026) 616 Annex I(1).
Annex II — dynamic Market Stability Reserve parameters (2028-2040)
Decision (EU) 2015/1814 is amended to introduce dynamic MSR parameters with an annual reduction, from 2028 to 2040. For example, the total number of allowances in circulation (TNAC) upper buffer declines from 947 to 580 million allowances, the upper threshold from 833 to 510, the lower threshold from 400 to 245, the lower buffer from 300 to 184 and the release rate from 100 to 61 million allowances. — Reference: COM(2026) 616 Annex II.
COMMISSION IMPLEMENTING REGULATION (EU) 2018/2066
Article 4 — General obligation
Operators and aircraft operators shall carry out their obligations related to the monitoring and reporting of greenhouse gas emissions under Directive 2003/87/EC in accordance with the principles laid down in Articles 5 to 9.
Article 12(1) — Monitoring plan
Each operator or aircraft operator shall submit a monitoring plan to the competent authority for approval. The monitoring plan shall consist of a detailed, complete and transparent documentation of the monitoring methodology of a specific installation or aircraft operator and shall contain at least the elements laid down in Annex I.
Article 19(2) — Categorisation of installations
The operator shall classify each installation in one of the following categories: (a) a category A installation, where the average verified annual emissions ... are equal to or less than 50 000 tonnes of CO2(e); (b) a category B installation ... more than 50 000 tonnes of CO2(e) and equal to or less than 500 000 tonnes of CO2(e); (c) a category C installation ... more than 500 000 tonnes of CO2(e).
Article 20(1) — Monitoring boundaries
Operators shall define the monitoring boundaries for each installation. Within those boundaries, the operator shall include all relevant greenhouse gas emissions from all emission sources and source streams belonging to activities carried out at the installation and listed in Annex I to Directive 2003/87/EC.
COMMISSION IMPLEMENTING REGULATION (EU) 2018/2067
Article 7(1) — General obligations of the verifier
The verifier shall carry out the verification and the activities required by this Chapter with the aim of providing a verification report that concludes with reasonable assurance that the operator's or aircraft operator's report is free from material misstatements.
Article 7(3) — Independence
The verifier must carry out verification in the public interest, and be independent of the operator or aircraft operator and the competent authorities responsible for Directive 2003/87/EC.
Article 8(1) — Pre-contractual obligations
Before accepting a verification engagement, a verifier shall obtain a proper understanding of the operator or aircraft operator and assess whether it can undertake the verification. For this purpose the verifier shall at least: ... (c) assess whether the engagement falls within the scope of its accreditation.
Article 10(1) — Information from the operator
Before the strategic analysis and at other points of time during the verification, the operator or aircraft operator shall provide the verifier with all of the following: (a) the operator's greenhouse gas emissions permit ...; (b) the latest version of the operator's or aircraft operator's monitoring plan as well as any other relevant versions of the monitoring plan approved by the competent authority.
COMMISSION STAFF WORKING DOCUMENT
Section 1 — the 2040 target and the role of international credits
The EU has a legally binding target of a 90% reduction in net greenhouse gas emissions by 2040, set by amending Regulation (EU) 2021/1119, compared with 1990. The target includes the possibility to use a limited quantity of high-quality international credits to make an adequate contribution from 2036; this can be up to 5% of 1990 EU net GHG emissions, corresponding to a domestic reduction of net GHG emissions of at least 85% by 2040. — Reference: SWD(2026) 617, section 1.
Section 4 — chosen option and the Industrial Decarbonisation Bank
The impact assessment examines three policy options and selects, as the preferred combination, a cost-effective cap trajectory combined with continued free allocation and reformed MSR parameters. It establishes an Industrial Decarbonisation Bank endowed with EUR 100 billion, focused on scaling up and rolling out mature technologies to complement the Innovation Fund, and integrates domestic permanent carbon removals into the ETS through the public sector. — Reference: SWD(2026) 617, section 4.
Carbon leakage, CCU and interactions with international measures
The assessment examines the interaction of the ETS with international carbon pricing, including the deduction of emissions already priced under the IMO measure in maritime transport and the deduction of CORSIA offsetting costs in aviation to avoid double pricing. It also considers the point at which carbon captured and used (CCU) is accounted for, with CCU credited downstream for products and, for e-fuels, at the level of the fuel distributor. — Reference: SWD(2026) 617.