The European Commission has adopted a decision establishing the EU-wide quantity of allowances to be issued during the fourth phase of the EU Emissions Trading System (ETS), running from 2021-2030. The sectors covered by the EU ETS must reduce their emissions by 43% compared to 2005 levels to achieve the EU’s 2030 greenhouse gas (GHG) emissions reduction target of at least 40% from 1990 levels.

The Commission Decision of 16 November 2020 considers the following aspects in the determination for the cap for 2021:

• A 0.46% increase of the linear reduction factor from 1.74 % to 2.2 %, which determines the amount by which the cap will decrease each year;
• The implications of the UK’s withdrawal from the EU, including that from 1 January 2021, the EU ETS Directive covers the emissions from electricity generation in Northern Ireland, while the emissions from the UK are no longer accounted for;
• The latest scientific data concerning the global warming potential (GWP) of GHGs; and
• The exclusion from the EU ETS of small installations by Croatia, France, Germany, Iceland, Italy, Portugal, Slovenia, and Spain.

According to an EU press release, the cap for 2021 does not include the quantity of allowances to be issued in respect of aircraft operators, which is “the result of a bottom-up approach starting from free allocation to aviation.”

Following the appointment of the European Energy Exchange as the EU ETS common auction platform from 2021, the EU expects to publish the 2021 auction calendars in December 2020. The auctions of phase 4 will start “from the first scheduled auction date in 2021” at the end of January or early February 2021.

According to the release, from 2021 onwards:

• Phase 3 and phase 4 allowances “will continue to exist in parallel”;
• Phase 4 allowances are not eligible to cover phase 3 emissions of compliance entities;
• Aviation allowances can be surrendered to meet the compliance obligations of aviation operators as well as stationary installations; and
• International credits, including certified emission reduction (CER) units that are generated from clean development mechanism (CDM) project activities under the Kyoto Protocol, can no longer be used in phase 4.

[EU Press Release on Start of Phase 4 of EU ETS] [EU Webpage on Revision for Phase 4] [Revised EU ETS Directive (Directive (EU) 2018/410)] [EU’s Climate and Energy Framework 2030]