CO2 certificate trading

The EU Emissions Trading Scheme (EU ETS) has been in force since 2005 and was set up to meet the commitments to reduce greenhouse gas emissions under the Kyoto Protocol (1997). It is largely based on Directive 2003/87/EC and is proving effective: around 15.4% of the reduction in emissions in the EU from 2005 to 20201 is attributable to it.

The system is based on the cap and trade approach:The EU sets an upper limit (cap) for annual emissions and only a corresponding number of certificates are issued. The certificates are issued on the primary market via free allocation or auctioning against payment. Companies may only emit as much CO₂(-equivalents) as their certificates allow. If their emissions exceed the quantity of available allowances, they must buy some on the secondary market. If they emit less, they can sell surplus certificates. This creates a financial incentive to invest in climate protection and reduce emissions, as there is a risk of monetary sanctions if insufficient certificates are surrendered.

The 27 EU member states as well as Norway, Iceland and Liechtenstein (EU 30) fall within the scope of application. The energy generation sector, energy-intensive industries, aviation and, more recently, maritime transport (as part of the EU's "Fit for 55" package) are affected. From 2027, a separate system for the transport and heating sectors will be added with EU ETS 2, for which the placing of fossil fuels on the market is decisive and an upstream approach is pursued.

A key challenge is the phenomenon of carbon leakage: Companies could relocate their production to countries without comparable CO₂ pricing. This would not reduce emissions globally, but only shift them. In addition, the costs of emissions-intensive production abroad would be reduced. In order to prevent carbon leakage the EU introduced the introduced the Carbon Border Adjustment Mechanism (CBAM). This is intended to compensate for price differences by imposing a CO₂ levy on importers and thereby achieving a price that is comparable to the European product.

The EU ETS is regarded as the EU's central climate protection instrument and enjoys a high level of political acceptance.

Current research project

At the Institute for Sustainability, Corporate Law and Reporting (INUR), several research assistants are conducting research on CO2 certificate trading. Among other things, two scientific publications are in the process of being produced: 

One article will deal with the more general issues of CO2 certificate trading. In addition to the legal basis at European and national level, the paper will examine in particular whether certificate trading is or can be "the one" right means of climate protection and what other regulatory means could be considered. Among other things, the CO2 tax/climate tax, climate care obligations and quotas as well as CBAM will be discussed. 

Another article deals with the practical issue of CO2 accounting. CO2 certificates are held by the company on the secondary market after issue or purchase by the company and have a nominal value that can and must be shown in the balance sheet. This raises a variety of questions relating to recognition, valuation and subsequent valuation as well as legally interesting discussions between specialist organizations and ministries.