The EU ETS (Emissions Trading System) is the European system for trading emission allowances, in operation since 2005 and now in its fourth phase (2021–2030). It sets a cap on emissions that decreases every year: those covered must surrender one allowance (EUA) for every tonne of CO2 equivalent emitted. According to the verified 2025 data, published by the Commission on 10 April 2026, emissions in the sectors covered have halved since 2005.
Who is covered
Electricity and heat generation, energy-intensive industry (refineries, steel, aluminium and other metals, cement, lime, glass, ceramics, paper, basic chemicals), aviation and, since 2024, maritime transport.
The cap-and-trade mechanism
Allowances are mainly sold at auction; industry exposed to the risk of carbon leakage receives part of them for free, on the basis of benchmarks. Since 2019 a market stability reserve has withdrawn allowances from auctions when those in circulation exceed 1,096 million, to absorb the surplus.
The phases
| Phase | Period | Features | Annual reduction of the cap |
|---|---|---|---|
| 1 | 2005–2007 | Pilot phase, CO2 only, mostly free allowances | — |
| 2 | 2008–2012 | First Kyoto commitment period, lower cap, aviation from 2012 | — |
| 3 | 2013–2020 | Single EU-wide cap, auctioning as the default method | 1.74% |
| 4 | 2021–2030 | Tighter cap, maritime transport from 2024 | 2.2% from 2021; 4.3% in 2024–2027; 4.4% from 2028 |
What has changed and what is changing
- Maritime transport. Since 2024 ships of 5,000 gross tonnage and above are included, with a phased-in surrender obligation: 40% of 2024 emissions, 70% of 2025 emissions, 100% from 2026 emissions.
- CBAM. The Carbon Border Adjustment Mechanism has been in its definitive regime since 1 January 2026. It concerns cement, iron and steel, aluminium, fertilisers, electricity and hydrogen. Those importing more than 50 tonnes a year of these goods (the threshold does not apply to electricity and hydrogen) must hold the status of authorised CBAM declarant. Certificates are sold from 1 February 2027; the first annual declaration, on 2026 imports, must be submitted by 30 September 2027.
- ETS2. It is a separate system for fuels used in buildings, road transport and additional sectors, mainly small industry outside the ETS. The obligations fall on fuel suppliers, not on final consumers. Monitoring started in 2025; the operational start, planned for 2027, was postponed to 2028 by Regulation (EU) 2026/667.
- Revision. On 17 July 2026 the Commission proposed a targeted revision of the ETS, now before Parliament and Council. The rules described here are those in force as of October 2026.
For a business: what to look at
When it concerns your business
- Installation subject to the ETS: monitoring, reporting and surrender of allowances are direct obligations; in the sectors covered by the CBAM free allocations decrease as the CBAM is phased in.
- Business not subject to it: the cost of allowances weighs on those generating electricity from fossil sources and tends to be reflected in the price of energy; from 2028, with ETS2, it will also reach gas and fuels through suppliers.
- Importer: those buying the goods listed above outside the EU are liable for the CBAM obligations.
What is needed
- checking whether the installations fall within the ETS activities and thresholds;
- the list of non-EU purchases with customs code and annual weight, to be compared with the 50-tonne threshold;
- annual gas and fuel consumption, to estimate exposure to ETS2;
- the clauses of supply contracts governing the pass-through of CO2 costs.
Typical mistakes
- believing that the ETS concerns only large industry;
- assuming the foreign supplier takes care of the CBAM: the obligation lies with the importer or its indirect customs representative;
- signing multi-year gas supplies without clarifying how the ETS2 cost will be treated.
What can and cannot be claimed
Surrendering ETS allowances or CBAM certificates is a legal obligation: it is not an offset and does not make a product "neutral". Emissions subject to the ETS remain in the Scope 1 of the carbon footprint.
The trend of EUA allowances is among the market indices; reading the exposure to CO2 costs is part of the energy sustainability service for businesses.
If you want to understand how much ETS, ETS2 and CBAM affect your company's energy costs, IPGS ENERGY analyses it as a consultant, not as a supplier: Request a conversation.
Sources
- European Commission — EU Emissions Trading System (EU ETS) (accessed 10 October 2026)
- European Commission — About the EU ETS (accessed 10 October 2026)
- European Commission — Scope of the EU ETS (accessed 10 October 2026)
- European Commission — EU ETS emissions cap (accessed 10 October 2026)
- European Commission — Market Stability Reserve (accessed 10 October 2026)
- European Commission — Development of EU ETS (2005-2020) (accessed 10 October 2026)
- European Commission — EU Emissions Trading System sustains downward trend in covered emissions (accessed 10 October 2026)
- European Commission — Reducing emissions from the shipping sector (accessed 10 October 2026)
- European Commission — ETS2: buildings, road transport and additional sectors (accessed 10 October 2026)
- European Commission — Carbon Border Adjustment Mechanism (accessed 10 October 2026)
- EUR-Lex — Regulation (EU) 2025/2083 (accessed 10 October 2026)
- EUR-Lex — Regulation (EU) 2026/667 (accessed 10 October 2026)
Informational content by IPGS ENERGY. Information is reviewed as of the stated update date and does not replace a contractual, tax or regulatory assessment specific to an individual business.
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