Emission allowances and the EU ETS: rules, duties and changes

The EU Emissions Trading System (EU ETS) is the most important European climate instrument with direct consequences for business. One allowance confers the right to emit one tonne of CO2. The total number of allowances falls every year. Any operator caught by the system needs a permit, must have its emissions verified and must surrender enough allowances each year. The Dutch Emissions Authority (Nederlandse Emissieautoriteit) supervises the system and enforces it strictly.

The short answer

• The EU ETS has been in place since 2005 and rests on Directive 2003/87/EC.
• The ETS sectors must cut their emissions by 62 per cent by 2030 compared with 2005.
• In the Netherlands some 350 companies fall under the stationary ETS, plus around 2,000 ships since 2024.
• The verified emissions figure must be entered in the registry by 31 March at the latest; allowances may be surrendered up to and including 30 September.
• Surrendering too few allowances triggers a fixed penalty of EUR 100 per tonne, indexed.
• Free allocation for CBAM sectors is phased out from 2026 and reaches zero in 2034.
• A second system for buildings and road transport (ETS2) has been postponed from 2027 to 2028.

How the EU ETS works

The system operates on a cap-and-trade principle. The European Union sets a ceiling for the total emissions of the installations covered. Allowances are issued within that ceiling.

The cap falls each year by a linear reduction factor. That factor is 4.3 per cent per year from 2024 up to and including 2027. From 2028 up to and including 2030 it is 4.4 per cent. This creates scarcity, and scarcity creates a price.

Companies obtain allowances in two ways. Part of the volume is auctioned. Part is allocated for free on the basis of benchmarks, in order to limit carbon leakage to countries outside the EU. Electricity producers must in principle buy all their allowances.

Allowances are tradable. A company that reduces more than it needs to may sell the surplus. For the purposes of financial regulation, emission allowances are classified as financial instruments, which has consequences for anyone trading in them professionally.

Who is covered

The stationary ETS applies to large industrial installations above certain thresholds. Think of electricity generation, refineries, steel, cement, lime, glass, ceramics, paper and parts of the chemical industry.

There are two extensions on top of that. Aviation within the European Economic Area has been covered since 2012. Since 2024 large seagoing vessels are covered as well. In 2025 shipping companies surrendered allowances for their emissions for the first time.

If your installation is covered, an emissions permit is mandatory. That permit sits alongside the permits required under environmental and planning law and the obligations arising from environmental law.

Monitoring, reporting and verification