In this, our concluding article about ETS2, to mark the launch of our ETS2 service, we explore how some Competent Authorities have submitted notifications to the European Commission seeking exemptions from the ETS2 allowance surrender obligations for fuels under the carbon tax regime. This article focuses specifically on the case of Ireland.
In December 2023, under Article 30e(3) of Directive 2023/959, Ireland (through the Department of the Environment, Climate and Communications acting on behalf of the Environmental Protection Agency (EPA)) submitted a formal notification to the European Commission requesting a derogation from the surrender of ETS2 allowances for the 2027–2030 period, relating to emissions from buildings, road transport, and other small-scale industrial sectors.
The purpose of this notification is to support Regulated Entities (REs) that are already subject to carbon pricing through Ireland’s existing tax regime, which is aligned with the Energy Taxation Directive (Directive 2003/96/EC). This includes the Natural Gas Carbon Tax and the Solid Fuel Carbon Tax, which apply a carbon price to fuel use in sectors covered by ETS2.
Ireland’s rationale for the derogation request is based on the provision in Directive (EU) 2023/959 that allows Member States to seek an exemption where a national carbon tax rate applied to fuels equals or exceeds the average ETS2 auction price. In such cases, and provided specific conditions are met, REs should not be required to surrender ETS2 allowances for the same emissions.
Ireland further emphasised that imposing both the national carbon tax and ETS2 obligations would create overlapping regulatory requirements, leading to duplicative costs for REs and, ultimately, higher costs for consumers. The proposed exemption is intended to ensure policy coherence and streamline carbon pricing mechanisms.
The decision on this derogation request is still pending from the European Commission, however, should the derogation be granted this would not remove the monitoring, reporting and verification (MRV) obligations required by REs regulated under the ETS2 within Ireland. It would solely mean that REs who pay for their carbon emissions under the carbon tax within Ireland would not need to surrender allowances within the transitional phase.
If you are an Regulated Entity in Ireland and have any questions about ETS2 Allowance Surrender Obligations and how this this derogation request may impact you, please contact us by emailing info@swanenergy.co.uk or call us on 01484 843 867.
If you would like further information on the ETS2 scheme, check out our Know How page which answers commonly asked questions.
