To mark the launch of a new compliance service to support operators under the EU Emissions Trading System (ETS2) Swan Energy is sharing a series of informative articles to help our clients and others fully understand the scheme and their obligations. After sharing an introduction in our first update, in this second article we focus on the key information stakeholders need to know and who ETS2 impacts.
Who will ETS2 impact?
As mentioned in our previous article, ETS2 focuses on upstream emissions through regulating fuel suppliers rather than end users of the fuels regulated under the Directive. This includes:
- Fuel suppliers and distributors who supply fossil fuels regulated under the Directive to sectors covered by ETS2
- Fuel importers who import fuels into the regulated jurisdictions for consumption in sectors regulated by ETS2
- Potentially operators of small-scale combustion installations where they supply themselves with fuel
ETS2 Impact: What do ETS and ETS2 stakeholders both need to know?
Under ETS2, the responsibility for monitoring, reporting and surrendering allowances for emissions relating to fuel consumption within the buildings, road transport and additional (mainly small industrial) sectors is that of the Regulated Entities (REs) listed above. Therefore, no reporting obligations for the ETS2 lie with the end users.
However, what stakeholders of ETS need to know is that Operators are now required alongside their annual emissions reports to submit information on their fuel suppliers who are likely regulated under ETS2, including the type and volume of fuel supplied, the GHG factors applied and the resulting GHG emissions.
This information is crucial for the two ETS schemes to operate parallel to each other. This is because under ETS2, fuel suppliers are required to apply a scope factor when reporting emissions. This scope factor represents the percentage of total fuel placed on the market that is covered by ETS2, excluding any fuel already accounted for under ETS (i.e. fuel delivered to ETS installations). This mechanism prevents double counting and ensures that emissions are accurately attributed between the two systems.
Stakeholders, including those already classified as operators under ETS should also be aware of a key concern surrounding the implementation of ETS2 which is the potential rise in fuel prices driven by the additional carbon costs that REs will now bear. Other concerns include administrative complexity and potential overlaps with existing national carbon taxes.
To address some of these concerns, the European Commission has established the Social Climate Fund (SCF) to support a fair transition to climate neutrality through alleviating the social and economic impacts of ETS2. The basis of the fund is that it will provide EU Member States with funding for groups classified as the most ‘vulnerable’ (such as households in energy poverty). This is to ensure all stakeholders are supported throughout the transition to a greener society.
Another mechanism which is to be implemented alongside ETS2 to address stakeholder concerns is the Market Stability Reserve (MSR) (which is already in place for ETS). The MSR’s purpose is to stabilise the market if there is a surplus or insufficient number of emissions allowances that could hinder the success of the scheme and result in price volatility.
In the first three years of ETS2 operation, if the price of allowances rises above €45 (in 2020 prices, adjusted for inflation), additional allowances will be released from the MSR to help contain excessive price spikes. Releases may also occur if prices increase too quickly over a short period. The specific rules and conditions governing these interventions are outlined in the ETS Directive.
It is also essential that REs subject to ETS2 are fully aware of the key compliance dates associated with the scheme. While our next article in this series will explore these milestones in greater detail, the following provides a brief overview:
- 2025 – By 30th April, REs must submit their first (unverified) emissions report to the Competent Authority. This also marks the beginning of the verified emissions monitoring period.
- 2026 – By 30th April, the first verified emissions report is due. Additionally, the Social Climate Fund will become operational.
- 2027 – Full compliance obligations under ETS2 commence.
- 2028 – The requirement to surrender allowances for verified emissions begins.
What action should I be taking now to ensure compliance with ETS2?
At this stage, all REs should have submitted their monitoring plan, applied for an ETS2 permit, and submitted an emissions report for the 2024 reporting period. If any of these actions remain outstanding, it is essential that they are addressed without delay. Otherwise, you may face enforcement action.
As we are now midway through the 2025 reporting year, REs should begin engaging with verification bodies, as the 2025 emissions report will require independent verification prior to its submission in April 2026.
If you are experiencing difficulties in meeting any of the above requirements, Swan Energy is fully equipped to support you in achieving compliance with the ETS2 scheme, regardless of your current position in the process. To get in touch either email info@swanenergy.co.uk or call us on 01484 843 867.
For more information on the ETS2 scheme, keep your eyes peeled for our next article ‘How Will ETS2 Roll Out Between 2024–2030?’.
