The European Union emissions trading system sets a declining cap on greenhouse gas emissions. Participating installations must monitor their emissions and surrender allowances each year equal to what they emitted; anyone short must buy in.
Legal basis
Directive 2003/87/EC provides the basis, as revised under the Fit for 55 package. In the Netherlands the regime is contained in title 16.2 of the Environmental Management Act, with the Dutch Emissions Authority as competent authority. The system covers energy-intensive industry, electricity generation and aviation, and since the revision also maritime transport. A second system, ETS2, will apply to fuels supplied for buildings, road transport and small industry, with a start foreseen from 2027. In addition the carbon border adjustment mechanism, CBAM, entered its definitive phase on 1 January 2026, requiring importers of iron and steel, cement, aluminium, fertilisers, hydrogen and electricity to surrender certificates.
How it works in practice
A participating installation needs an emissions permit and an approved monitoring plan. Each year a verified emissions report is filed, after which allowances must be surrendered by 30 September. Free allocation still exists for sectors at risk of carbon leakage but is being phased out as CBAM is phased in. The penalty for a shortfall is substantial and does not extinguish the obligation: the allowances must still be surrendered.
Where it goes wrong
Changes to the installation are not reported, so the monitoring plan no longer matches reality and the verifier raises objections. A second error is buying too late in a market with volatile prices. Third, importers underestimate the administrative side of CBAM, which requires data from foreign producers throughout the chain.
Related terms
Emissions trading connects to the guarantee of origin, the SDE subsidy and the energy label.
Does your installation or import fall within the system? Our energy lawyers map the obligations.
