In Sweden it’s sometimes suggested that one way for companies and individuals to ”offset” their emissions is to buy EU emission allowances (utsläppsrätter). Not so in other countries.
Why not? because purchasing emission allowances doesn’t have a direct impact on emissions. The FAQs below explain why.
What is an emission allowance?
One EU emission allowance permits emission of one tonne CO2e of a greenhouse gas.
Who buys emission allowances?
Companies that have sites which emit large volumes of greenhouse gases, such as oil refineries, steel processors and cement producers, and whose emissions exceed their annual allocation of EU allowances. And financial institutions.
How many sites are covered by the system?
c.12 000 stationary installations and 1300 aircraft operators.
How many allowances are distributed by the EU?
In 2015 c.900 million allowances were distributed for free and another 630 million allowances were sold by auction (EEX). The volumes decrease each year.
Where are EU allowances bought and sold?
In a primary market in which allowances are auctioned off by the EU and in a secondary market in which companies (both those with large volumes of emissions and financial services companies) trade between each other.
How many allowances are traded each day?
4 million allowances are auctioned off by the EU each day. In the secondary market 40 000 allowances are sold and bought each day.
What does an emission allowance cost?
Over the last year prices in the auctions and in the secondary market have been €4-6.5.
What do I get if I buy some EU emissions allowances?
The buyer gets a paper which they can either sell or keep. As long the paper is kept, then the allowances cannot be used by a company.
What’s the impact if I purchase EU emission allowances?
In theory any purchase affects the market price. If demand remains constant then any purchase should increase the price so the cost to companies needing to buy allowances would increase. But the market is so large (over 4 million allowances are traded each day) that the impact of purchases of 100 or even 10 000 allowances will be negligible.
Will my purchase result in a company reducing its emissions?
This was the aim of the system when it was designed 15 years ago but sadly there is no direct connection between purchases of allowances and emission reductions.
Emissions reductions will only happen if
a) companies are allocated fewer allowances than they need
b) the price per allowance is higher than the cost for companies to invest to reduce their emissions by one tonne.
Unfortunately the number of free and cheap auctioned allowances exceeds companies’ needs. And the market price would need to be much, much higher – around 30 euros – for companies to have a price incentive to invest in reductions.