Certified emissions reduction (CER) allowances are the main form of offsetting in the EU Emissions Trading Scheme (EU ETS).

Emission Reduction


European Union Allowances are the main form of offsetting in the EU Emissions Trading Scheme (EU ETS). The EU ETS is a form of carbon emissions trading scheme, where emissions are capped, emission credits are allocated (market or auction) and carbon credits can be traded amongst account holders. This creates an environment where companies compete to reduce their emissions by meeting their emissions cap at the lowest price. EUA certificates are issued by the EU Member States into each Member State Registry accounts. By April 30th each year, installations in part of the EU ETS surrender an EU allowance for each tonne of carbon emitted in the previous year.


The EUA or Emission Allowance is defined in Article 3(a) of EU ETS Directive; “an allowance to emit one tonne of carbon dioxide during a specified period, which shall be valid only for purposes of meeting the directive and shall be transferable in accordance with the directive.

EUA certificates are connected to the European Union’s goal of achieving climate neutrality in the EU by 2050 and 55% reduction in GHG emissions by 2030. The majority of EUA trading takes place on exchanges such as the Intercontinental Exchange (ICE) which is the most liquid for EUA trading. The EUA trading system works on a ‘cap and trade’ principle. Companies receive or buy emission allowance within the cap and trade with one another.

Total allowances are limited and if a company emits more in a year than its allowances then it pays heavy fines (€100/excess tonne) This in effect gives a maximum price for EUA certificates, but companies still need to pay for EUAs from year before so EUA prices can still pass this €100 barrier. Each year the free allocation of allowances drops, for instance the manufacturing industry received 80% free allowances in 2013 and in 2020 only received 30%. Power generators do not receive any free allowances and must buy their own.

EUA December contracts have the highest liquidity of all the months, spot and quarterly contracts are also available with monthly contracts. Method for allocating these contracts when no allocating them for free is auctioning. This is governed by EU ETS, to show an open, transparent, harmonized non-discriminatory market. They are auctioned on European Energy Exchange (EEX) and ICE Future Europe (ICE). Decreasing free allowances coincides with increasing EUA auction volumes. Between 2020 57% of EUAs were auctioned.

Macht Renewables is a sustainable solution company based in London, serving clients across the UK and around the world. As experts in ESG and sustainability, we’re passionate about helping our clients achieve their sustainability goals.

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