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EU ETS 2 – how fuel suppliers are affected by the new rules
Do you sell or supply fuels for transport or for heating buildings? If so, you are affected by the EU's new emissions trading system. Christer Nilsson, audit manager at RISE, will tell you everything you need to know about ETS 2.
What does the new ETS 2 entail?
From 2027, the EU's new Emissions Trading System (ETS) will introduce new reporting, verification and cost responsibility requirements for carbon dioxide emissions. Unlike previous systems, ETS 2 is aimed at those upstream in the supply chain rather than end users.
To understand how the system could affect your business, we need to go back to 2005, when the Emissions Trading Scheme was first introduced. This was when the EU ETS (Emissions Trading Scheme) was introduced. Initially, it only covered industries and energy companies. Christer Nilsson, an audit manager at RISE, explains how it was set up:
– Put simply, an emission allowance entitles you to emit one tonne of carbon dioxide. Under the previous system, companies received free allowances based on their historical emissions. If they did not use all their allowances, they could sell the surplus. In the years leading up to the system's change, this generated significant revenue.
Lower emissions = lower costs
The EU ETS 2 directive represents a significant expansion of the original directive. It covers carbon dioxide emissions from road transport, commercial and public buildings, agriculture, forestry, and shipping. These sectors together account for 60 per cent of the EU's total emissions. Under ETS 2, companies that supply these sectors with fuel, including importers, suppliers and distributors, will be responsible for compliance with the rules.
ETS 2 does not offer any free allowances. Emissions are reduced when an operator sells more biofuels, blends more renewable fuel into fossil products, or switches to electricity or hydrogen. They then need to purchase fewer emission allowances, which reduces the cost. This creates an economic incentive that favours companies with a cleaner product mix, as they achieve better margins than companies that continue to emit carbon dioxide and therefore have to buy emission allowances, which will also become more expensive.
Do you need help verifying emissions reports?
RISE is an accredited and independent body that verifies emissions reports within the EU ETS. Contact us by filling out the form.
– Producers and suppliers of fuels will be required to keep track of their volumes and flows. Most of them probably already do this, but now the results must be reported in annual emissions reports and reviewed by an independent, accredited party, says Christer Nilsson.
Results must be reported in annual emissions reports and reviewed by an independent, accredited party.
How should emissions be reported correctly?
Anyone covered by EU ETS 2 must set up a monitoring plan. This plan acts as a guide for those carrying out checks. Before it can be used, the monitoring plan must be approved by the Swedish Environmental Protection Agency. The plan describes the fuels that the company will sell, how volumes will be measured and documented, and the amount of carbon dioxide that will be emitted per unit of fuel.
Every year, companies must enter their data into the Reporting Tool, an EU system. The figures in the Reporting Tool then form the basis of the report that we review. 'For many companies, getting to grips with this will be quite a journey,' says Christer Nilsson.
Put simply: Emission allowances must be purchased, and a monitoring plan must be drawn up and approved by the Swedish Environmental Protection Agency. Figures must also be entered into a digital system. Finally, an independent, accredited party must review the emissions report generated by the system.
RISE is a Swedish-accredited verifier that reviews and verifies emission reports for both ETS 1 and ETS 2. Once a report has been approved by RISE, the approval is entered into the Union Registry, which is a database for emission allowances.
What are the consequences of not meeting the requirements?
Anyone covered by ETS 2 who does not comply with the rules will face sanctions and will be banned from purchasing new emission allowances. In practice, this will result in the shutdown of operations. Christer Nilsson therefore recommends that affected companies make use of the information and training materials provided by the relevant Swedish authorities, such as the Swedish Environmental Protection Agency and the Swedish Energy Agency.
I think we can expect to continue learning how to understand and handle the rules over the next one, two or three years.
About ETS 2:
ETS 2 is the EU's new Emissions Trading Scheme. It is being introduced to reduce carbon dioxide emissions from sources such as road transport and buildings.
Decided: 2023
Start: 2027
Purpose: Lower emissions and accelerate the climate transition in more sectors.
Unlike the current EU ETS 1, ETS 2 does not directly cover industrial companies; rather, it covers fuel suppliers, who are expected to pass on the cost to industrial companies. This revenue will partly finance the EU's Social Climate Fund, supporting households and small businesses during the transition.
The EU ETS 2 scheme is a key part of the EU's 'Fit for 55' package, which aims to reduce emissions by at least 55 per cent by 2030 compared to 1990 levels.
