Defining the scope and coverage of an ETS implies decisions on which greenhouse gases and sectors should be included in the scheme, and what the minimum size (threshold) should be for the emitters involved. Moreover, the point of regulation, referred to in terms of upstream and downstream, determines the point in a supply chain that is targeted by an ETS. In theory, the broader the scope of an ETS and the more comprehensive its coverage, the higher its environmental effectiveness and economic efficiency. In practice, certain limitations, like which parts of a supply chain have the best abatement options, may affect feasibility, fairness, and the appropriate incentives.

Carbon dioxide (CO) is the most common greenhouse gas and is therefore usually the first gas covered in an ETS. When other gases, like methane (CH4), nitrous oxide (NO), or fluorinated gases (SF6, HFC, PFC, etc.) are included in a system, CO2 still serves as the point of reference and is the gas against which others are measured, expressed in terms of tons of carbon dioxide equivalents (COe). In some sectors, such as electricity and large industry, emissions are easier to measure and account for than in others, which makes them the most feasible for initial inclusion in an ETS. Other sectors like agriculture or transport may then follow at a later stage or be addressed by other measures. Minimum size thresholds in a sector determine when an installation must participate in an ETS, based on its emissions, units of production, or installed capacities. Limiting the number of covered entities to larger ones reduces administrative burdens in system management and can help avoid disproportionately high transaction costs for smaller businesses. An ETS that covers a variety of gases, sectors, and installations with a range of different abatement options fosters competition and thus decreases overall mitigation costs.

Determining the point of regulation means deciding where along a supply chain actors should be held responsible for their emissions. This involves weighing the feasibility of measuring emissions of different actors, the number of actors, and their ability to mitigate their emissions. Upstream regulation focuses on implied emissions from natural resource extraction, such as coal mining or oil extraction, even if these are not burned at that point. Downstream regulation addresses the end users on the supply chain, such as consumers. Usually, it is most effective to regulate actors with the greatest control over their abatement options; often, this is at the point where the gases are actually emitted, for instance at a power plant or steel mill, rather than the embedded or indirect emissions involved in a product either upstream or downstream.

Back to Top
Illustration
Emissions covered by the ETS GHG covered Sectors covered and thresholds
Canada - Ontario Cap-and-Trade Program

CO2, CH4, SF6, N2O, NF3 and other fluorinated GHGs.

Phase I (2017-2020):

Industrial and large commercial operators including manufacturing, base metal processing, steel, pulp and paper, food processing and facilities, with annual emissions > 25,000 tCO2e.

Electricity: domestic electricity generation based on fuel combustion covered at the fuel distribution level, while the compliance obligation for electricity imports rests with the importer.

Transportation fuel distributors (including propane and fuel oil) for those entities that first place more than 200L of fuel annually into the Ontario market.

Natural gas distributors with annual emissions greater than 25,000 tCO2e and operating at the point where the gas is moved from the pipeline into the distribution network for Ontario consumers.

Institutions: Entities with annual emissions > 25,000 tCO2e.

Facilities emitting between 10,000-25,000 tCO2e per year may voluntarily opt-in.

Canada - Québec Cap-and-Trade System

CO2, CH4, N2O, SF6, HFCs, PFCs, NO3 and other fluorinated GHGs

First compliance period (2013-2014): Electricity, Industry (>25,000 CO2e/year).

Second compliance period (2015-2017) and third compliance period (2018-2020): Sectors of first compliance period alongside the distribution and importation of fuels used for consumption in the transport and building sectors, as well as in small and medium-sized businesses.

Inclusion Thresholds: >25,000 tCO2e/year. As of 2016, fuel distributors that have distributed 200L or more of fuel (in 2015) are also subject to inclusion even if the combustion of their fuel has resulted in the emission of less than 25,000 tCO2e.

China - Beijing pilot system

CO2

Industrial and non-industrial companies and entities, including electricity providers, heating sector, cement, petrochemicals, other industrial enterprises, manufacturers, service sector, and public transport.

Inclusion thresholds: 5,000t CO2/year, considering both direct and indirect emissions.

Mandatory reporting: 2,000 tons of standard coal equivalent energy consumption/year.

China - Chongqing pilot system

CO2, CH4, N2O, HFCs, PFCs, SF6

Power, electrolytic aluminum, ferroalloys, calcium carbide, cement, caustic soda, and iron and steel.

Inclusion threshold: 20,000t CO2e/year.

China - Fujian pilot system

CO2

Electricity, petrochemical, chemical, building materials, iron and steel, nonferrous metals, paper, aviation, and ceramics.

Inclusion thresholds:  energy consumption 10,000 tons of coal equivalent (tce)/year for any year between 2013-2015

China - Guangdong pilot system

CO2

Four existing compliance sectors: power, iron and steel, cement, and petrochemicals

Three new compliance sectors added in 2016: aviation, paper and white cement

Reporting sectors: ceramics, textiles, non-ferrous metals, and chemicals

Inclusion thresholds: 20,000 t CO2/year or energy consumption 10,000 tons coal equivalent (tce)/year

China - Hubei pilot system

CO2

Power and heat supply, iron and steel, non-ferrous metals, petrochemicals, chemicals, chemical fiber, cement, glass and other building materials, pulp and paper, ceramics, automobile and general equipment manufacturing, food, beverage and medicine producers.

Inclusion threshold: Annual energy consumption more than 10,000 tons coal equivalent (tce) in any year between 2013 and 2015 for the power, steel, non-ferrous, chemicals, petrochemicals, building materials and pulp and paper sectors and 60,000 tce for the rest of the sectors.

China - Shanghai pilot system

CO2

The following sectors are covered: airports, aviation, chemical fiber, chemicals, commercial, power and heat, water suppliers, commercial, hotels, financial, iron and steel, petrochemicals, ports, shipping, non-ferrous metals, building materials, paper, railways, rubber, and textiles.

Inclusion thresholds: 

For power and industry:
20,000t CO2/year or 10,000 tons coal equivalent (tce)/year; and those already participated in 2013-2015 phase with 10,000 CO2/year or 5,000 tce/year.

For transport: 10,000t CO2/year or 5,000 tce/year (aviation and ports), 100,000t CO2/year or 50,000 tce/year (shipping), considering both direct and indirect emissions.

For buildings: 10,000 CO2/year or 5,000 tce/year.

China - Shenzhen pilot system

CO2

Power, water, gas, manufacturing sectors, buildings, port and subway sectors, public buses and other non-transport sectors.

Inclusion thresholds: 3,000t CO2e/year for enterprises; 20,000m2 for public buildings and 10,000m2 for government buildings.

China - Tianjin pilot system

CO2

Heat and electricity production, iron and steel, petrochemicals, chemicals, exploration of oil and gas.

Inclusion threshold: 20,000t CO2/year considering both direct and indirect emissions.

EU Emissions Trading System (EU ETS)

CO2, N2O, PFCs

Phase one (2005-2007): Power stations and other combustion installations with >20MW thermal rated input (except hazardous or municipal waste installations), industry (various thresholds) including oil refineries, coke ovens, iron and steel plants and production of cement, glass, lime, bricks, ceramics, pulp, paper and board.

Phase two (2008-2012): In addition to Phase one sectors, aviation was introduced in 2012 (>10,000 t CO2/year for commercial aviation; >1,000 t CO2/year for non -commercial aviation since 2013) (see below).

Phase three (2013-2020): In addition to Phase two sectors, CCS installations, production of petrochemicals, ammonia, non-ferrous and ferrous metals, gypsum, aluminum, nitric, adipic and glyoxylic acid (various thresholds) were included – see Annex I of the EU ETS Directive.

International Aviation: Emissions from international aviation have been included in the EU ETS since 2012. In November 2012, the EU temporarily suspended enforcement of the EU ETS requirements for extra-EU flights operating from or to non-European countries (so-called ’stop the clock’), while continuing to apply the legislation to flights within and between countries in the European Economic Area (EEA). Exemptions for operators with low emissions have also been introduced. The EU will decide on how to regulate extra-EU aviation emissions within the EU ETS after 2016 based on a report from the European Commission regarding the Carbon Offsetting and Reduction Scheme (CORSIA) of the International Civil Aviation Organization (ICAO), passed at the 39th Assembly Session in October 2016.

Japan - Saitama Target Setting Emissions Trading System

CO2

Commercial and industrial sectors.

Inclusion Threshold: Facilities that consume energy more than 1,500kL of crude oil equivalent or more per year.

Japan - Tokyo Cap-and-Trade Program

CO2

Commercial and Industrial Sectors.

Inclusion Thresholds: Facilities that consume energy more than 1,500kL of crude oil equivalent or more per year.

Korea Emissions Trading Scheme

CO2, CH4, N2O, PFCs, HFCs, SF6

Phase one (2015-2017): 23 sub-sectors from steel, cement, petro-chemistry, refinery, power, buildings, waste and aviation sectors.

Inclusion thresholds: Company >125,000 tCO2/year, facility >25,000 tCO2/year

New Zealand Emissions Trading Scheme (NZ ETS)

CO2, CH4, N2O, SF6, HFCs and PFCs

Sectors were gradually phased-in over time.

2008: Forestry (mandatory: deforesting pre-1990 forest land, voluntary: post-1989 forest land).

2010: Stationary energy (various thresholds), industrial processing (various thresholds) and liquid fossil fuels (various thresholds).

2013: Waste (except for small and remote landfills) and synthetic GHGs (various thresholds). Synthetic GHGs not in the NZ ETS are subject to an equivalent levy.

Biological emissions from agriculture must be reported, but face no surrender obligations.

Swiss ETS

CO2, NO2, CH4, HFCs, NF3, SF6 and theoretically PFCs (In principle all these gases are covered in accordance with the CO2 Ordinance. In practice, monitoring is only required for CO2, NO2 and PFCs.)

Mandatory participation: Industries listed under Annex 6 of the revised CO2 Ordinance (25 sub-sectors) must participate in the Swiss ETS.

Inclusion Thresholds: Industries in Annex 6 generally have a total rated thermal input of >20MW.

Possible voluntary opt-in: Industries a) listed under Annex 7 of the revised CO2 Ordinance (20 sub-sectors) and b) with a total rated thermal input of >10MW. One-time binding notification must be given before 1 June 2013 for industries currently above the threshold. Industries that may become eligible for participation in the future must then register within six months after they have reached the threshold.

Possible opt-out: Industries with a total rated thermal input of >20MW, but yearly emissions <25,000 tCO2e/year in each of the past three years. Should their future emissions rise above the threshold during at least one year, they must start participating in the ETS the following year and cannot opt out anymore for the remainder of the compliance period.

USA - California Cap-and-Trade Program

CO2, CH4, and N2O

First compliance period (2013-2014): Covered sectors include those which have one or more of the following processes or operations:
Large industrial facilities (including cement production, glass production, hydrogen production, iron and steel production, lead production, lime manufacturing, nitric acid production, petroleum and natural gas systems, petroleum refining, pulp and paper manufacturing, including cogeneration facilities co-owned/operated at any of these facilities), electricity generation, electricity imports, other stationary combustion, and CO2 suppliers.

Second compliance period (2015-2017) and beyond: In addition to the sectors listed above, suppliers of natural gas, suppliers of reformulated blendstock for oxygenate blending (RBOB) and distillate fuel oil, suppliers of liquid petroleum gas in California and suppliers of liquefied natural gas.

Inclusion Thresholds: Facilities ≥25,000 tCO2e (metric) per data year.

USA - Regional Greenhouse Gas Initiative (RGGI)

CO2

Fossil fuel electric generating units 

Inclusion thresholds: equal to or greater than 25MW.

Canada - Nova Scotia

No information available yet.

No information available yet.

China

CO2

The National ETS will cover eight sectors: petrochemicals, chemicals, building materials, iron and steel, non-ferrous metals, paper making, power (including power generation and grid) and aviation, which are further divided into subsectors.

Inclusion Thresholds: Entities with an annual energy consumption of more than 10,000 tons of standard coal equivalent (emissions of ~26,000 t CO2) in any year over 2013–2015 were asked to report their historical emissions and expect to be enrolled into the National ETS (see 13th FYP).

Kazakhstan Emissions Trading Scheme (KAZ ETS)

CO2

Energy sector (including oil and gas,) mining and chemical industry (>20,000tCO2/year).

Inclusion thresholds: For Phase I (2013) and Phase II (2014-2015), thresholds are based on 2010 and 2012 emission levels. For Phase III, 2014 emission levels are used.

Ukraine

No information available yet.

No information available yet.

Brazil

No information available yet.

No information available yet.

Chile

No information available yet.

No information available yet.

Japan

No information available yet.

No information available yet.

Mexico

No information available yet.

No information available yet.

Russia

No information available yet.

No information available yet.

Taiwan

No information available yet.

No information available yet.

Thailand

No information available yet.

No information available yet.

Turkey

No information available yet.

ETS coverage has not been set yet. However, the Turkish MRV regulation, which is based on the MRV regulation in the EU Emissions Trading Scheme, establishes an installation-level MRV system. The system covers all major sources of GHG emissions from the energy (combustion of fuels with output of 20MW thermal or more) and industry sectors (coke production, metals, cement, glass, ceramic products, insulation materials, paper and pulp, chemicals over specified threshold sizes/production levels). Possibility of voluntary opt-in of additional sectors into the MRV system.

USA - Oregon

No information available yet.

No information available yet.

USA - Virginia

No information available yet.

No information available yet.

USA - Washington

No information available yet.

No information available yet.

Vietnam

No information available yet.

No information available yet.

Studies

Hobbs, B.F., Bushnell, J., Wolak, F. A. (2010) Upstream vs. Downstream CO2 Trading: A Comparison for the Electricity Context. Energy Institute at Haas. 

Pew Center on Global Climate Change, 2008: Scope of a Greenhouse Gas Cap-and-Trade Program. Congressional Policy Brief.  

Pizer, W.A. (2008) Scope and point of regulation for pricing policies to reduce fossil fuel CO2 Emissions. Resources for the Future.