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Montenegro Emissions Trading System

ETS Status
in force
Jurisdictions
Montenegro
Start of operation (year)
2020
Sectoral coverage
Industry
Power
Allocation
Free Allocation (Grandparenting, Benchmarking (for new installations)), Auctioning
Offsets and credits
Not allowed
Cap
3.10 MtCO2e (2024)
GHGs covered
CO2
Average auction price
EUR 24 (USD 25.98)
Total revenue since beginning
EUR 22.1 million (USD 23.92 million)
Total revenue
EUR 12.8 million (USD 13.9 million)

General Information

In December 2019, the “Law on Protection from the Negative Impacts of Climate Change” (Climate Law) entered into force in Montenegro. The law mandates the development of a comprehensive set of climate policies including a GHG inventory, a low-carbon development strategy, and a national MRV system. It further provides the legal basis for a national ETS covering emissions from the industrial and power sectors.

A bylaw specific to the ETS, the “Decree on Activities for which a GHG Permit is Issued” (ETS Decree), was adopted in February 2020. This regulation determines sectoral coverage and inclusion thresholds, rules governing trading of allowances, allocation rules, and a market stabilization reserve. It further includes provisions for banking allowances, a minimum reserve price of EUR 24 (USD 25.98), and a linear reduction factor for the emissions cap of 1.5% annually in the period from 2020 to 2030. 

Montenegro has been an EU candidate country since 2010. It is required to bring its environmental and climate policy in line with the EU as part of accession talks that began in late 2018. Establishing a national ETS is a requirement to ensure that Montenegro has the climate policy framework in place to take part in the EU ETS should it join the EU. 

The ETS formally began operations in February 2020 and applies to three installations: the Pljevlja coal plant, the KAP aluminium plant, and the Tosčelik steel mill. Covered entities must surrender allowances for all their covered emissions, and allocation is based on auctions or free allocation.
 

The operation of the Montenegro ETS was negatively affected by several changes of government since 2022, which caused major delays in the adoption of the yearly allocation plans. In addition, two of the three covered installations shut down their operations in 2022 in response to rapidly rising energy prices. This is still the case as of January 2025, leaving the Pljevlja coal plant as the only operational covered entity.

The Montenegro government set up a working group in mid-2022 to review the country’s climate legislation, including the ETS. In December 2024, the “Draft Climate Change Law” was finalized and sent to the Legislative Secretariat for an opinion. The revision aligns various design elements of the Montenegro ETS with the EU ETS regulations, including on MRV, allocation of allowances, and the use of revenues. Its adoption is expected by the end of the second quarter of 2025, while intensive work will begin on drafting a revised ETS Decree.
 

Industry
Power

Emissions & Targets

3.5 MtCO2e (2022)

By 2030: 55% reduction below 1990 levels excl. LULUCF (NDC)
By 2050: Climate neutrality (aspirational, “Sofia Declaration”)

Size & Phases

1.49MtCO2e
CO2

A cap limits the total emissions allowed in the system.

2020: 3.3 MtCO2

2021: 3.3 MtCO2

2022: 3.2 MtCO2 

2023: 3.15 MtCO2

2024: 3.1 MtCO2

Annual reduction factor: 1.5% 
 

SECTORS: Industries listed under Appendix 1 of the ETS Decree must participate in the system. These include power plants, oil refineries, coke production, the production or processing of iron and steel, non-ferrous metals, cement clinker, glass, ceramic products, and paper (pulp). 

INCLUSION THRESHOLDS: 

  • Power plants with a capacity in excess of 20 MW
  • Installations for the production of pig iron or steel (primary or secondary fusion) including continuous casting, with a capacity exceeding 2.5 tonnes per hour
  • Installations for the production of cement clinker in rotary kilns with a production capacity exceeding 500 tonnes per day or lime in rotary kilns with a production capacity exceeding 50 tonnes per day or in other furnaces with a production capacity exceeding 50 tonnes per day
  • Installations for the manufacture of glass including glass fibre with a melting capacity exceeding 20 tonnes per day

Installations for the manufacture of ceramic products by firing, in particular roofing tiles, bricks, refractory bricks, tiles, stoneware or porcelain, with a production capacity exceeding 75 tonnes per day, and/or with a kiln capacity exceeding 4 m3 and with a setting density per kiln exceeding 300 kg/m3

Point source

Three, out of which only one is currently operational (2024)

Allowance Allocation & Revenue

2020 to 2022: Free allocation of allowances (Grandparenting)

2023: The government appointed the auctioning committee in December 2022 and auctioning took place in early 2023.

  • Auction share: 19% (385,657 allowances)
  • Free allocation share: 222,515 allowances
  • Auction volume: 600,000 allowances
  • Auction share: 19% (535,310 allowances) 
  • Free allocation: 875,242 allowances
  • Auction volume: 600,000 allowances

2024: The government appointed the auctioning committee in May 2024 and auctioning took place in June 2024.

For the years 2023 and 2024, the total amount of allowances allocated in the Montenegro ETS was significantly below the cap for the respective year. This is a result of two of the three covered installations having ceased their operations in 2022 and the corresponding reduction in demand for allowances.

EUR 22.1 million (USD 23.92 million) since the beginning of the program

EUR 12.8 million (USD 13.9 million) in 2024

Auction revenues go to Montenegro’s Environmental Protection Fund (Eko Fond) to finance low-carbon innovation, renewable energy, and environmental protection.
 

Flexibility & Linking

Banking is allowed. 

Borrowing is not allowed. 

The use of offset credits is not allowed.

The Montenegro ETS is not linked to any other system.

Compliance

One year. 

Participants are obliged to submit a verified report on GHG emissions to the EPA by the end of March for the preceding year. The date for surrendering allowances is not fixed in existing legislation.

MONITORING: Covered entities must submit, together with the allowance application, a plan for monitoring GHG emissions from the installation. The content of the Monitoring Plan, the procedures, processes and the methodology for monitoring GHG emissions are laid down by the bylaws. The entity is also obliged to improve the methodology for monitoring GHG emissions and amend the Monitoring Plan on the request of the administration authority, the Environmental Protection Agency (EPA).

REPORTING: Participants are obliged to submit a verified report on GHG emissions to the EPA by the end of March for the preceding year. 

If the covered entity fails to submit the verified report, the EPA makes a conservative estimate of the level of GHG emissions. The costs of making the estimate are to be paid by the entity. 

The form and content of the report, procedures and the method of making a conservative estimate are prescribed by the bylaws. 

VERIFICATION: Verification of the GHG reports may be performed only by an accredited legal entity that fulfils the requirements regarding personnel and equipment for report verification.

Penalties as stipulated by the Climate Law range from EUR 2,000 (USD 2,164) to EUR 40,000 (USD 43,295) and can be imposed against legal entities and responsible natural persons in the legal entity.

Market Regulation

MARKET PARTICIPATION: Due to the very small size of the Montenegro ETS, participation of non-compliance entities (intermediaries) is not possible.

MARKET TYPES: 

Primary: Allowance auctions are organized by the government.

Secondary: There is no established secondary market. However, the covered entities can trade allowances among themselves. Due to only one entity remaining in the market, there is no trading activity as of January 2025.

INSTRUMENT NAME: Price floor

INSTRUMENT TYPE: Price-based instrument

TRIGGERS: There is a (permanent) minimum price of EUR 24 (USD 25.98/tCO2) for auctions.

Other Information

Ministry of Ecology, Spatial Planning, Urbanism and State Property: Responsible for environmental and climate policy, including the national ETS.

Environmental Protection Agency (EPA): Responsible for allowance issuance and monitoring of verification reports.

The Climate Law and ETS Decree are currently under revision. 

Decree on Activities for which a GHG Permit is Issued (2020)
Law on Protection from the Negative Impacts of Climate Change (2019)

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