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Montenegro

ETS Status
in force
Jurisdictions
Montenegro
Start of operation (year)
2020
Sectoral coverage
Industry
Power
Allocation
Free Allocation: Grandparenting, Free Allocation: Benchmarking (for new installations), Auctioning
Offsets and credits
No offsets allowed
Cap
3.15 MtCO2e (2022)
Average auction price
EUR 24 (USD 26.08)
Total revenue since beginning
EUR 9.26 million (USD 10.06 million) since the beginning of the program
Total revenue
EUR 9.26 million (USD 10.06 million) in 2023

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 26.08), 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. They received 100% of their allowances for free in 2020 and 2021. For 2022, 64% of all allowances were auctioned. 
 

The operation of the Montenegro ETS was negatively affected by several changes of government in the past two years, which caused major delays in the adoption of the yearly allocation plan. 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 2024, 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. This work was still ongoing as of January 2024, with the adoption of the revised Climate Law expected by mid-2024. Following this first step, the ETS Decree is due to be renewed. This will likely involve a revision of the ETS cap as well as the introduction of auctioning for 100% of allowances.  
 

Industry
Power

Emissions & Targets

3.4 MtCO2e (2021)

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

Size & Phases

1.46MtCO2e

A cap limits the total emissions allowed in the system.

2020: 3.3 MtCO2e
2021: 3.3 MtCO2e
2022: 3.2 MtCO2e 
2023: 3.1 MtCO2e

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

3, out of which only 1 is currently operational (2023)

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: 64% (385,657 allowances)
•    Free allocation share: 36% (222,515 allowances)
•    Auction volume: 600,000 allowances

EUR 9.26 million (USD 10.06 million) since the beginning of the program

EUR 9.26 million (USD 10.06 million) in 2023

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 calendar year

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 previous 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 2,173) to EUR 40,000 (USD 43,478) 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.

INSTRUMENT NAME: Price floor

TRIGGERS: There is a (permanent) minimum price of EUR 24 (USD 26.08)/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. A new Climate Law is expected to be adopted by mid-2024 and the ETS Decree is due to be renewed in late 2024. 

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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