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.

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Illustration
Covered emissions GHGs covered Sectors and thresholds
Canada - Nova Scotia

CO2, CH4, N2O, SF6, NF3, HFCs, PFCs

The program covers the industrial and electricity sectors, as well as fuel suppliers (upstream coverage of transportation and heating).

INCLUSION THRESHOLDS: For the industrial and electricity sectors, facilities generating ≥50,000 tCO2e/year. Electricity importers responsible for >10,000 tCO2e/year are also included. For fuel suppliers, the following thresholds apply: petroleum product suppliers selling ≥200 liters of fuel into the Nova Scotia market and natural gas distributors producing ≥10,000 tCO2e/year.

There are no provisions for voluntary (“opt-in”) participation.

Canada - Québec Cap-and-Trade System

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

FIRST COMPLIANCE PERIOD (2013-2014): electricity, industry

SECOND COMPLIANCE PERIOD (2015-2017) AND THIRD COMPLIANCE PERIOD (2018-2020): Sectors from first compliance period as well as distribution and importation of fuels used in the transport and building sectors and in small- and medium-sized businesses.

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

VOLUNTARY EMITTERS (OPT-IN COVERED ENTITIES): Since 2019, emitters from capped sectors that have reported emissions between 10,000 tCO2e/year and 25,000 tCO2e/year may voluntarily register with the cap-and-trade system as a covered entity. If their production activity is eligible, they may receive free allocation.

China - Beijing pilot ETS

CO2

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

INCLUSION THRESHOLDS:
Until 2015: 10,000 tCO2/year, considering both direct and indirect emissions.

From 2016 onwards: 5,000 tCO2/year, considering both direct and indirect emissions.

MANDATORY REPORTING: 2,000 tonnes of coal equivalent (tce) energy consumption/year.

China - Chongqing pilot ETS

CO2, CH4, N2O, HFCs, PFCs, SF6

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

INCLUSION THRESHOLDS: 20,000 tCO2/year or energy consumption of 10,000 tonnes of coal equivalent (tce)/year.

China - Fujian pilot ETS

CO2

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

INCLUSION THRESHOLDS: Energy consumption 10,000 tonnes of coal equivalent (tce)/year for any year between 2013 and 2016.

In the future, the Fujian system may extend its coverage to smaller emitters, i.e., those with energy consumption of 5,000 tce or more.

China - Guangdong pilot ETS

CO2

Power, iron and steel, cement, papermaking, aviation, and petrochemicals.

INCLUSION THRESHOLDS: 20,000 tCO2/year or energy consumption 10,000 tce/year.

China - Hubei pilot ETS

CO2

16 sectors*: power and heat supply, iron and steel, nonferrous metals, petrochemicals, chemicals, textile, cement, glass and other building materials, pulp and paper, ceramics, automobile and equipment manufacturing, food, beverage, and medicine producers, and water supply.

INCLUSION THRESHOLDS:
Until 2015: Annual energy consumption more than 60,000 tce in any year between 2010 and 2011, applying to all energy and industrial sectors.

From 2016 onwards: Annual energy consumption more than 10,000 tce in any year between 2016 and 2018, applying to all energy and industrial sectors.


* Different from other Chinese pilots, Hubei does not pre-define which sectors are covered under its ETS; rather, it sets a threshold which applies to all power and industrial sectors. Those sectors with entities above the threshold then are covered.

China - Shanghai pilot ETS

CO2 only

Airports, domestic aviation, chemical fibers, chemicals, commercial, power and heat, water suppliers, hotels, financial, iron and steel, petrochemicals, ports, shipping, nonferrous metals, building materials, paper, railways, rubber, and textiles.

INCLUSION THRESHOLDS:
For power and industry: Either 20,000 tCO2/year or 10,000 tce/year; and those that already participated in the 2013-2015 phase with 10,000 tCO2/year or 5,000 tce/year.
For Transport: Either 10,000 tCO2/year or 5,000 tce/year (aviation and ports), 100,000 tCO2/year or 50,000 tce/year (shipping).

For Buildings: Either 10,000t CO2/year or 5,000 tce/year.

China - Shenzhen pilot ETS

CO2 only

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

INCLUSION THRESHOLDS: Annual emissions of 3,000 tCO2e/year for enterprises; 10,000m2 for large public buildings and government buildings.

China - Tianjin pilot ETS

CO2 only

Heat and electricity production, iron and steel, petrochemicals, chemicals, oil and gas exploration, papermaking, aviation, and building materials*.

INCLUSION THRESHOLDS: 20,000t CO2/year considering both direct and indirect emissions.

*The last three sectors were added in 2019.

China National ETS

CO2

Power sector (including combined heat and power, as well as captive power plants of other sectors). Compliance obligations are currently limited (see “Enforcement” section).

The scope is expected to be gradually expanded to cover seven other sectors in addition to power: petrochemical, chemical, building materials, steel, nonferrous metals, paper, and domestic aviation. There is no specific timeline for this expansion.

INCLUSION THRESHOLDS: Entities with annual emissions of 26,000 tCO2 in any year over the period 2013-2019.

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, and iron and steel plants, as well as production of cement, glass, lime, bricks, ceramics, pulp, paper, and cardboard.

PHASE TWO (2008-2012): Aviation was introduced in 2012 (>10,000 tCO2/year for commercial aviation; >1,000 tCO2/year for non-commercial aviation since 2013) (see ”Aviation” section). A number of countries included NOx emissions from the production of nitric acid. The EU ETS also expanded to include Iceland, Liechtenstein, and Norway.

PHASE THREE (2013-2020): Carbon capture and storage installations, production of petrochemicals, ammonia, nonferrous and ferrous metals, gypsum, aluminum, as well as nitric, adipic, and glyoxylic acid (various thresholds) were included.

PHASE FOUR (2021-2030): Based on the current legislation, no changes to the scope have been agreed on for Phase 4. Changes are being considered as part of the review of the ETS foreseen under the 2030 Climate Target Plan (see “Year in Review” section).

Aviation: Emissions from international aviation were included in the EU ETS in 2012. In November 2012, the EU temporarily suspended enforcement of the EU ETS requirements for flights operating from or to non-EEA countries (“stop the clock”) while continuing to apply the legislation to flights within and between countries in the EEA. Exemptions for operators with low emissions have also been introduced.

In light of the progress made under the International Civil Aviation Organization (ICAO) towards a global measure to reduce emissions from the aviation sector (the Carbon Offsetting and Reduction Scheme [CORSIA]), the EU will maintain the intra-EEA scope for the ETS Aviation until 31 December 2023. In 2020, the Commission initiated a process to revise the ETS Directive to address the implementation of CORSIA in EU law in a way that is consistent with the EU’s 2030 climate target, with a view of adoption in 2021.

German National Emissions Trading System

CO2 only

The nEHS will cover all fuel distributors and suppliers. It applies to all fuels used in the transport sector and for the production of heat, e.g., fuel oil, LPG, natural gas, coal, gasoline, and diesel.

Biomass used as fuel in the transport sector and for heating purposes generally also falls under the scope of the nEHS. However, emissions from biogenic fuels that meet the sustainability criteria as set out in national Regulations transposing the European Renewable Energy Directives 2029/28/EC and 2018/2001 do not face compliance obligations.

The system starts with a limited scope in 2021 and 2022, including fuel oil, LPG, natural gas, gasoline, and diesel. Other fuels such as coal will be covered from 2023 onwards.

Provisions have been put in place to avoid double compliance burdens for installations covered by the EU ETS. Emissions that arise from a fuel delivered to and used in an EU ETS installation have to be reported by the EU ETS installation in any case. These emissions may be deducted from the reported emissions of the fuel distributor under the nEHS if: (a) evidence can be provided that the emissions have been reported by the receiving EU ETS installation; and (b) no CO2-price has been passed through. If such evidence cannot be provided and if CO2-costs were passed through from the supplier under the nEHS to the EU ETS installation, the supplier is obligated to report and to surrender allowances to cover the emissions. In that case, the EU installation receives a full compensation for the CO2-price that has been passed through.

Japan - Saitama Target Setting Emissions Trading System

CO2

Consumption of fuels, heat, and electricity in commercial and industrial buildings

INCLUSION THRESHOLDS: Facilities that consume the energy equivalent of at least 1,500kL of crude oil for three consecutive years.

Japan - Tokyo Cap-and-Trade Program

CO2

Consumption of fuels, heat, and electricity in commercial and industrial buildings.

Building owners are subject to surrender obligations, but large tenants (floor space above 5,000m2 or over six million kWh electricity usage per year) can assume obligations jointly or in place of building owners.

INCLUSION THRESHOLDS: Facilities that consume the energy equivalent to at least 1,500kL of crude oil per year.

Kazakhstan Emissions Trading Scheme

CO2 only

PHASE ONE (2013): Power sector and centralized heating. Extractive industries and manufacturing: oil and gas mining, metallurgy, chemical industry.

PHASE TWO (2014-2015): Same as Phase 1

(2016-2017: System suspended)

PHASE THREE (2018-2020): Power sector and centralized heating. Extractive industries and manufacturing: oil and gas mining, metallurgy, chemical and processing industry (production of building materials: cement, lime, gypsum, and brick).

PHASE FOUR (2021): Same as Phase 3

THRESHOLDS: Facilities emitting more than 20,000 tCO2e/year.

Korea Emissions Trading Scheme

CO2, CH4, N2O, PFCs, HFCs, SF6

PHASE ONE (2015-2017): 23 subsectors from the following five sectors: power, industry (e.g., iron and steel, petrochemical, cement, oil refinery, nonferrous metals, paper, textile, machinery, mining, glass, and ceramics), buildings, waste, and transportation (domestic aviation).

PHASE TWO (2018-2020): According to the Phase 2 Allocation Plan, the public and waste sectors are disaggregated such that the K-ETS covers the following six sectors: heat and power, industry, buildings, transportation, waste sector, and the public sector. These sectors are disaggregated into 62 subsectors.

PHASE THREE (2021-2025): The K-ETS covers the following six sectors: heat and power, industry, buildings, transportation, waste sector, and the public sector. The transport sector (freight, rail, passenger, and shipping) and construction industries have been brought into the system’s scope, increasing the number of subsectors covered to 69.

INCLUSION THRESHOLDS: company >125,000 tCO2/year, facility >25,000 tCO2/year

Next to direct emissions coverage, the K-ETS covers indirect emissions from electricity consumption. The same inclusion thresholds apply.

Mexico

CO2

The Pilot ETS covers the energy and industrial sectors. The energy sector encompasses electricity generation, transmission, and distribution, as well as fossil fuel extraction, production, transport, and distribution.

The industry sector includes automobiles, cement, lime, chemical industry, food and beverages, glass, iron and steel, metallurgical, mining, petrochemicals, and pulp and paper, as well as other industrial subsectors generating direct CO2 emissions from stationary sources at or above the threshold.

The Pilot ETS covers installations whose annual direct emissions from stationary sources amount to at least 100,000 tCO2.

New Zealand Emissions Trading Scheme

CO2, CH4, N2O, SF6, HFCs, and PFCs

Sectors were gradually phased in between 2008 and 2013. Thresholds for participation are typically low.

• Forestry (mandatory: deforesting pre-1990 forest land; voluntary: post-1989 forest land)
• Stationary energy (various thresholds)
• Industrial processing (various thresholds)
• Liquid fossil fuels (various thresholds)
• Waste (except for small and remote landfills)
• Synthetic GHGs (various thresholds); synthetic GHGs not in the NZ ETS are subject to an equivalent levy

Biological emissions from agriculture must be reported at the processor level but face no surrender obligations. By 2025, a carbon price will be levied on agricultural emissions either through the NZ ETS or a separate levy/rebate scheme.

Swiss ETS

CO2, N2O, CH4, HFCs, NF3, SF6, and theoretically PFCs. (In principle, all these gases are covered in accordance with the ‘CO2 Ordinance.’ In practice, only CO2, N2O, and PFCs require monitoring, as the share of the other gases is negligible.)

MANDATORY PARTICIPATION: Industries listed under Annex 6 of the ‘CO2 Ordinance’ must participate in the Swiss ETS. These include 25 categories, including companies from the cement, chemicals and pharmaceuticals, refineries, paper, district heating, steel, and other sectors. Since 2020, the ETS covers aviation (domestic and outbound flights to the EEA) and fossil-thermal power plants.

INCLUSION THRESHOLDS: Facilities pertaining to the sectors included in Annex 6 of the ‘CO2 Ordinance’ that have a total rated thermal input of >20MW. For aircraft operators, the same thresholds apply as in the EU ETS (see ”Aviation” section).

POSSIBLE VOLUNTARY OPT-IN: Industries—listed under Annex 7 of the ‘CO2 Ordinance’ (21 activities)—with a total rated thermal input of ≥10MW. A company that fulfils the participation conditions must submit the application no later than six months from the date of fulfilment.

POSSIBLE OPT-OUT: Industries with a total rated thermal input of >20MW, but yearly emissions of <25,000 tCO2e/year in each of the past three years. If an entity’s future emissions rise above the threshold in a given year, it must participate in the ETS starting the following year and cannot opt out for the remainder of the compliance period. New entrants can apply for an opt-out with immediate effect if they can credibly report their emissions to be below 25,000 tCO2e/year.

AVIATION: Commercial aircraft operators emitting more than 10,000 tCO2/year or operating more than 243 flights in a four-month period in the preceding year. Non-commercial operators are included when emitting more than 1,000 t/CO2 per year. The thresholds do not apply if the operator has obligations under the EU ETS.

United Kingdom

CO2, N2O, PFCs

POWER SECTOR & INDUSTRY:
The ETS applies to a specified list of activities of installations in the power and industry sector. This includes activities involving combustion of fuels in installations with a total rated thermal input exceeding 20MW, as well as activities in refining, heavy industry, and manufacturing. Power generators in Northern Ireland still fall under the EU ETS, as they are part of the Isle of Ireland’s Single Electricity Market.

In addition to the power sector’s participation in the UK ETS, the UK’s Carbon Price Support (CPS) policy imposes a minimum carbon price of GBP 18/tCO2 (USD 23.08) for power generators using fossil fuels. The CPS will continue to support the decarbonization of the power sector and will stay in place at least until unabated coal-fired power generation is phased out. The government has committed to end the use of unabated coal by 2024.

Small Emitter and Hospital Opt-Out Scheme: Hospitals and small emitters with emissions lower than 25,000 tCO2e per year and a net-rated thermal input lower than 35 MW can opt out of the ETS and instead monitor and report their emissions and meet annual emission reduction targets. This approach is similar to the UK’s opt-out scheme in Phase 3 of the EU ETS.

Ultra-Small Emitter Exemption: For stationary installations emitting less than 2,500 tCO2e per year, an ultra-small emitter exemption is in place. These installations are exempt from participation in the ETS, except for a requirement to monitor emissions and notify the regulator if emissions exceed the threshold. 


AVIATION:
Emissions are included from flights within the UK and flights from the UK to and from Gibraltar or to a country within the EEA. Exemptions are made for aircraft operators with less than 243 flights per calendar year for three consecutive four-month periods or total annual emissions of less than 10,000 tonnes of CO2.

USA - California Cap-and-Trade Program

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

FIRST COMPLIANCE PERIOD (2013-2014): Covered sectors include those that have one or more of the following processes or operations: large industrial facilities (including cement, glass, hydrogen, iron and steel, lead, lime manufacturing, nitric acid, petroleum and natural gas systems, petroleum refining, and 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.

SINCE THE SECOND COMPLIANCE PERIOD: In addition to the sectors listed above, suppliers of natural gas, suppliers of reformulated blendstock for oxygenate blending (i.e., gasoline blendstock) and distillate fuel oil (i.e., diesel fuel), suppliers of liquid petroleum gas in California, and suppliers of liquefied natural gas.

INCLUSION THRESHOLDS: Facilities ≥25,000 tCO2e/data year. Electricity providers that import 25,000 tCO2e per year or more from specified sources of electricity (those with known emissions factors) are considered to be above the threshold. All imported electricity from unspecified sources (those without known emissions factors) is considered to be above the threshold, and a default value is applied as an emissions factor.

USA - Massachusetts Limits on Emissions from Electricity Generators

CO2

Large electricity generators subject to RGGI (≥25 MWe).

USA - Regional Greenhouse Gas Initiative (RGGI)

CO2

Fossil Fuel Electric Generating Units

INCLUSION THRESHOLDS: Capacity equal to or greater than 25 MW.

Colombia

No information available yet.

No information available yet.

Indonesia

No information available yet.

No information available yet.

Montenegro

No information available yet.

No information available yet.

Russian Federation - Sakhalin

No information available yet.

No information available yet.

Ukraine

No information available yet.

No information available yet.

USA - Pennsylvania

No information available yet.

No information available yet.

USA - Transportation and Climate Initiative Program (TCI-P)

No information available yet.

No information available yet.

Vietnam

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.

Pakistan

No information available yet.

No information available yet.

Philippines

No information available yet.

No information available yet.

Taiwan, China

No information available yet.

No information available yet.

Thailand

No information available yet.

No information available yet.

Turkey

No information available yet.

No information available yet.

USA - New Mexico

No information available yet.

No information available yet.

USA - New York City

No information available yet.

No information available yet.

USA - North Carolina

No information available yet.

No information available yet.

USA - Oregon

No information available yet.

No information available yet.

USA - Washington

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.