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
Emissions covered by the ETS GHG covered Sectors covered 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 transport 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.

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 of first compliance period as well as distribution and importation of fuels used for consumption 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 have distributed 200L or more of fuel (in 2015) are also subject to inclusion even if the combustion of their fuel resulted in the emission of less than 25,000 tCO2e.

VOLUNTARY EMITTERS (OPT-IN COVERED ENTITIES): Starting in 2019, emitters from capped sectors that reported emissions between 10,000 tCO2e/year and 25,000 tCO2e/year may voluntarily register to the cap-and-trade system as a covered entity. If their production activity is eligible, they could 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, and public transport.

INCLUSION THRESHOLDS: 5,000 tCO2/year, considering both direct and indirect emissions.

MANDATORY REPORTING: 2,000 tonnes of standard 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 10,000 tonnes 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 2013-2016.

In the future, the Fujian system may extend its coverage to smaller emitters, i.e., 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 tonnes coal equivalent (tce)/year.

China - Hubei pilot ETS

CO2

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, and food, beverage, and medicine producers.

INCLUSION THRESHOLDS: Annual energy consumption more than 10,000 tce in any year between 2014 and 2016.

Until 2015: Annual energy consumption more than 60,000 tce in any year between 2010 and 2011.

China - Shanghai pilot ETS

CO2

Airports, 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: 20,000t CO2/year or 10,000 tonnes coal equivalent (tce)/year; and those that already participated in the 2013-2015 phase with 10,000 tCO2/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: 10,000t CO2/year or 5,000 tce/year.

China - Shenzhen pilot ETS

CO2

Power, water, gas, manufacturing sectors, buildings, port and subway sectors, public buses, and other nontransport sectors.

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

China - Tianjin pilot ETS

CO2

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

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

EU Emissions Trading System (EU ETS)

CO2, N2O, PFCs

PHASE 1 (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, as well as production of cement, glass, lime, bricks, ceramics, pulp, paper, and board.

PHASE 2 (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 below). Nitrous oxide emissions from the production of nitric acid were included by a number of countries. The EU ETS also expanded to include Iceland, Liechtenstein, and Norway.

PHASE 3 (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 introduced.

PHASE 4 (2021-2030): No changes to the scope are envisaged for phase 4.

International 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 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. A further review and assessment will be carried out once there is clarity surrounding the content and nature of CORSIA, as well as the extent of participation by Europe’s international partners.

Japan - Saitama Target Setting Emissions Trading System

CO2

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

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

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 5000m2 or over six million kWh electricity usage per year) can assume obligations jointly or in place of building owners.

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

Kazakhstan Emissions Trading Scheme

CO2

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).

INCLUSION THRESHOLDS: Facilities emitting more than 20,000 tCO2e/year. For Phase 3 (2018-2020), 2013-2015 emission levels are used.

For Phase 1 (2013) and Phase 2 (2014-2015), thresholds were based on 2010 and 2012 emission levels.

Korea Emissions Trading Scheme

CO2, CH4, N2O, PFCs, HFCs, SF6

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

PHASE TWO (2018-2020): According to the Allocation Plan, the public and waste sectors are disaggregated such that the KETS covers the following six sectors: heat and power, industry, building, transportation, waste sector, and public. These sectors are disaggregated into 64 subsectors.

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

New Zealand Emissions Trading Scheme

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.

Currently, 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, since there are no adequate approaches to monitor the other gases and since their share is negligible.)

MANDATORY PARTICIPATION: Industries listed under Annex 6 of the revised CO2 Ordinance (25 subsectors) must participate in the Swiss ETS. This includes companies from the cement, chemicals and pharmaceuticals, refineries, paper, district heating, steel, and other sectors.

INCLUSION THRESHOLDS: Facilities pertaining to the sectors included in Annex 6 that have a total rated thermal input of >20MW.

POSSIBLE VOLUNTARY OPT-IN: Industries a) listed under Annex 7 of the revised CO2 Ordinance (21 sub-sectors) and b) with a total rated thermal input of >10MW. A company that newly 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 <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.

DOMESTIC AVIATION: Coverage of domestic aviation (domestic flights within Switzerland or flights from Switzerland to member states of the European Economic Area) is a requirement of the linking agreement between Switzerland and the EU. In July 2017, to prepare for the inclusion of aviation in the Swiss ETS, Switzerland introduced the legislation for mandatory reporting of tonne-kilometer data for aircraft operators that are likely to fall within the scope of the Swiss ETS, when linked with the EU ETS. Aircraft operators submitted their monitoring plans and mandatory reporting began in January 2018. Verified monitoring reports containing tonne-kilometer data must be submitted by 31 March 2019.

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 which 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, 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 and distillate fuel oil, suppliers of liquid petroleum gas in California, and suppliers of liquefied natural gas.

INCLUSION THRESHOLDS: Facilities ≥25,000 tCO2e/data year.

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.

China National ETS

CO2

Power sector (including combined heat and power, as well as captive power plants of other sectors).

The scope is expected to be gradually expanded to finally cover a total of eight sectors including: 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 t/CO2 (energy consumption of more than 10,000 tce) in any year over the period 2013-2015.

Colombia

No information available yet.

No information available yet.

Mexico

No information available yet.

No information available yet.

Ukraine

No information available yet.

No information available yet.

USA - New Jersey

No information available yet.

No information available yet.

USA - Virginia

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.

Indonesia

No information available yet.

No information available yet.

Japan

No information available yet.

No information available yet.

Russia

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 - Oregon

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.