Emissions trading works according to the ’cap and trade’ principle. The government-set cap determines the maximum amount of CO2 equivalents in total that may be emitted by regulated companies. A cap that is ambitious in terms of climate policy ensures that CO2 becomes a scarce commodity and that a price for CO2 is formed on the market through trade, which gives companies an incentive to invest in more climate protection. After all, if it is more cost-efficient to avoid one tonne of CO2eq than to buy an allowance, it is worth taking technical measures to reduce emissions.

Unlike rigid legal stipulations, which lead to varying levels of costs for the companies concerned, a market-based instrument such as emissions trading gives companies room to take their own decisions. They can decide for themselves whether they want to reduce emissions or buy additional allowances. This approach also yields economic advantages because the avoidance of emissions is mainly implemented by those companies that have the lowest avoidance costs.

From a climate policy point of view, another advantage of emissions trading is that the establishment of a fixed maximum (cap) means the amount of emissions permissible at a certain point in time cannot exceed predetermined levels. To sum up, emissions trading is essentially characterised by the fact that it can achieve set environmental targets safely and at the most favourable economic costs. In addition, the revenues from emissions trading generate considerable financial leeway for active economic and socio-political support of the transformation to climate neutrality. However, other instruments such as regulatory law or funding policies have their own advantages. In practice, therefore, a mix of instruments is used.

In addition to the European Commission, the Federal Ministry of Economic Affairs and Climate Action (BMWK), the DEHSt and the states (Länder) are also involved in implementing European emissions trading in Germany. The European Commission operates the Union Registry and reviews and approves the amount of free allocations for companies in Member States. The DEHSt issues the allowances to the stakeholders' accounts.

As the national competent authority, we are also responsible for monitoring emissions trading with all the rules and obligations for operators and aircraft operators, shipping companies, those responsible within the framework of EU ETS 2 and the management of German auctions in EU ETS 1 and much more. In the first quarter of every year we receive the companies' emissions reports, which we then review. We are subject to the legal and technical supervision of the Federal Ministry of Economic Affairs and Climate Action (BMWK).

All transactions of allowances, which only exist virtually, take place through the Union Registry. In this centralised system, all participating stakeholders have an account in which they can hold their allowances and carry out transactions such as issuance, purchases, sales, cancellations and surrenders of allowances corresponding to the emissions generated. More information on the Union Registry can be found in the link below.

The following applies to EU ETS 1: operators of stationary installations and aircraft as well as shipping companies determine their greenhouse gas emissions in the previous year by the end of March (those responsible within EU ETS 2 by 30 April). The data is first checked by nationally accredited Verifiers (e.g. TÜV and other large inspection organisations) and only then can they be forwarded to the Union Registry. Operators and shipping companies must surrender the relevant number of allowances to the Union Registry by the end of September at the latest (those responsible within EU ETS 2 by 31 May).

If insufficient allowances are surrendered, companies risk severe sanctions: a penalty of 100 euros (plus the increase in the European Consumer Price Index for the reporting year compared to the reference year 2012) must be paid for each tonne of CO2eq for which an allowance has not been surrendered. For the 2022 reporting year, the amount of the penalty is already around 121 euros. Operators and shipping companies must therefore ensure that they have a sufficient number of allowances by the specified deadlines at the latest and surrender them. If they lack allowances, they can purchase more in advance, for example on the Energy Exchanges in Leipzig (EEX) or Amsterdam (ICE Endex).

Further information can be found on our website under sanctioning or union registry

Emissions trading works according to the ’cap and trade’ principle. The government-set cap determines the maximum amount of CO2 equivalents in total that may be emitted by regulated companies. A cap that is ambitious in terms of climate policy ensures that CO2 becomes a scarce commodity and that a price for CO2 is formed on the market through trade, which gives companies an incentive to invest in more climate protection. After all, if it is more cost-efficient to avoid one tonne of CO2eq than to buy an allowance, it is worth taking technical measures to reduce emissions.

Unlike rigid legal stipulations, which lead to varying levels of costs for the companies concerned, a market-based instrument such as emissions trading gives companies room to take their own decisions. They can decide for themselves whether they want to reduce emissions or buy additional allowances. This approach also yields economic advantages because the avoidance of emissions is mainly implemented by those companies that have the lowest avoidance costs.

From a climate policy point of view, another advantage of emissions trading is that the establishment of a fixed maximum (cap) means the amount of emissions permissible at a certain point in time cannot exceed predetermined levels. To sum up, emissions trading is essentially characterised by the fact that it can achieve set environmental targets safely and at the most favourable economic costs. In addition, the revenues from emissions trading generate considerable financial leeway for active economic and socio-political support of the transformation to climate neutrality. However, other instruments such as regulatory law or funding policies have their own advantages. In practice, therefore, a mix of instruments is used.

Trading in European allowances (EU Allowances (EUa), EU Aviation Allowances (aEUA) or EUAA) takes place primarily at the trading centres in Amsterdam (ICE Endex) and Leipzig (EEX). In addition, relevant over-the-counter trading is also performed. Auctions, i.e. auctioning European allowances ((EU-Allowances (EUA)) or (EU Aviation Allowances (aEUA) or EUAA) currently take place exclusively on the EEX.

Auctions are held almost daily. This regularity ensures that the auctions are seamlessly integrated into market activity. As a result, prices realised at the auctions align with the price level in continuous exchange trading on the secondary market.

All auction results are published online within a few minutes. This serves to maximise market transparency. We regularly report on the entire market activity for the allowances in our monthly auction reports.

The auctioning reports published by DEHSt not only cover the auctions but also the much larger volume of continuous trading on the exchanges. In relation to the relevant overall allowances market, about six percent of the traded volume in 2023 could be attributed to auctions.

The adoption of an amended Emissions Trading Directive in 2018, the introduction of the Market Stability Reserve in 2019 and the expectation of more ambitious caps in the future due to the implementation of the ‘European Green Deal’ led to an upward trend in EU-Allowances (EUA) prices, which reached new highs at the beginning of 2023. However, there was a downward correction up to the beginning of 2024.

Overview of price history and allowance surpluses:

Find further information on auctioning

A large part of the revenue from the auctions in EU ETS 1 will be used specifically to promote decarbonisation in industry and the energy sector

• 100 per cent of the national auction proceeds must be used by the member states for climate protection. In Germany, 100 per cent of the revenue is even channelled into the Energy and Climate Fund (EKF), which finances a wide range of climate protection, energy efficiency and renewable energy measures.
• Furthermore, two European funds have been set up to promote low-emission innovative technologies (Innovation Fund) and to modernise the energy sector (Modernisation Fund). While the Innovation Fund promotes innovative projects in the energy sector and industry in all member states, the Modernisation Fund is specifically intended to help poorer member states decarbonise their energy systems.

The revenue from the auctions in the EU ETS 2 will be utilised via the EU Climate and Social Fund, among others.