What is EU ETS 2?
The ‘Fit for 55 package’ will introduce a new independent emissions trading system for buildings, road transport and other industries in the EU (EU ETS 2, as opposed to the existing European Emissions Trading Scheme 1, EU ETS 1). After a three-year reporting phase, EU ETS 2 is due to start in full (that means with a surrender obligation) for participating companies in 2027. Similar to the national emissions trading system (nEHS), EU ETS 2 is an ‘upstream system’ which means that it is not the users of fossil fuels (for example for cars or heating systems) who are obliged to participate, but those companies that place fuels on the market within the scope of EU ETS 2 (for example gas traders).
An overview of EU ETS 2 can be found in the following publication:
What is the legal framework for EU ETS 2?
What is the legal framework for EU ETS 2?
As part of the ‘Fit for 55 Package’, Directive 2003/87/EC was supplemented with regulations governing EU ETS 2 at the EU level. At national level, the European requirements of this directive are being transposed into national law by amending the Greenhouse Gas Emissions Trading Act (TEHG). The relevant draft bill of the TEHG (TEHG E) was published by the Federal Ministry for Economic Affairs and Climate Action (BMWK) on 30/07/2024. However, the legislative process has not yet been completed, and therefore changes cannot be ruled out.
TEHG draft (available in German only)
TEHG-Novelle: Referentenentwurf des Bundesministeriums für Wirtschaft und Klimaschutz
The European Commission has also issued EU regulations on the specific organisation of EU ETS 2. These apply directly to all EU ETS 2 stakeholders in all Member States and therefore do not need to be transposed into national law. The following EU regulations are particularly relevant for the reporting phase:
- The EU Monitoring & Reporting Regulation (2018/2066) regulates the requirements for monitoring and reporting emissions in the EU ETS as a whole, that means also for EU ETS 2.
- The EU Accreditation and Verification Regulation (2018/2067) regulates the accreditation of verifiers in the EU ETS as a whole and, in particular, defines the requirements for the verification of emissions reports by verifiers.
Who must participate in EU ETS 2?
According to the draft bill of the TEHG, all natural or legal persons or partnerships that are defined as debtors of the energy tax in certain cases are obliged to participate in the EU ETS 2 as ‘responsible parties’. These include fuels wholesalers or manufacturers with wholesale distribution who place fuels on the market. This also includes companies that import fuels to Germany, that means import them within the meaning of the energy tax. In cases where storage takes place by third parties in a warehouse as per Section 7(4)(1) Energy Tax Act (EnergieStG) for fuels, the depositor takes the place of the tax warehouse holder as the ‘responsible party’.
This means that the majority of BEHG (Fuel Emission Allowance Trading Act) obligated parties are also among the obligated companies in EU ETS 2.
However, EU ETS 2 does not cover users of tax-free coal outside of EU ETS 1 who are subject to BEHG and operators of waste incineration plants. However, operators of municipal waste incineration plants are obliged to report the emissions from their installations in EU ETS 1 from 2024.
Which fuels are covered by EU ETS 2?
As in the nEHS, fuels placed on the market that are subject to energy tax are also covered by the reporting and surrender obligation in EU ETS 2. However, compared to the current scope of the nEHS, more fuels subject to energy tax are included, for example ‘other energy products’ such as petroleum coke, which are subject to energy tax according to Section 23 Energy Tax Act (EnergieStG).
A fundamental difference to the nEHS is that the scope of EU ETS 2 is limited to certain uses of fuels, that means fuel consumption in the buildings and road transport industries as well as other specific industries. Other industries include the energy industry, the manufacturing industry and the construction industry, which are not covered by EU ETS 1.
In principle, therefore, EU ETS 2 covers those fuels that are energy products according to Section 1(2) and (3) Energy Tax Act (EnergieStG), have been placed on the market and are assigned to the aforementioned industries.
Energy Tax Act (available in German only)
EU ETS 2 does not cover fuels that are placed on the market but are used in EU ETS 1 activities (stationary installations, air transport, maritime transport). Hazardous waste or municipal waste used as fuel is also excluded, although installations for the combustion of municipal waste will be subject to a reporting obligation in EU ETS 1 from 2024.
The EU ETS 2 also does not cover, for example, fuel emissions that are attributable to private, non-commercial aviation or shipping, agriculture and forestry, agricultural road transport, rail transport, fish farming and individual other sectors (e.g. military). The draft amendment to the TEHG provides for an ‘opt-in’ for the expansion of EU ETS 2 in order to include the above-mentioned, non-covered industries in the future. Such an opt-in requires the European Commission’s approval and will only take effect at the beginning of the year following the granting of such an approval decision.
What obligations do EU ETS 2 responsible parties have from 2024?
As in the nEHS, the monitoring plan forms the basis for monitoring and determining emissions in EU ETS 2. A monitoring plan must be submitted for the first time for the 2025 reporting year. In addition, those responsible for EU ETS 2 require an emissions permit. The draft bill of the TEHG stipulates that the application for an emissions permit can be submitted together with the monitoring plan. DEHSt must announce the exact submission deadline in the Federal Gazette at least three months in advance.
In addition, the responsible party is obliged to report by 30 April of each year on the previous year’s emissions (reporting year). An emissions report must be submitted for the first time by 30/04/2025 for the 2024 reporting year. Two special features apply to this first emissions report under EU ETS 2:
- This emissions report is based on ‘historical 2024 emissions’, that means these emissions have not been determined based on a monitoring plan.
- The 2024 emissions report does not need to be verified (verification only from the 2025 emissions report).
Further information on monitoring, the preparation of monitoring plans and the MVO requirements in the reporting phase has been published in the guidance note:
Guidance note (available in German only)
At the beginning of the implementation process for emissions approval and the approval of the monitoring plans, we will provide a detailed guideline on how to create the monitoring plans in the Form Management System (FMS). In order to utilise synergy effects between reporting in the nEHS and in EU ETS 2, data collection for those responsible in the EU ETS 2 will be based on the existing nEHS data structure. This approach is designed to minimise the duplication of data that is both compliant with EU ETS 2 requirements and used in the nETS.
In parallel to the reporting obligation in EU ETS 2, the reporting and surrender obligations in the nEHS will continue to apply in the 2024 to 2026 period.