Emissions trading is a quantity control instrument applying the “cap-and-trade” principle. Based on historical data from the years 2008-2012, an absolute quantity of emission allowances is determined in the system (“cap”). For each ETS participant, benchmarks are used to calculate the quantity of emission allowances that are allocated free of charge to the ETS participant regardless of its greenhouse gas emissions. Emission allowances are freely tradable (“trade”) and can be surrendered to the Confederation to cover the greenhouse gases emitted or sold to other ETS participants.
Participation in the emissions trading scheme (ETS)
Certain categories of companies referred to in Annex 6 to the CO2 Ordinance must compulsorily participate in the Swiss emission trading scheme. Research, development and testing facilities as well as special waste management facilities can be excluded from the ETS upon the company's request. If an ETS company’s total emissions in each of the previous three years are less than 25,000 tonnes CO2 equivalent (CO2eq), the company can apply for an exemption from the ETS obligation (“opt-out”). Certain categories of companies referred to in Annex 7 of the CO2 Ordinance can voluntarily participate in the ETS (“opt-in”). In return, all ETS participants are exempt from the CO2 levy. The Swiss ETS currently includes greenhouse gas-intensive companies from the cement, chemicals and pharmaceuticals, refineries, paper, district heating, steel, and other sectors.
Calculation of the free-of-charge allocation of emission allowances (benchmark approach)
ETS companies are allocated emission allowances free of charge on the basis of benchmarks. The free-of-charge allocation is calculated on the basis of product, heat or fuel benchmarks as well as, where appropriate, in accordance with process emissions. Regardless of its actual greenhouse gas emissions, the free-of-charge allocation an ETS participant receives is individually calculated as a function of production volume, heat generated or the amount of fuel used and quantity of emission allowances per unit defined by the respective benchmark. The risk of relocating production abroad due to CO2 costs (“carbon leakage”) is also taken into account in this calculation.
Calculation and use of maximum available quantity of emission allowances (“cap”)
The absolute quantity of emission allowances in the system (“cap”) for the 2013-2020 period was determined on the basis of historical data from the years 2008-2012 (Annex 8 CO2 Ordinance). Because an emission allowance authorises the emission of one tonne CO2 equivalent (CO2eq), this also corresponds to the permissible greenhouse gas emissions in the system. For 2013, the cap was 5.63 million tonnes CO2eq and will decrease annually by the same absolute amount (1.74% of the 2010 baseline) to around 4.9 million tonnes CO2eq in 2020. 5% of the cap is reserved each year for free-of-charge allocation to new market entrants and capacity expansions. This, on the one hand, entitles only plants newly built after 2013 and on the other existing plants with substantial capacity expansions. Emission allowances that have not been allocated free of charge will be auctioned off.
If the sum of all calculated individual allocations exceeds the available quantity of emission allowances (95% of the cap), then the allocations are reduced linearly by the same factor (cross-sectoral correction factor). In 2013, the reduction was 0.09% and increases to 9.91% by 2020. The need for a cross-sectoral correction factor is partly due to the fact that companies were able to optimize their free-of-charge allocation by choosing the reference period and almost all companies were classified as vulnerable to carbon leakage, which resulted overall to higher free-of-charge allocations. In addition, emissions from CO2-neutral fuels such as wood, for example, were not included in totalling the cap. Companies that use CO2-neutral fuels are rewarded because they nonetheless receive a free-of-charge allocation based on the emission factor of natural gas. Emission allowances thus were also allocated for the combustion of CO2-neutral fuels that were not taken into account in determining the cap. The correction factor reduces the individual allocation of individual companies, but does not step up the emission target in the ETS, which is determined solely by the cap and the reduction path of 1.74% per year. The correction factor has no influence on these elements. But it ensures a linear reduction of the free-of-charge allocation so that the emission target is met in the ETS.
Reporting and obligation to surrender emission allowances and emission-reduction certificates
All ETS participants must report their annual greenhouse gas emissions to the Confederation. As a result, emission allowances or, if permitted, emission-reduction certificates, in the amount of these greenhouse gas emissions are to be to surrendered to the Confederation.
An overview of the cap, the reserve and the originally calculated allocation as well as further data and evaluations of the Swiss emissions trading for stationary installations can be found below on this page under “Data”.
Further information for ETS participants is available under “Links”.