Section C. Estimated Emissions Adjusted for Trading Within the EU Emissions Trading System (EU ETS)
This section of the publication presents data on source greenhouse gas emissions which have been adjusted to take into account of trading in the EU Emissions Trading System (EU ETS). This is the basis on which Scotland's statutory targets are measured against under the Climate Change (Scotland) Act 2009.
What is the EU Emissions Trading System (EU ETS)?
Launched in 2005, the EU ETS is an EU policy aimed at mitigating climate change by limiting greenhouse gas emissions from industry sectors and aviation. Participants include more than 11,000 heavy energy-using installations in power generation, the manufacturing industry and airlines across 31 countries in the European Economic Area (EEA).
How does the EU ETS work?
The EU ETS is a 'cap and trade' system. A limit (cap) is placed on the overall volume of emissions from participants in the system. Within the cap, organisations receive or buy emissions allowances which they can trade (1 emissions allowance equals 1 tCO2e). Each year, an organisation must surrender enough allowances to cover its emissions. The cap is reduced over time so that by 2020, the volume of emissions permitted within the system will be 21 per cent lower than in 2005. The reducing cap, alongside the financial considerations of trading emissions allowances, incentivises organisations within the system to find the most cost effective way of reducing their emissions. The EU ETS operates as a number of Phases. Phase III of the EU ETS began on 1 January 2013 and will operate until 31 December 2020.
Scotland in the EU ETS
The EU ETS contributes to delivering Scotland's Climate Change Targets through incentivising the reduction in emissions from Scottish organisations participating in the system. In 2017, there were 76 fixed Scottish installations which are regulated by Scottish Environment Protection Agency (SEPA) that surrendered emissions allowances in the EU ETS.
What are 'traded emissions' and 'non-traded emissions'?
In the greenhouse gas inventory, source emissions can be categorised into traded and non-traded. Traded emissions capture those that come from installations covered by the EU ETS, whereas non-traded emissions are those which do not fall within the scope of the EU ETS. The emissions from some sectors, such as the residential sector, are completely non-traded whereas emissions from other sectors, such as energy supply and business and industrial process are a combination of traded and non-traded. For the years 2012 to 2017, CO2 emissions from domestic and international aviation are classified as being within the traded sector.
Chart C1. Estimate of Traded Emissions Surrendered in the EU Emissions Trading System (EU ETS) and Non-Traded Greenhouse Gas Emissions by Scottish Government Sector, 2017. Values in MtCO2e
The Scotland figure for the emissions which have been surrendered in the EU ETS is slightly different to that reported for traded emissions in the Greenhouse Gas Inventories for England, Scotland, Wales and Northern Ireland report produced by Ricardo and Aether on behalf of the devolved administrations. There are number of reasons for this:
Firstly, the estimate of surrendered emissions include an estimate of carbon dioxide emissions surrendered from domestic and international aviation. Unlike for fixed installations, it is not possible to accurately estimate Scottish emissions which have been surrendered from aviation directly from aviation operators. Instead, the Scottish Government received advice from the Committee on Climate Change to estimate the aviation emissions surrendered in the EU ETS by using figures taken directly from the 1990-2017 greenhouse gas inventory.
Secondly, operators who participate in the EU ETS must, by 30 April in each year, surrender a number of allowances equal to the annual reportable emissions which the installation made in the previous year. However, as a result of errors or non-compliance in the EU ETS, the figure on surrendered and reported emissions can differ, until both are finalised. These can be on-going situations throughout each Phase of the EU ETS. By the end of each Phase any difference between the two figures should be rectified.
What are adjusted emissions and the Net Scottish Emissions Account (NSEA)?
The Scottish climate change targets are assessed against the Net Scottish Emissions Account (NSEA), which is detailed in the Climate Change (Scotland) Act 2009 and has been reported for each year from 2010 to 2017 as part of the Act. The NSEA accounts for the greenhouse gas emissions from sources in Scotland, Scotland's share of emissions from international aviation and international shipping, the effect of any relevant emissions removals (e.g. "carbon sinks" such as woodland) and the effect of the sale and purchase of relevant carbon units (tradable emissions allowances) in the EU ETS.
The EU ETS element of the NSEA is calculated by taking the difference between Scotland's notional share of the overall EU ETS cap and the number of emissions allowances surrendered from Scottish fixed installations in a given year, as well as an estimate of CO2 emissions surrendered from Scotland's share of domestic and international aviation. This amount is then added to non-traded net emissions to get the NSEA.
The NSEA formula is as follows:
The figure for the NSEA are known as adjusted emissions, as they are adjusted to take account of trading within the EU ETS. This adjustment takes the form of a 4-step process, which is outlined in Chart C2.
Chart C2. Calculation of Adjusted Emissions for Trading in the EU Emissions Trading System (EU ETS), 2017. Values in MtCO2e
Calculation of adjusted emissions
Take the Scottish greenhouse gas emissions from Scottish greenhouse gas inventory (for 2017, it is 40.522 MtCO2e). This figure is comprised of:
- traded emissions units surrendered - sourced from Scottish Environment Protection Agency (SEPA) for fixed installations (9.089 MtCO2e)
- an imputed estimate of surrendered CO2 emissions from domestic aviation (0.506 MtCO2e) and international aviation (1.524 MtCO2e) - sourced from the Scottish Greenhouse Gas Inventory for 1990 to 2017
- non-traded emissions from sources such as residential emissions (29.403 MtCO2e)
Remove an amount relating to surrendered emissions from fixed installations and an estimate of surrendered emissions from domestic and international aviation. This amounts to 9.089 MtCO2e + 0.506 MtCO2e + 1.524 MtCO2e = 11.119 MtCO2e.
Add on the value of the EU ETS cap which is outlined within The Carbon Accounting Scheme (Scotland) Amendment Regulations 2019 . The cap reflects an estimate of the Scottish share of the European wide EU ETS cap that is used for emissions accounting.
The Scottish EU ETS cap for 2017 is 17.008 MtCO2e. The Scottish Government has published a methodological paper titled Determining a Scottish EU ETS cap for 2017, which documents the calculations that determine how a notional emissions cap has been calculated for: (i) greenhouse gas emissions from fixed installations located in Scotland, and (ii) Scotland's share of emissions from domestic and international aviation.
Adding on the value of the EU ETS cap gives a value of 46.410 MtCO2e.
In 2017, the adjusted emissions which take account of trading in the EU ETS is 46.410 MtCO2e. This is 5.9 MtCO2e higher than the value of estimated source emissions in 2017. Under the Climate Change (Scotland) Act, 2009 , an upward adjustment to source emissions is referred to as a debit from the Net Scottish Emissions Account . This means that 5,888,794 units have been debited from the Net Scottish Emissions Account in 2017.
Scottish Climate Change Targets
Scotland has a number of targets for reducing greenhouse gas emissions contained in legislation, within the Climate Change (Scotland) Act 2009. These targets can be summarised as follows:
The Act creates a statutory framework for greenhouse gas emissions reductions in Scotland by setting an interim target of at least a 42 per cent reduction for 2020, and at least an 80 per cent reduction target for 2050. These reductions are based on a 1990 baseline (1995 for the F-Gases). The Act also requires that Scottish Ministers set fixed annual targets for emissions at least 12 years in advance. In October 2010 the Scottish Parliament passed legislation setting the first batch of annual targets, for the years up to 2022. Targets for 2023-2027 were set in October 2011.
The 2017 target is 43.946 MtCO2e.
Achievement of Scotland's targets is measured against the level of the Net Scottish Emissions Account (NSEA). There is a limit on the net amount of carbon units that may be credited to the NSEA in addition to those from the EU Emissions Trading System. The Climate Change (Limit on Carbon Units) (Scotland) Order 2010 specifies that the net amount of carbon units that may be credited to the Net Scottish Emissions Account for the period 2010-2012 is zero. The Climate Change (Limit on Carbon Units) (Scotland) Order 2011 sets limits for the period 2013-2017. For 2017, no additional carbon units were credited to the Net Scottish Emission Account.
Chart C3 contains data from the latest (1990-2017) inventory, adjusted for trading in the EU Emissions Trading System as well as data on progress against the 42 per cent and 80 per cent reduction targets. These percentage targets are based on a percentage reduction from the Baseline Period in the latest inventory.
Chart C3. Percentage Reductions Targets – Based on Adjusted Emissions. Values in MtCO2e
Chart C4 contains data from the latest (1990-2017) inventory, adjusted for trading in the EU Emissions Trading System. The fixed annual targets are also presented on this chart. The fixed annual targets were set at the time of the 1990-2008 inventory which was published in 2010. Emissions adjusted for trading in the EU ETS using the 1990-2008 are shown for context.
Since the publication of the 1990-2008 inventory there have been a large number of revisions to the underlying data, reflecting new scientific understanding of emissions from different sources. Overall, these revisions have increased the estimates of historic emissions.
As a consequence, the absolute reduction in emissions required to achieve the fixed targets set in 2010 is now larger than when the targets were set.
These revisions have less of an impact on the scale of the reduction required to meet the 2020 and 2050 targets as both are measured in terms of the percentage reduction from the baseline period.
Chart C4. Comparison of Adjusted Emissions and the Fixed Annual Targets which are based on the 1990-2008 Inventory. Values in MtCO2e
Effect of the adjustment to take into account of trading in the EU Emissions Trading System
Chart C5 demonstrates the effect of the adjustment of source emissions for trading in the EU ETS, for calculation of the Net Scottish Emissions Account (NSEA).
Chart C5. Greenhouse Gas Emissions Adjusted for the Emissions Trading System (EU ETS). Values in MtCO2e
In five of the last 13 years, the adjustment has increased reported emissions, with 2011, 2012, 2016 and 2017 showing sizeable increases from the adjustment relative to source emissions. In 2013, 2014, and 2015 the adjustment resulted in sizeable decreases compared to source emissions. In 2017, the adjustment represented an increase of 5.889 MtCO2e. . This large adjustment is a result of a significant increase in auctioned allowances, which had previously been withheld within the system at an EU level.