Scottish greenhouse gas emissions 2016

Section C: Estimated Emissions Adjusted for Trading Within the EU Emissions Trading System (EU ETS)

Introduction

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 2016, there were 72 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 2016, 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, 2016.  Values in MtCO₂e

Note that 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-AEA 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 has 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 1990-2016 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 2016 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), 2016.  Values in MtCO₂e

Calculation of adjusted emissions

Step 1

Take the Scottish greenhouse gas emissions from Scottish greenhouse gas inventory (for 2016, it is 38.574 MtCO₂e).  This figure is comprised of:

• traded emissions units surrendered - sourced from Scottish Environment Protection Agency (SEPA) for fixed installations (12.166 MtCO₂e)
• an imputed estimate of surrendered CO₂ emissions from domestic aviation (0.478 MtCO₂e) and international aviation (1.425 MtCO₂e) - sourced from the Scottish Greenhouse Gas Inventory for 1990 to 2016
• non-traded emissions from sources such as residential emissions (26.409 MtCO₂e)

Step 2

Remove an amount relating to surrendered emissions from fixed installations and an estimate of surrendered emissions from domestic and international aviation. This amounts to 10.262 MtCO₂e + 0.478 MtCO₂e + 1.425 MtCO₂e = 12.166 MtCO₂e.

Step 3

Add on the value of the EU ETS cap which is outlined within The Carbon Accounting Scheme (Scotland) Amendment Regulations 2016 ^[10].  The cap reflects an estimate of the Scottish share of the European wide EU ETS cap that is used for emissions accounting.

Total EU ETS cap for Scotland, 2016

The Scottish EU ETS cap for 2016 is 15.072 MtCO₂e.  The Scottish Government has published a methodological paper titled Determining a Scottish EU ETS cap for 2016, 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.

Step 4

Adding on the value of the EU ETS cap gives a value of 41.481 MtCO₂e. 

In 2016, the adjusted emissions which take account of trading in the EU ETS is 41.481 MtCO₂e.  This is 2.907 MtCO₂e higher than the value of estimated source emissions in 2016.  Under the Climate Change (Scotland) Act, 2009 ^[11], an upward adjustment to source emissions is referred to as a debit from the Net Scottish Emissions Account ^[12]. This means that 2,906,763 units have been debited to the Net Scottish Emissions Account in 2016.

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^[13].  Targets for 2023-2027 were set in October 2011^[14], and will continue to be set at 5-year intervals.

The 2016 target is 44.933 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^[15] 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^[16] sets limits for the period 2013-2017.  For 2016, no additional carbon units were credited to the Net Scottish Emission Account.

Chart C3 contains data from the latest (1990-2016) 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 (1990-2016) 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.  Emissions adjusted for trading in the EU ETS using the 1990-2008 are shown for context.

Chart C4: Comparison of Adjusted Emissions and the Fixed Annual Targets which are based on the 1990-2008 Inventory.  Values in MtCO₂e

National Performance Framework Sustainability Purpose Targets

In addition to the statutory Climate Change Targets, these statistics are used to monitor progress against the Scottish Government’s Sustainability Purpose Targets.

The Sustainability Purpose Targets were refreshed in March 2016 to align with the percentage reduction targets as prescribed in the Climate Change (Scotland) Act 2009.  There are two Sustainability Purpose targets:

• The long term target (2050) equates to the 80 per cent reduction target
• The short term target (2020) equates to the 42 per cent reduction target Information on progress towards these targets can be found on the Scottish Government Scotland Performs website.

Effect of the adjustment to take into account of trading in the EU Emissions Trading System

Chart C5 demonstrates the effect of the adjustment 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 12 years, the adjustment has increased reported emissions, with 2011, 2012 and 2016 showing sizeable increases from the adjustment.  In 2013, 2014, and 2015 the adjustment has seen sizeable decreases for the reported cap.  In 2016, the adjustment represented an increase of 2.907 MtCO₂e. This reflects Scotland’s notional share of the EU ETS cap in 2016, due to withholding of allowances which can be used within the system at an EU level and the tightening of the EU ETS cap between Phases II and III.