Stationary installations
under the EU ETS
Who participates?
More than 8,600 stationary installations and power generators in Europe are covered by the EU ETS.
- Around 71% of installations emit less than 50,000 tonnes CO₂-equivalent per year
- Around 22% emit 50,000–500,000 tonnes per year
- Around 7% emit more than 500,000 tonnes per year
Iceland and the EU ETS
Iceland has been an active participant in the EU ETS since 2013.
Operators covered by the system are required to hold an emission permit issued by the Icelandic Environment and Energy Agency.
In Iceland, the EU ETS covers:
- CO₂ and perfluorocarbon (PFC) emissions from aluminium production,
- CO₂ emissions from silicon metal production, ferrosilicon production and mineral wool manufacturing,
- emissions from installations with a total rated thermal input above 20 MW, such as data centres (backup power) and fishmeal plants,
- and permanent storage of CO₂.
There are ten operators in these categories in Iceland, of which seven participate fully in the EU ETS:
- Aluminium smelters: Rio Tinto Alcan, Norðurál and Alcoa Fjarðaál
- Ferrosilicon plant: Elkem
- Silicon plant: PCC Bakki
- Data centre: Verne Holdings
- CO₂ storage: Carbfix
Operators excluded from the EU ETS
Three operators are excluded from the EU ETS pursuant to Article 20 of Act No. 96/2023 on the EU Emissions Trading System:
- Brim fishmeal plant in Akranes
- Loðnuvinnslan
- Steinull
These operators are nevertheless required to monitor their emissions, submit emission reports to the Icelandic Environment and Energy Agency and pay an emission fee to the state treasury based on their actual emissions.
Companies with activities covered by the EU ETS can be excluded pursuant to Article 20 of Act No. 96/2023 on the EU Emissions Trading System if:
- their annual emissions are below 25.000 tCO₂-eq
- where they carry out combustion activities, the rated thermal input is below 35 MW.
Surrendering of emission allowances
Operators in industry must surrender emission allowances equal to their verified emissions annually for the previous calendar year.
The surrender of emission allowances takes place in the Union Registry.
One allowance equals one tonne of CO₂-equivalent emissions.
If an operator’s emissions exceed its allocation, it must purchase additional allowances on the market.
If an operator fails to surrender enough allowances within the required deadline, the competent authority must impose an administrative fine of EUR 100 per tonne for each tonne not covered in time.
Calculation of free emission allowances
Operators of stationary installations can apply for free allocation of emission allowances for part of their emissions.
The allocation is based on:
- Historical Activity Level
- Benchmarks – based on the average greenhouse gas emissions of the best performing 10% of the installations producing that product
- Carbon Leakage Exposure Factor
- Cross-Sectoral Correction Factor
What is carbon leakage?
Carbon leakage refers to the risk that certain activities may respond to stricter emission reduction requirements by relocating to countries with weaker or no comparable climate rules.
Activities listed as being at risk of carbon leakage receive a higher share of free allocation of emission allowances to mitigate this risk. This includes, for example, aluminium, silicon metal and ferrosilicon production.
To date, most Icelandic companies covered by the EU ETS have received a large share of their allowances free of charge.
Changes ahead
Phase-out of free allowances and the CBAM
With the introduction of the Carbon Border Adjustment Mechanism (CBAM), free allocation of emission allowances to stationary installations with activities at risk of carbon leakage will be phased out.
Initially, CBAM applies to the production of iron and steel, aluminium, cement, and fertilisers (CBAM goods). Additional sectors are expected to be included in the coming years.
CBAM introduces a specific carbon charge on imports of these goods. The charge is based on the greenhouse gas emissions generated during production, and the price of emission allowances under the EU ETS.
Free allocation of emission allowances will decrease annually from 2026 to 2034, when it will be fully phased out.
Summary
- The EU ETS covers a large share of European industry.
- Companies must monitor their emissions, purchase emission allowances if free allocation is insufficient and pay penalties if they fail to meet their surrendering obligations.
- The EU is currently implementing reforms that gradually reduce free allocation and make the system more harmonised and fairer.
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