What is emissions trading?
Let's start at the beginning. Emissions trading revolves around emission allowances: permits that give companies the right to emit a certain amount of greenhouse gases. One allowance is equal to the emission of one ton of CO2. This sounds simple, but it's a powerful mechanism. Why? Because the number of available (permitted) allowances decreases every year. Fewer allowances equals less emissions.
The price of emission allowances, the CO2-price, in European emissions trading, is determined by supply and demand. As allowances become scarcer, the price rises. This presents companies with a choice: pay to pollute or invest in cleaner, more efficient production methods that save costs in the long term and are better for the climate.
This approach makes emissions trading more than just a financial regulation. It is a catalyst for change. Companies are encouraged to embrace innovative technologies, not only to comply with legislation, but also to strengthen their competitive position. By having companies jointly reduce their carbon emissions, global climate goals come within reach. And the great thing is that companies play an active role in this.
How much does an emission allowance cost?
The price of an emission allowance is determined by supply and demand. The number of available allowances is limited and also decreases every year. This creates market forces that benefit the climate. It means carbon emissions for heavy industry and energy companies are becoming significantly more expensive each year. In the period up to 2030, the price of one emission allowance is expected to rise from €80 to almost €100, according to research by Statista.
However, some companies do receive emission allowances for free. This may seem contradictory, but in some cases it is necessary to prevent companies from moving their production to a country outside the EU. Although this scheme for free emission allowances is being phased out more quickly now. In 2023, the global emissions trading market was worth €881 billion.
European standard
Emissions trading is an economic system that allows companies to buy and sell emission allowances. It is designed to create a financial incentive for reducing greenhouse gas emissions. Within the EU Emissions Trading System (ETS), the world's largest emissions trading program, companies are allocated a certain number of emission allowances. Companies that emit less than their limit can sell their excess allowances to other companies that need more. This system supports the "polluter pays" principles and at the same time promotes sustainable innovations by internalizing the costs of pollution.
The EU ETS was launched in 2005 and has since grown into the largest emissions trading system in the world. A total of 30 countries are taking part, including all EU Member States, Iceland, Norway and Liechtenstein. Together they work to reduce carbon emissions in Europe.
Increasingly extensive, step by step
The importance is significant: approximately 10,000 companies in Europe fall under the EU ETS. These companies are together responsible for almost 45% of total carbon emissions in the EU. Initially, the EU ETS focused on heavily polluting industries and energy producers. These sectors accounted for the greatest impact on emissions and were a logical place to start. But the system has developed over time. In 2012, aviation was added, followed by maritime shipping in 2024.
More sectors will follow in the coming years. From 2028 onward, transport, buildings and other sectors, including possibly waste incineration, will fall under a similar emissions trading system. Although this new system is separate from the current EU ETS, it works on the same principles: a limited number of emission allowances and a decrease in permitted emissions over time.
This gradual expansion shows how flexible the EU ETS is in tackling new challenges. The system not only offers a route to a more sustainable Europe, but also proves that market mechanisms can effectively contribute to achieving climate goals.
How diaper recycling affects emissions trading
By recycling diapers, we can directly contribute to the reduction of greenhouse gas emissions. This has several implications for emissions trading:
- Fewer emission allowances needed: Municipalities and waste processing companies that use recycling techniques can significantly reduce their emissions. This creates surplus emission allowances on the market, thus generating additional revenues and lowering the market price of emission allowances.
- Innovation and scaling up: Within the EU ETS, parties can obtain emission allowances for sub-installations, free of charge. Diaper recycling could qualify for this based on benchmarks, because it produces polymers and uses heat. Innovative waste processors can thus create even more value in this circular transition by recycling diaper waste and using heat.
- Chain reaction: Diaper recycling can act as an important catalyst in raising wider awareness of waste management and carbon emissions. Municipalities and companies that actively focus on diaper recycling lead by example, which can contribute to greater involvement and even behavioral change among citizens and companies.
Less waste in incinerators reduces carbon emissions from municipalities and waste processors, which means fewer emission allowances are needed. This in turn reduces the demand for emission allowances and thus encourages companies to become more sustainable, quicker. This way, diaper recycling not only creates direct emission gains, but also starts a chain reaction that contributes to a broader impact in society.
Win-win for climate and economy
The emission reduction from diaper recycling, together with emissions trading, therefore offers a unique opportunity to intensify the fight against climate change. By using waste intelligently, we can not only reduce greenhouse gas emissions, but also create economic benefits within the Emissions Trading System. Whether it’s developing new markets in Europe or increasing impact in the Netherlands, one thing is for sure: diaper recycling has the potential to create tangible change. A change that pays off.
