European Union Allowances
A European Union Allowance (EUA) is the equivalent of one tonne of carbon dioxide equivalent (CO2e). In order to reduce the emissions of greenhouse gases, the European Union Emission Trading Scheme will impose caps on the amount of European Union Allowances permissible in any EU member state. In turn, each EU member state must draft a National Allocation Plan (NAP), which must be approved by the European Commission, setting out how the maximum annual volume of EUAs in that EU member state is to be divided between the various sectors of GHG emitters, and setting limits on individual emitters. These caps are deliberately challenging, so as to encourage GHG emission reduction and the development of a trading market in emission reduction credits.