EU ETS scope: does it apply to your installation, and can small emitters be excluded?

An installation is in the EU Emissions Trading System (EU ETS) if it carries out an activity listed in Annex I of the ETS Directive (Directive 2003/87/EC) above that activity's threshold 1 2. For burning fuels, the test is a total rated thermal input (the most fuel the units can take in at full capacity) above 20 megawatts (MW), with units under 3 MW left out of the sum 2 3. A covered installation needs a greenhouse gas emissions permit before it operates 4. Our EU ETS overview explains the rest of the system.

Small emitters aren't out automatically. An EU country may exclude installations that emitted less than 25,000 or 2,500 tonnes of CO₂ equivalent (CO₂e, all greenhouse gases counted as the amount of CO₂ with the same warming effect) a year, but that is the country's choice, not the company's 5 6 7.

Ships and aircraft aren't installations. Shipping companies and aircraft operators fall under separate rules in the same Directive 2 8; our overview covers them, and our guide to the EU ETS for shipping explains the maritime rules.

Does the EU ETS apply to my installation?

Answer these five questions in order. Each one ends in a result and the reason for it.

Is it a stationary installation, and who operates it? The Directive covers a stationary technical unit where one or more Annex I activities are carried out, together with directly associated activities that have a technical connection to them on the same site 7. The operator is the person who operates or controls it 7. The Commission's guidance says one installation has only one operator, so where two companies each run their own part of a site, each part is a separate installation 3. Mobile machinery and vehicles, such as forklifts or trucks, aren't part of an installation, according to the same guidance 3. If you run a stationary installation, go on to the next question.
Is it used for research and testing, or does it run almost entirely on sustainable biomass? Installations or parts of installations used for research, development and testing of new products and processes are not covered 2. Nor are installations where burning biomass that meets the sustainability criteria made up on average more than 95% of emissions over the preceding five-year period used for the list of installations 2 9. The guidance adds that occasional tests in a commercial plant, such as trying a new raw material, don't take it out 3. If neither applies, go on to the next question.
Is it an installation for the incineration of hazardous or municipal waste? Hazardous waste incinerators are outside the combustion activity 2. Municipal waste incinerators with a total rated thermal input above 20 MW have been covered since 1 January 2024, but only to monitor, report and have their emissions verified 2 10 11. The section on waste incinerators below explains what that means. For any other installation, go on to the next question.
Do you carry out an Annex I activity with its own capacity threshold? Annex I lists production activities with a threshold in tonnes, or with no threshold at all; the list is in the next section 2. Where a unit serves such an activity, that activity's threshold takes precedence in deciding whether the installation is in 2. Capacities of activities in the same category at the same installation are added together 2. If you are above the threshold, or the activity has none, the installation is covered. If not, go on to the next question, because the guidance says the 20 MW test can still bring it in 3.
Do your fuel-burning units add up to more than 20 MW? Add the rated thermal input of every unit that burns fuel at the installation, and leave out units under 3 MW 2. Above 20 MW, the installation is covered 2. At 20 MW or less, it is out 2.

If the answer is "covered", the installation needs a permit before it operates, unless its EU country excludes it as a small installation 3 4 5. The section on small emitters shows when that can happen.

Which activities have their own threshold?

Annex I sets these production capacity thresholds 2:

Iron or steel, including continuous casting: above 2.5 tonnes per hour 2
Cement clinker: above 500 tonnes per day in rotary kilns, or above 50 tonnes per day in other furnaces 2
Lime, or calcination of dolomite or magnesite: above 50 tonnes per day 2
Glass, including glass fibre, and mineral wool insulation: melting capacity above 20 tonnes per day 2
Ceramic products by firing, such as roofing tiles, bricks, tiles, stoneware or porcelain: above 75 tonnes per day 2
Drying or calcination of gypsum, and plaster boards and other gypsum products: above 20 tonnes per day of calcined gypsum or dried secondary gypsum 2
Paper or cardboard: above 20 tonnes per day 2
Carbon black: above 50 tonnes per day; bulk organic chemicals: above 100 tonnes per day; hydrogen and synthesis gas: above 5 tonnes per day 2

Some activities are covered at any size: coke, metal ore roasting or sintering, primary aluminium or alumina, pulp, nitric acid, adipic acid, glyoxal and glyoxylic acid, ammonia, soda ash and sodium bicarbonate, and the capture, transport and geological storage of greenhouse gases 2.

Four activities use the 20 MW test instead: refining of oil, production or processing of ferrous metals, secondary aluminium, and production or processing of non-ferrous metals 2. The guidance says units serving two of these activities are added together, so a foundry with 15 MW of units for cast iron and 15 MW for brass reaches 30 MW and is covered 3.

How do I add up the 20 MW?

You add the rated thermal input of all technical units at the installation that burn fuels, then drop those under 3 MW 2. Annex I names the kinds of unit that count: boilers, burners, turbines, heaters, furnaces, incinerators, calciners, kilns, ovens, dryers, engines, fuel cells, chemical looping combustion units, flares, and thermal or catalytic post-combustion units 2. Combustion means any oxidation of fuels, however the heat or energy is used 7. So the test isn't limited to industry: the Commission's guidance names greenhouses, hospitals, universities and office buildings as examples of installations that can be covered 3.

The guidance gives four practical rules for the sum 3:

Rated thermal input is the fuel input the unit can take at full capacity, normally the manufacturer's figure; electric heating doesn't count 3.
A kiln, boiler or dryer with several burners is one unit, so you can't split it into burners under 3 MW 3.
Reserve and backup units count too, unless physical or legal restrictions the authority enforces stop them running at the same time as the main units 3.
Fuels used as reducing agents in metal production count as if they were fuels 3.

Units under 3 MW only drop out of the test 2. Once any threshold in Annex I is exceeded, every unit that burns fuels goes into the permit, except units for the incineration of hazardous or municipal waste 2.

How does that work for a real site?

Example. The figures are made up to show how the rules work 20. A site burns natural gas in boiler A of 8 MW, boiler B of 7 MW, dryer C of 6 MW and two space heaters of 2 MW each, and carries out no other Annex I activity 20.

The two space heaters are under 3 MW, so they stay out of the test 2 20.
The units counted add up to 21 MW, which exceeds 20 MW, so the installation is covered 2 20.
The permit covers all five units, 25 MW in total, because every fuel-burning unit goes in once the threshold is exceeded 2 20.
Assume it emitted 9,000 tonnes of CO₂e, none of it from biomass, in each of the three years before its country's notification 20. That is under 25,000 tonnes, and 25 MW is below 35 MW, so its country could exclude it under Article 27, if the country uses that option and measures with an equivalent effect apply 5 20.
It is above 2,500 tonnes, so the lower exclusion in Article 27a isn't open to it 6 20.

If the operator replaced dryer C with an electric dryer to cut emissions, the units counted would fall to 15 MW 20. The section on falling below the threshold explains what the operator can then choose.

Are waste incinerators covered?

Municipal waste incinerators with a total rated thermal input above 20 MW have been covered since 1 January 2024 "for the purposes of Articles 14 and 15" 2 10 11. That means they monitor and report their emissions for each calendar year and have the reports verified 10 11. The Commission's guidance confirms they have no obligation to surrender allowances for the emissions they report 3.

Hazardous waste incinerators are outside the combustion activity 2. Monitoring follows the Monitoring and Reporting Regulation (Implementing Regulation (EU) 2018/2066), which applies to the activities in Annex I and requires a monitoring plan approved by the competent authority 12 13 14.

Does a municipal waste incinerator need a permit?

Not necessarily, according to the Commission's guidance. Law: Article 4 says no installation may carry out an Annex I activity unless its operator holds a permit, and makes no separate rule for installations covered only for monitoring and reporting 4. Guidance, not binding: the EU country may issue a permit for a municipal waste incinerator covered only for monitoring and reporting, but doesn't have to, while a monitoring plan is required in any case 3. Ask your competent authority what it requires.

How do I know whether my plant counts as municipal?

The competent authority decides, case by case, from the plant's industrial emissions permit and its records of waste received 3. The guidance looks at the type of waste with the largest share by mass over the previous three years: mainly municipal waste means monitoring and reporting only, mainly hazardous waste means out, and mainly other waste means full coverage 3. A unit that burns waste at an industrial site to supply its energy is usually co-incineration, and co-incineration is fully covered 3.

Inside a covered installation, the guidance treats a unit as a municipal or hazardous waste unit, and keeps it out of the permit, if other wastes make up no more than 5% of the mass it burns 2 3.

Will municipal waste incinerators have to buy allowances?

Not under today's law. Commission proposal COM(2026) 616 would phase in an obligation to surrender allowances for them from 2031 to 2034; it is a proposal, not law 15. Our Decode on what the July 2026 review would change follows it 15.

Can a small emitter be excluded?

Yes, but only if its EU country decides to exclude it 5 6. The Directive gives countries two options, and an installation can't opt out by itself:

	Article 27: small installations	Article 27a: very small installations
Emissions	Less than 25,000 tonnes of CO₂e in each of the three years before notification [5]	Less than 2,500 tonnes of CO₂e in each of the three years before notification [6]
Biomass	Emissions from biomass left out of the count [5]	Emissions from biomass disregarded [6]
Size	For combustion, a rated thermal input below 35 MW [5]	No size condition [6]
Other conditions	Measures with an equivalent effect on emissions must apply; the country consults the operator and publishes the details for public comment [5]	Simplified monitoring arrangements; the country makes the details public [6]
Also covers	Hospitals that take equivalent measures [5]	Reserve or backup units that ran no more than 300 hours a year in each of the three years [6]
Back in when	It emits 25,000 tonnes or more in any calendar year, or the equivalent measures end; it then stays in for the rest of the five-year period [5]	It emits 2,500 tonnes or more in any calendar year [6]

Under Article 27, the exclusion counts as approved if the Commission doesn't object within six months after a three-month public comment period 5. An installation excluded under Article 27 gets no more free allowances 5; our explainer on free allocation covers who does.

The guidance adds two points on Article 27 3. Units under 3 MW count towards the 35 MW limit, unlike in the 20 MW test, and a hospital has to show that hospital activities are the installation's main purpose 3.

When can an exclusion take effect?

The country must notify the Commission of each excluded installation at the latest when it submits its list of installations under Article 11(1) 5 6 9. Those lists come every five years: the last ones, for 2026 to 2030, were due by 30 September 2024 3 9 16. By our count, the next list, for the five years from 1 January 2031, is due by 30 September 2029, and the three years checked would be 2026, 2027 and 2028 3 21. No official text states that date; it follows from the five-year rule in Article 11(1).

Does an excluded installation still report?

Its emissions are still watched. The country must have monitoring arrangements in place to check whether an excluded installation crosses 25,000 or 2,500 tonnes in any calendar year 5 6. The guidance says a country may also require excluded installations to keep a greenhouse gas emissions permit 3. Each country makes the details of its exclusions public, so you can check what your country has published 5 6.

What if I am covered but my emissions are low?

The monitoring rules are lighter. An installation is an "installation with low emissions" if the average annual emissions in its verified emissions reports for "the trading period immediately preceding the current trading period" were under 25,000 tonnes of CO₂e 17. That count leaves out CO₂ from zero-rated carbon, such as biomass that meets the sustainability criteria, which the EU ETS rates at zero 10 17. Where that average isn't available, a conservative estimate under 25,000 tonnes a year for the next five years counts instead 17. The operator of an installation with low emissions may base fuel quantities on purchase records and estimated stock changes, use tier 1 as the minimum tier for its data (tiers are levels of accuracy, and higher tiers are more accurate), and use any technically competent laboratory 17. The competent authority may also let it use a simplified monitoring plan, except for installations carrying out activities for which nitrous oxide is included 17 18. If an installation with simplified monitoring goes over the threshold in any calendar year, its operator must tell the authority without undue delay 17.

What if I fall below 20 MW after cutting emissions?

If an installation that is in because of the 20 MW test changes its processes to cut emissions and drops below the threshold, its EU country must let the operator stay in the EU ETS 1. The operator chooses to stay until the end of the current five-year period, or of the next one too 1. The guidance says staying in means keeping every obligation, including surrendering allowances 3.

What should I do?

Work through these steps when you plan a site, and again whenever you add or change a fuel-burning unit:

Check your activities and thresholds. List your Annex I activities and their capacities, then add up the rated thermal input of your fuel-burning units of 3 MW and more 2.
If you are covered, you must hold a greenhouse gas emissions permit before the installation carries out the activity 4. The competent authority issues it once it is satisfied you can monitor and report emissions, and the permit includes your monitoring plan and the obligation to surrender allowances 19. Then follow the yearly cycle: monitor and report each calendar year, and have the report verified 10 11. An operator whose report isn't verified as satisfactory by 31 March can't transfer allowances until it is, and by 30 September it must surrender allowances for the previous year's verified emissions 8 11. Our explainer on the yearly compliance cycle takes each step in turn.
Or, if you emit under 25,000 or 2,500 tonnes of CO₂e a year, you can ask your competent authority whether your country excludes small installations, and what monitoring it requires instead 5 6.
Or, if you run a municipal waste incinerator above 20 MW, you must have a monitoring plan, and you report and verify your emissions without surrendering allowances 2 3 13.
If you are out, keep your calculation, because the thresholds apply to the installation as it is, and a new or bigger unit can bring it in 2.

This is general information, not legal advice. For decisions about your company, check with a lawyer or adviser.