ETS 2 First Verification Cycle Complete: Lessons from Early Implementation

ETS 2 First Verification Cycle Complete: Lessons from Early Implementation 

Despite external headwinds, mostly due to recent volatility in global oil and gas markets, many fuel suppliers and distributors have successfully submitted their first officially verified ETS 2 reports. However, the verification process revealed recurring data quality and MRV readiness issues that will require attention before the second cycle. 

ETS 2 requires companies placing energy products on the market for use in transport and buildings to monitor, report, verify, and ultimately surrender allowances corresponding to their emissions. The system mirrors many of the core principles of the EU ETS (ETS 1), extending similar compliance obligations to a new set of market participants. 

Similarities with EU ETS (ETS 1) 

In principle, ETS 1 and ETS 2 follow a comparable compliance framework: 

• Companies must establish a Monitoring Plan approved by the relevant national competent authority. 
• Annual emissions must be monitored, reported, and independently verified.  
• Verified emissions must be matched with surrendered allowances within the EU carbon market. 

This alignment ensures consistency across the broader EU emissions trading framework and facilitates a future integration of the two systems. 

Key differences and structural changes 

However, ETS 2 introduces several important differences: 

• No free allocation: Unlike ETS 1, all allowances under ETS 2 will be auctioned, increasing direct cost exposure for companies.
• New scope of actors: Obligations apply primarily to fuel suppliers and distributors rather than industrial installations.  
• Upstream approach: Emissions are accounted for at the point where fuels are placed on the market, rather than where they are consumed. 

In addition, emissions sources are structured into “streams”, typically defined by fuel type. This requires companies to establish clear data flows and methodologies for each product category.

Emissions calculation framework 

Emissions under ETS 2 are calculated using a standardized approach: 

tCO2e=Activity Data (GJ)×Scope Factor×Emission Factor (CO2e/GJ)×Biomass FractiontCO_{2e} = Activity \ Data \ (GJ) \times Scope \ Factor \times Emission \ Factor \ (CO_{2e}/GJ) \times Biomass \ FractiontCO2e =Activity Data (GJ)×Scope Factor×Emission Factor (CO2e /GJ)×Biomass Fraction 

While the formula itself is straightforward, its application in practice has proven challenging for many first-time participants.

Common issues observed during first-cycle verifications include: 

• Inconsistent activity data across fuel streams  
• Incorrect or outdated emission factors applied  
• Gaps in data traceability between commercial fuel sales and reported activity data  
• Incomplete or missing supporting documentation for biomass fraction calculations 

First cycle challenges: What verifiers encountered

The first year of ETS 2 implementation has highlighted several recurring challenges: 

• Limited familiarity with MRV (Monitoring, Reporting, Verification) requirements among new participants  
• Data collection systems not yet fully adapted to regulatory expectations  
• Difficulties in ensuring complete and auditable data trails  
• Resource constraints, particularly for smaller companies entering a compliance-driven environment for the first time  

The gap between regulatory expectations and operational readiness was particularly pronounced among smaller fuel distributors and first-time participants in EU carbon regulation. Companies that engaged verifiers during the monitoring plan approval phase rather than waiting until year-end verification demonstrated measurably stronger MRV readiness. 

As a result, early engagement with verifiers has proven critical in ensuring smooth and timely verification.

Deadlines and national flexibility 

The standard deadline for submission of verified emissions reports is April 30th. However, some Member States, including France, have introduced transitional delays. These postponements, ranging from several months to up to a year depending on product type, reflect the practical challenges of onboarding a large number of new regulated entities. 

Looking ahead: Transition period ending looking ahead 

The current phase of ETS 2 should be understood as a transitional period, with regulators placing greater emphasis on system readiness and data quality rather than strict enforcement. This environment is expected to evolve rapidly over the coming cycles, with:

• Increased regulatory scrutiny  
• Greater harmonisation across Member States  
• Fewer derogations and deadline extensions as systems mature

Over time, ETS 2 is expected to become a significant cost driver in the transport and buildings sectors, pushing companies to integrate carbon accounting into commercial operations, pricing strategies, and supplier contracts. There is also ongoing discussion around a potential convergence of ETS 1 and ETS 2 after 2030. Such a development would create the largest carbon market globally, further reinforcing the importance of robust monitoring and verification practices. 

Our experience 

Normec Verifavia is accredited as an independent verification body under ETS 2 and successfully verified emissions reports for over 10 companies in the first reporting cycle. This experience provided direct insight into both the practical challenges faced by new market participants and the evolving expectations of national competent authorities. 

Contact our ETS 2 verification team to discuss how we can support your second-cycle preparation and help avoid the common issues that extended first-cycle verification timelines.