Compliance Cycle

A compliance period (or compliance cycle) is the interval over which a firm measures its emissions and must hold enough allowances or credits to cover them. At the end of each period, firms surrender allowances; any shortfall triggers a penalty.

Typical structure

Real-world schemes tend to use annual compliance periods within multi-year phases:

• EU ETS Phase 4 (2021–2030): annual surrender, with banking across years.
• India CCTS: the government has proposed annual cycles aligned with the financial year.

Why the period length matters

• Short periods (e.g. one year) give firms less time to plan and invest, but provide the regulator with frequent data to recalibrate the scheme.
• Long periods give firms more flexibility to time their abatement and trading decisions, but delay feedback.

The role of periodic benchmarks

In intensity-based schemes like India CCTS, the benchmark tightens at the start of each new period. Firms know the benchmark in advance, so they can plan capital investments across multiple periods.

In the simulator

The number of periods controls how many compliance cycles the game runs. Each period simulates one compliance year. The period duration (in seconds) controls how much real time each period lasts. A longer duration gives players more time to trade and make abatement decisions.