Iceland participates in the EU Emissions Trading System (EU ETS) through the EEA Agreement, not through a separate bilateral agreement. The EU ETS Directive (2003/87/EC) was incorporated into the EEA Agreement through EEA Joint Committee Decision No 146/2007 of 26 October 2007, which inserted the Directive as point 21al of Annex XX (Environment) to the EEA Agreement. Constitutional requirements were indicated by Iceland, Liechtenstein, and Norway; these were fulfilled by 28 December 2007, and the decision entered into force on 29 December 2007. Iceland, Norway, and Liechtenstein have participated in the EU ETS since 1 January 2008 (the start of Phase II) on the same legal basis as EU Member States. Subsequent amendments to the ETS Directive — including the aviation inclusion (Directive 2008/101/EC), the Phase III reforms, and the Fit for 55 revisions — have also been incorporated into the EEA Agreement through further Joint Committee Decisions amending Annex XX. The EEA Agreement framework means that the EFTA Surveillance Authority (ESA) monitors compliance in the EEA EFTA states, while the EFTA Court has jurisdiction over disputes — as demonstrated by the EFTA Court judgment in Case E-2/25 (November 2025) concerning ETS obligations.