In 2009 the European Parliament adopted a climate and energy package, which set ambitious targets for climate and energy policy until 2020, including certain requirements in relation to the total quantity of emissions allowances in Emission trading system from 2013. Emission trading is one of the main mechanisms to reduce greenhouse gas emissions. The emission trading system has been operating in the European Union (EU) since 2005. The third phase will start in 2013 when stricter allocation rules will be applied. The system will also allow exclusion of small installations that annually emit less than 25 thousand tCO2 and their installed capacity are 35 MW and less. However other equal mechanisms should be applied to the excluded installations instead. A study was carried out to evaluate other mechanisms for small installations. The study included a calculation of different CO2 tax rates and a comparison of different CO2 tax rates with the Emission trading system for 2013-2020. The study has estimated that the rate of CO2 tax in Latvia should range from € 3 to € 30 per tCO2.