Surplus emission permits start decreasing in the EU’s emissions trading system

The report ‘Trends and projections in the EU ETS in 2016 – The Emissions Trading System in numbers,’ provides the latest assessment of past, present and future trends in the system in terms of greenhouse gas emissions and emission allowances. The analysis is based on the latest data available from the European Commission and Member States. The EU ETS is a cornerstone of the EU’s efforts to combat climate change.

Postponing the auctioning of 300 million allowances in 2015 contributed to reducing by 17 % the surplus of 2.1 billion emission allowances that had accumulated in the system since 2008. The surplus remains substantial, equivalent to one year’s worth of CO2 emissions in the EU ETS. This keeps allowance prices at levels providing a limited incentive for the more expensive options needed to decarbonise the European economy in the long term.

Emissions continue to decline under the ETS…

Greenhouse gas emissions covered by the EU ETS declined by 0.7 % in 2015 compared to 2014. Overall, EU ETS emissions decreased by 24 % between 2005 and 2015 and are now below the cap set for 2020. The decrease was mostly driven by changes in the type of fuels used for power generation (less hard coal and lignite fuels and a jump in renewables). Emissions from the other industrial activities covered by the EU ETS have also decreased since 2005, but remained stable in recent years.

…but reductions are expected to slow down

According to projections available from EU Member States, emissions under the EU ETS will continue to decrease with the current policies and measures in place, although at a much slower pace than between 2005 and 2015. As many as 13 EU Member States project increases in their ETS emissions up to 2030 (Belgium, Croatia, France, Hungary, Ireland, Italy, Latvia, Lithuania, Romania, Slovakia, Slovenia, Spain and Sweden).

These projections do not all account for recent policy developments to address the current surplus (a market stability reserve) and the proposal for a steeper annual decline of the overall number of allowances from 2021 onwards, in order to put the ETS on track to achieve a 43 % cut in emissions by 2030 compared to 2005, as a contribution to the EU’s 40 % reduction target for total EU emissions by 2030 compared to 1990.