Emission Trading Scheme
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About the EU's Emissions Trading Scheme

 

The EU’s Emissions Trading Scheme (EU ETS) is the world’s largest carbon market, covering more than 11,000 large scale industrial plants in the EU, as well as Iceland, Liechtenstein and Norway. The EU ETS covers about 40% of the EU’s greenhouse gas emissions, including energy companies, steel and cement plants, as well as intra-EU flights.

The EU ETS sets a limit on the amount of greenhouse gas emissions that can be emitted. Companies covered by the EU ETS receive or buy pollution permits – called EU Allowances -- one EU allowance allows for one tonne of CO2 to be emitted. The cap becomes slightly more stringent every year so that total emissions decline over time to minus 21% in 2020 and to minus 43% in 2030 from 2005 levels.

The ETS aims to help the EU achieve its emissions goals more cost-effectively. Moreover, the EU ETS is supposed to catalyze investments in energy-efficiency and renewable technologies. However, the EU ETS has failed to drive such climate friendly investment and here is why:

If a company has spare permits it can keep them to cover its future needs or sell them to another company. Instead of buying allowances, companies can also buy much cheaper carbon offsets from the Clean Development Mechanism and Joint Implementation. This despite the fact that evidence shows that a majority of these offsets do not represent real emissions reductions. The use of these offsets together with a weak target and the economic recession have made the EU ETS ineffective.

A gigantic surplus of more than 2.1 billion spare pollution permits (EU allowances) has built up. This is more than all companies participating in the ETS are allowed to emit in one year. By 2020, the EU ETS surplus will have grown to between 2.6 and 4.5 billion allowances. As a result, the price for allowances has dropped so significantly that the EU ETS no longer facilitates the transition towards a renewable and energy efficient economy, and companies can delay or cancel investments in cleaner and more efficient production, risking a costly lock-in in carbon intensive infrastructure for years to come.

An overhaul of the EU ETS is urgently needed. Otherwise Europe risks a costly lock-in in fossil fuels for years to come:
• The road to EU ETS reform starts with the Market Stability Reserve (read more in the "MSR" section)
• ETS after 2020: The reforms we need to see (read more in the "ETS after 2020" section)

The low price of pollution permits has allowed coal use in Europe to remain stubbornly high. To reverse this trend and rapidly phase out coal, advocacy work against new coal plants and political lobbying for a range of policy measures that stop subsidizing coal and catalyze energy efficiency and renewable energy are needed. (link to coal section)

The EU ETS has long been hailed as the cornerstone of the EU’s efforts to tackle climate change. Failure to implement effective policy reforms will compromise the EU’s ability to be a global leader on climate issues and may diminish its influence in international climate negotiations leading to a new global climate agreement to be signed in Paris end of this year. 

 

Market Stability Reserve

The EU ETS has faced a severe price crash due to a very large oversupply of pollution permits, called EU allowances (see the "About" section).

The Market Stability Reserve (MSR) as proposed by the European Commission tries to address this supply and demand imbalance and create more price stability. Under the proposal, EU allowances would automatically be put into the MSR when there is a large oversupply of emission allowances and released back into the market when allowances are scarcer.

But the current proposal needs to be strengthened if the MSR catalyze investments in energy-efficiency and renewable technologies.

We propose the following improvements to the European Commission's Market Stability Reserve proposal:

1. Start the Market Stability Reserve in 2016
2. Prevent back-loaded and unused allowances from re-entering the market
3. Make adjustments stronger when the supply is large
4. Limit the surplus from being used as future rights to pollute

 


Read the CAN Europe position on the MSR here.

The Market Stability Reserve is an important first step towards the structural reforms needed to turn the EU ETS into an effective instrument that encourages clean investments and controls emissions (see the "ETS after 2020" section)

 

The following issues must be addressed under upcoming legislative proposals following the October 2014 European Council conclusions on the EU's 2030 climate and energy framework:

Permanently addressing the surplus

The Market Stability Reserve does not provide a permanent solution to the surplus of EU ETS allowances, which may grow to over 4 billion by 2020. It only temporarily removes allowances and returns them to the market over time. Instead, surplus allowances need to be permanently removed as they weaken future climate targets and undermine an adequate pollution price signal. Legal proposals will have to provide a permanent solution that enables cancellation of surplus allowances.

Strenghtening the linear reduction factor

In the context of ratcheting up EU's 2030 emission target ahead of the Paris summit, the ETS linear reduction factor should be increased in line with an economy-wide target of at least 55% domestic greenhouse gas reductions by 2030 – a target required to ensure the EU's fair contribution to the global effort to prevent dangerous climate change. The European Commission's proposal to increase the linear reduction factor to 2.2% after 2021 is far from sufficient to achieve that purpose.

Revising the approach to protecting industries

When production costs for a business in one country get too high they may move their production to another country. So called „carbon leakage" occurs when the higher costs are due to stricter climate policies in one country and the company therefore moves to a country with weaker climate polices.

The European Commission's own impact assessment shows that there is no evidence for carbon leakage due to the EU Emissions Trading Scheme (ETS). On the contrary, industrial sectors accumulated a surplus of one billion pollution permits, worth well over €5 billion. More than 97% of industry's emissions currently receive free pollution permits. From 2013-2020, industry will receive around 5.5 billion pollution permits for free! As a result, the ETS has rather been a benefit than a cost to many energy intensive industries.

Free allocation led to significant loss of government revenues from auctioning, increased overall costs of climate policy and failed to stimulate investments in emission reductions and innovative technologies. The EU's approach to carbon leakage therefore needs to be significantly altered in order to support clean and competitive industries in Europe whilst at the same time avoiding overcompensation. The polluter pays principle should be respected and will need supplementing with support for additional clean and innovative industry investments. Auctioning of emission allowances instead of free allocations ensures simplicity and transparency and provides revenues that can support industries making the transition to low carbon solutions.

For more information, read our briefing on the lack of evidence for carbon leakage and our presentation on carbon leakage and competitiveness.

NGOs contest €39bn in free carbon emission allowa…

On 10 December, WWF, CAN Europe, Greenpeace, Carbon Market Watch and Sandbag will file a request for an internal review with the European Commission, contesting the legality of its recent decision to continue granting free carbon emission allowances to industries under the EU Emissions Trading Scheme (ETS). The allowances, for...

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CAN Europe's position on the EU Market Stability R…

CAN Europe's position on the EU Market Stability Reserve proposal

The European Commission's proposal for a Market Stability Reserve published on 22 January 2014 aims to create more price stability in the EU Emissions Trading System (EU ETS) from 2021 onwards. Under the proposal, EU ETS allowances would automatically be put into the Market Stability Reserve when there is a...

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ETS reform found lacking: EU carbon market proposa…

ETS reform found lacking: EU carbon market proposal published

On January 22 the European Commission published the long-awaited "ETS structural reform" proposal, clarifying that mysterious term which has for a long time described everything from increased 2020 climate targets to permanent cancellation of backloaded allowances. The proposal unveiled by the Commission introduces the concept of a market stability reserve, a...

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Member States must back Parliament's vote to delay…

[Brussels, Strasbourg, 10 December 2013] - Today in Strasbourg, the European Parliament confirmed the position it adopted on 3rd July to amend the EU ETS (Emissions Trading System) Directive to allow the backloading proposal to move forward. Changing the ETS Directive enables delaying auctions of 900 million pollution permits in...

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Publications

Click below to see the most recent documents available.

EU ETSEU ETS

Position Papers

Click below to see the most recent documents available.

EU ETSEU ETS

  1. CAN Europe's Position on the Market Stability ReserveCAN Europe's Position on the Market Stability Reserve (Details) | Size: 604.01 KB | Last Updated On: Nov 07, 2014
  2. EU ETS at a crossroads - NGO Briefing - January 2013EU ETS at a crossroads - NGO Briefing - January 2013 (Details) | Size: 735.46 KB | Last Updated On: Jan 29, 2013
  3. Q & A on EU ETS Reform (Nov 2012)Q & A on EU ETS Reform (Nov 2012) (Details) | Size: 149.05 KB | Last Updated On: Jan 11, 2013
  4. Bulgarian NGO position on ETS auctioning revenuesBulgarian NGO position on ETS auctioning revenues (Details) | Size: 403.31 KB | Last Updated On: Oct 09, 2012
  5. CAN-Europe Position Paper Best use of auctioning revenues from ETS (July 2012)CAN-Europe Position Paper Best use of auctioning revenues from ETS (July 2012) (Details) | Size: 140.02 KB | Last Updated On: Jul 31, 2012
  6. ČEZ or the Czech Republic who will be the winner? Allowances briefing. (June 2012)ČEZ or the Czech Republic who will be the winner? Allowances briefing. (June 2012) (Details) | Size: Empty | Last Updated On: Jul 12, 2012
  7. Analysis of European Commission options to move beyond 20% GHG reductions (Jan 2012)Analysis of European Commission options to move beyond 20% GHG reductions (Jan 2012) (Details) | Size: 201.65 KB | Last Updated On: May 09, 2012
  8. CAN-E submission to public consultation on carbon leakage (12.04.2010)CAN-E submission to public consultation on carbon leakage (12.04.2010) (Details) | Size: 931.44 KB | Last Updated On: Apr 13, 2010
  9. CAN-E Benchmarking EU ETS position paper (Febr. 2010)CAN-E Benchmarking EU ETS position paper (Febr. 2010) (Details) | Size: 482.04 KB | Last Updated On: Apr 13, 2010
  10. CAN-I Position on Carry Over of Kyoto Surplus of Assigned Amount Units (AAUs) (Nov. 2009)CAN-I Position on Carry Over of Kyoto Surplus of Assigned Amount Units (AAUs) (Nov. 2009) (Details) | Size: 174.5 KB | Last Updated On: Apr 13, 2010
  11. EU ETS state of play (Oct. 2009)EU ETS state of play (Oct. 2009) (Details) | Size: 241.76 KB | Last Updated On: Apr 14, 2010
  12. Point Carbon and CAN AAU (Assigned Amount Unit) Report (Oct. 2009)Point Carbon and CAN AAU (Assigned Amount Unit) Report (Oct. 2009) (Details) | Size: 740.12 KB | Last Updated On: Apr 14, 2010
  13. MEP briefing Carbon Leakage (Sept. 2009)MEP briefing Carbon Leakage (Sept. 2009) (Details) | Size: 334.38 KB | Last Updated On: Apr 14, 2010
  14. EU sectoral mechanisms (Sept. 2009)EU sectoral mechanisms (Sept. 2009) (Details) | Size: 341.75 KB | Last Updated On: Apr 13, 2010
  15. Carbon leakage briefing (Sept. 2009)Carbon leakage briefing (Sept. 2009) (Details) | Size: 334.38 KB | Last Updated On: Apr 14, 2010
  16. National Allocation Plans “ an agitator's guide"National Allocation Plans “ an agitator's guide" (Details) | Size: 27.03 KB | Last Updated On: Dec 15, 2010
  17. 2006-Mar_Briefing_paper_Sinks_in_the_EU_ETS_-_FINAL2006-Mar_Briefing_paper_Sinks_in_the_EU_ETS_-_FINAL (Details) | Size: 48 KB | Last Updated On: Dec 13, 2010
  18. CAN E's position on EU dual target (July 2009)CAN E's position on EU dual target (July 2009) (Details) | Size: 187.7 KB | Last Updated On: Feb 15, 2011
  19. Pointcarbon ETS article (May 2009)Pointcarbon ETS article (May 2009) (Details) | Size: 222.15 KB | Last Updated On: Apr 14, 2010
  20. Presentation INFORSE workshop (Apr. 2009)Presentation INFORSE workshop (Apr. 2009) (Details) | Size: 286.5 KB | Last Updated On: Apr 15, 2010
  21. EU ETS implementation list (Febr. 2009)EU ETS implementation list (Febr. 2009) (Details) | Size: 61.7 KB | Last Updated On: Apr 14, 2010
  22. EU CLIMATE PACKAGE OVERVIEW OF OUTCOME OF 12 DEC. AGREEMENT AND EP VOTE - summary (Jan. 2009)EU CLIMATE PACKAGE OVERVIEW OF OUTCOME OF 12 DEC. AGREEMENT AND EP VOTE - summary (Jan. 2009) (Details) | Size: 350.4 KB | Last Updated On: Apr 14, 2010
  23. Presentation: Global leadership means Domestic Action. An NGO response. EU ETS Conf. (March 2008)Presentation: Global leadership means Domestic Action. An NGO response. EU ETS Conf. (March 2008) (Details) | Size: 623.81 KB | Last Updated On: Apr 29, 2010
  24. 270208 NGO ETS_briefing_“GLOBAL LEADERSHIP MEANS DOMESTIC ACTION”270208 NGO ETS_briefing_“GLOBAL LEADERSHIP MEANS DOMESTIC ACTION” (Details) | Size: 39.5 KB | Last Updated On: Dec 15, 2010
  25. Nov. 2007_Joint NGOs statement on Including aviation in the EU Emissions Trading SchemeNov. 2007_Joint NGOs statement on Including aviation in the EU Emissions Trading Scheme (Details) | Size: 191.85 KB | Last Updated On: Jan 19, 2011
  26. NGO_ECCP_EU_ETS Review_submission (07/2007)NGO_ECCP_EU_ETS Review_submission (07/2007) (Details) | Size: 275.52 KB | Last Updated On: Jan 19, 2011
  27. Qualitative restrictions on the use of CDM/JI credits in the EU ETS (Jun. 2007)Qualitative restrictions on the use of CDM/JI credits in the EU ETS (Jun. 2007) (Details) | Size: 212.43 KB | Last Updated On: Apr 14, 2010
  28. ECCP EU ETS review process: written comments CAN and others (Jun. 2007)ECCP EU ETS review process: written comments CAN and others (Jun. 2007) (Details) | Size: 693.88 KB | Last Updated On: Apr 14, 2010
  29. Allocation methods post 2012: Learning by doing are 2 verbs (May 2007)Allocation methods post 2012: Learning by doing are 2 verbs (May 2007) (Details) | Size: 100.35 KB | Last Updated On: Apr 14, 2010
  30. Monitoring and permitting: NGO perspective on strengthening the backbone of the EU ETS (Mar. 2007)Monitoring and permitting: NGO perspective on strengthening the backbone of the EU ETS (Mar. 2007) (Details) | Size: 62.85 KB | Last Updated On: Apr 14, 2010
  31. Improving the EU ETS for the climate NGO perspective on the ETS review: SCOPE (Mar. 2007)Improving the EU ETS for the climate NGO perspective on the ETS review: SCOPE (Mar. 2007) (Details) | Size: 1.42 MB | Last Updated On: Apr 14, 2010
  32. WWF-CAN_NAPS_phase II of the EU ETS (February_2007)WWF-CAN_NAPS_phase II of the EU ETS (February_2007) (Details) | Size: 193.31 KB | Last Updated On: Dec 15, 2010
  33. NATIONAL ALLOCATION PLANS 2005-7 Report (05/06)NATIONAL ALLOCATION PLANS 2005-7 Report (05/06) (Details) | Size: 691.56 KB | Last Updated On: Dec 13, 2010
  34. EEP non-CO2 gases in EU ETS? (Mar. 2006)EEP non-CO2 gases in EU ETS? (Mar. 2006) (Details) | Size: 557.96 KB | Last Updated On: Apr 14, 2010
  35. Briefing Paper: No Sinks in the EU ETS (Mar. 2006)Briefing Paper: No Sinks in the EU ETS (Mar. 2006) (Details) | Size: 48 KB | Last Updated On: Apr 14, 2010
  36. CAN_IEEP_N2O_EUETS_March06CAN_IEEP_N2O_EUETS_March06 (Details) | Size: 223.38 KB | Last Updated On: Dec 13, 2010
  37. CAN-E_position_NAPs_Phase_2_final (june 2005)CAN-E_position_NAPs_Phase_2_final (june 2005) (Details) | Size: 306.28 KB | Last Updated On: Dec 15, 2010
  38. CAN-E presentation on EU ETS review - scope of the EU ETS - no dateCAN-E presentation on EU ETS review - scope of the EU ETS - no date (Details) | Size: 158.81 KB | Last Updated On: Apr 12, 2010
  39. The Durban Declaration on Carbon Trading (Nov. 2004)The Durban Declaration on Carbon Trading (Nov. 2004) (Details) | Size: 115.11 KB | Last Updated On: Apr 14, 2010
  40. Letter on Czech national allocation plan and climate policy (Oct. 2004)Letter on Czech national allocation plan and climate policy (Oct. 2004) (Details) | Size: 38.3 KB | Last Updated On: Apr 14, 2010
  41. Press release: NAPs of the new member states (Oct. 2004)Press release: NAPs of the new member states (Oct. 2004) (Details) | Size: 24.86 KB | Last Updated On: Apr 14, 2010
  42. Press Release:The Linking Directive: Member States must now tighten a weak European deal (Apr. 2004)Press Release:The Linking Directive: Member States must now tighten a weak European deal (Apr. 2004) (Details) | Size: 266.06 KB | Last Updated On: Apr 14, 2010
  43. CAN: Proposed amendment to the EU Emissions Trading Scheme (Febr. 2004)CAN: Proposed amendment to the EU Emissions Trading Scheme (Febr. 2004) (Details) | Size: 39.69 KB | Last Updated On: Apr 14, 2010
  44. CAN letter - Public participation in the national allocation plan process (Nov. 2003)CAN letter - Public participation in the national allocation plan process (Nov. 2003) (Details) | Size: 32.67 KB | Last Updated On: Apr 14, 2010
  45. Emissions Trading Directive a significant step forward, say NGOs (Jul. 2003)Emissions Trading Directive a significant step forward, say NGOs (Jul. 2003) (Details) | Size: 29.49 KB | Last Updated On: Apr 14, 2010
  46. Press release: Dutch Government to buy fake CO2 credits (Mar. 2003)Press release: Dutch Government to buy fake CO2 credits (Mar. 2003) (Details) | Size: 24.7 KB | Last Updated On: Apr 14, 2010
  47. Greenhouse Gas Emissions Trading Directive: use your vote for an effective system (Oct. 2002)Greenhouse Gas Emissions Trading Directive: use your vote for an effective system (Oct. 2002) (Details) | Size: 78.95 KB | Last Updated On: Apr 14, 2010
  48. CAN: No credible climate policy without STRONG RULES (Sept. 2002)CAN: No credible climate policy without STRONG RULES (Sept. 2002) (Details) | Size: 82.17 KB | Last Updated On: Apr 14, 2010
  49. German study: Meinungen in der Industrie zur Einfuehrung eines Emissionshandels (Mar. 2002)German study: Meinungen in der Industrie zur Einfuehrung eines Emissionshandels (Mar. 2002) (Details) | Size: 160.74 KB | Last Updated On: Apr 14, 2010
  50. An open letter to EU ministers on the proposal for domestic trading of GHG allowances (Oct. 2002)An open letter to EU ministers on the proposal for domestic trading of GHG allowances (Oct. 2002) (Details) | Size: 116.56 KB | Last Updated On: Apr 14, 2010
  51. Bradley: Brief Critique of the Commission Emissions Trading Paper (Dec. 2001)Bradley: Brief Critique of the Commission Emissions Trading Paper (Dec. 2001) (Details) | Size: 22.17 KB | Last Updated On: Apr 14, 2010
  52. Emission trading in the EU: let’s see some targets! (Dec. 2001)Emission trading in the EU: let’s see some targets! (Dec. 2001) (Details) | Size: 35.82 KB | Last Updated On: Apr 14, 2010
  53. ETCNE - Emissions trading in the EU (Oct. 2000)ETCNE - Emissions trading in the EU (Oct. 2000) (Details) | Size: 35.49 KB | Last Updated On: Apr 14, 2010
  54. (10/2000) EU ETS CAN Europe position paper(10/2000) EU ETS CAN Europe position paper (Details) | Size: 35.49 KB | Last Updated On: Dec 13, 2010

Contact

Anja-Kollmuss-profile-180x180

Anja Kollmuss

Climate policy coordinator

Email: anja/at/caneurope.org

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