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Europe’s Emissions Trading System (ETS) has seen significant greenhouse gas emission reductions since its inception in 2005. Carbon pricing, changes in fuel prices and climate policies such as those promoting renewable energy, have driven emission reductions from stationary installations and contributed substantially to EU climate objectives. After a post-pandemic rebound in 2021, emissions returned to a downward trend in 2022 due to reductions from industry. The new ETS target for 2030 is defined as a 62% reduction compared to 2005 for the whole ETS scope. According to recent projections, this target could come within reach if strong and decisive action is taken.
The EU Emissions Trading System (ETS) is a ‘cap and trade’ system operating in the European Economic Area . It sets a yearly cap on greenhouse gas (GHG) emissions from stationary installations, covering power and carbon-intense industries, flights within the European Economic Area and, from 2026, international navigation. In 2022, the EU ETS emissions from stationary installations accounted for 37% of total GHG emissions from the European Economic Area.
Stationary emissions covered by the EU ETS have significantly decreased since the inception of the system in 2005. The main drivers of long-term reductions have been an increasing carbon price set by the EU ETS, changing fuel prices (which has encouraged a switch from carbon-intensive coal) and renewable energy policies that promote the decarbonisation of the power sector. Lower energy demand has also played a key role, resulting from the roll-out of energy efficiency measures, declining demand for certain industrial products and global events such as the 2008 economic crisis and the COVID-19 pandemic. Data for 2022 show a slight decrease of 24 megatonnes of carbon dioxide equivalents (Mt CO2e) in emissions from stationary installations following the rebound of 2021. Emissions remained higher than the minimum observed in 2020, however, with ETS emissions in 2022 at 37% below 2005 levels.
In May 2023, the ETS Directive was amended to include a new, more ambitious target for emissions covered by the EU ETS, namely a 62% reduction compared with 2005 for the whole ETS scope, including aviation and shipping, as well as a more stringent yearly emissions cap. This was part of a series of legislative proposals that aim to reduce the EU’s net GHG emissions by 55% by 2030, compared with 1990— the Fit for 55 package. The EU also aims to achieve climate neutrality by 2050.
Projections provided by participating countries, based on a 'with existing measures' (WEM) scenario, indicate that, in 2030, stationary ETS emissions can be expected to reach emissions levels that are 55% below 2005 levels. The more ambitious “with additional measures” (WAM) scenario projects a 59% reduction compared to 2005. The power sector and, to a lesser extent, manufacturing industries are expected to account for most of the projected reduction in ETS emissions. According to the projections, ETS emissions would exceed the cap between 2025 and 2028. The EU ETS target still reaches further than the more ambitious projections scenario by a small margin. It shows that with strong, decisive and continued efforts, the EU has a chance to meet its ETS target. It should be noted, however, that the projections do not yet fully take the new EU ETS scope into account, and full comparability will first be possible once the scope of the projections and target match fully.
Most of the reduction in EU ETS emissions is accounted for by a reduction in emissions from ‘combustion of fuels’, which mainly covers the power sector. This reflects the ongoing decarbonisation of the European energy system, characterised by a switch from coal to gas and renewables. This activity is by far the largest contributor to ETS emissions (60%), explaining why the reduction in this sector is responsible for most of the reduction in emissions in the last decade. Emissions from ‘combustion of fuels’ increased slightly in 2022, partially linked to high gas prices and low production from hydro and nuclear, which encouraged the use of high-carbon fuels (such as coal) in the power sector.
ETS emissions from industry show a mixed picture. Overall, industry emissions have declined slightly since 2013, driven by decreases in emissions from 'other sectors' as well as the iron and steel sector. In 2022, emissions from cement, iron and 'other sectors' decreased significantly, compensating for the slight increase seen in the power sector and in refineries.
Flights within the European Economic Area are also covered by the EU ETS. Emissions from aviation have grown rapidly since 2013, due to increased air travel and difficulties in decarbonising this sector. Emissions were abated only by the strict travel restrictions imposed during the COVID-19 pandemic. Since then, emissions from aviation are accelerating, which reflects an increase in air traffic.