The importance of the EU Emissions Trading System in climate change mitigation

Maintaining the integrity, predictability and effectiveness of the EU ETS is also essential for providing investment certainty, generating resources for the green transition, and reinforcing the innovation and competitiveness of Europe’s industrial frontrunners.

The EU ETS offers clear, system-wide benefits which include:

1. Contributing to achieving EU climate targets

The EU ETS is a key component in meeting the EU’s 2030 and 2040 climate objectives.

Projections reported by EU Member States indicate that emission reductions in sectors which are covered by the EU ETS are currently the main contributors to achieving the EU’s 2030 climate targets. By contrast, emission reductions under the Effort Sharing Regulation (ESR), as well as removals by the Land Use, Land Use Change and Forestry (LULUCF) Regulation, are projected to fall short of their respective targets under current and envisaged policies (EEA, 2025a).

2. Boosting energy security and the green transition

Carbon pricing is central to decreasing emissions from energy and industry, providing a consistent signal to shift investment towards low-carbon technologies. A robust EU ETS underpins both climate goals and the long-term resilience of Europe’s energy system (EEA, 2025b).

By accelerating decarbonisation, the EU ETS encourages firms to adopt the most cost-effective solutions — energy efficiency, electrification and renewables — while reducing reliance on imported fossil fuels. This also strengthens energy security. Oil and gas remain the EU’s dominant fuels, with around 98% being imported in 2022. This exposes the bloc to supply risks, price volatility and geopolitical shocks. 2022 also saw a surge in the EU’s energy import bill to nearly 4% of GDP — roughly double the historical level — underscoring existing vulnerabilities and the costs of continuing fossil-fuel dependence.

3. Supporting global climate action

The EU ETS is the first large-scale international carbon market and remains the largest globally in terms of trading volumes (Nissen et al., 2025). It has served as an important reference for carbon pricing mechanisms developed in other regions and is not limited to EU countries: Switzerland, Norway, Iceland, and Liechtenstein are all linked to the EU ETS. The European Commission is also currently negotiating with the UK to link their two ETSs, with potential benefits on both sides in terms of affordable energy, energy savings, emission reductions and reduced trade barriers. Linking the two schemes also enjoys broad support from NGOs, business associations, manufacturers and energy producers on both sides of the channel (EPRS, 2025).

Following the announcement and establishment of the Carbon Border Adjustment Mechanism (CBAM), more countries have been investigating how to set up carbon pricing, and this issue has become an important part of global climate diplomacy (Delbeke, 2024). Meanwhile, the EU ETS is also a key pillar of EU architecture to achieve its Nationally Determined Contribution (NDC) under the Paris Agreement.  

A strong EU ETS can help promote confidence in carbon pricing and credibility in international climate discussions.

4. Providing resources for clean innovation (and a just transition)

Long-term predictability of carbon pricing policies is necessary to mobilise private investment, as many decarbonisation technologies involve high upfront costs and long payback periods. A stable and credible carbon price trajectory reduces investment risk and strengthens incentives for firms to decarbonise (ESABCC, 2023).

In 2024, the EU ETS generated approximately €38.8 billion in revenues that were split between Member States (which received €24.4 billion directly) the Innovation Fund (€2.4bn), the Modernisation Fund (€6.3bn), the Recovery and Resilience Facility (€5.6bn), and the EFTA countries and Northern Ireland (€0.25b) (EEA, 2025c). Currently, only a small share of ETS revenues is channelled towards industrial decarbonisation efforts and there is scope for further increasing this share (CAPR, 2025). Targeted use of such revenues can help accelerate the transition of sectors covered by the EU ETS, while supporting both the deployment of low-carbon technologies and the competitiveness of industry frontrunners.

Between 2020 and 2030, the Innovation Fund aims to provide €40bn to support highly innovative technologies that can bring down emissions (EC, 2025). It plays a strategic role in strengthening EU competitiveness in climate mitigation technologies (Draghi report).

The EEA’s role in the EU ETS and greenhouse gas emissions

The European Environment Agency (EEA) supports the EU climate policy framework — including the EU Emissions Trading System (EU ETS) — by providing independent data, analysis, and assessments. It compiles and quality-assures Member States’ greenhouse gas emissions data and evaluates progress towards EU climate targets. The EEA also reports on emissions trends, EU ETS contributions, and interactions with instruments like the Effort Sharing and LULUCF Regulations. This includes developing projections, analysing policy effectiveness, and evaluating risks. While it does not manage the EU ETS, the EEA ensures transparency, comparability, and robustness of information, supporting informed policymaking, accountability, and the credibility of EU climate policy.