Greenhouse gas emissions under the EU Emissions Trading System

Greenhouse gas emissions from power and industry covered by the EU Emissions Trading System (ETS) have decreased steadily in the last decade. Carbon pricing, changes in fuel prices and climate policies have driven emission reductions from stationary installations, contributing substantially to meeting EU climate objectives. However, the drop in EU ETS emissions during the COVID-19 pandemic was followed by a rebound in 2021. The existing 2030 target of a 43% reduction compared with 2005 is within reach, but substantial efforts will be needed to achieve the newly proposed target of a 61% reduction.

Published: ‒ 25min read

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, and a separate cap on flights within Europe. The EU ETS sectors together account for 36% of total emissions from the European Economic Area.

Stationary emissions covered by the EU ETS have steadily decreased in recent years, with a sharp decline in 2019 and during the COVID-19 pandemic in 2020. The main drivers of long-term reductions have been an increasing carbon price set by the EU ETS, changing fuel prices (particularly periods of low gas prices, which 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 the COVID-19 pandemic. Data for 2021 show a notable rebound in emissions, linked to post-pandemic recovery and an increase in the price of gas, with emissions being 82 megatonnes of carbon dioxide equivalents (MtCO2e) higher than in 2020. Emissions remained well below pre-COVID-19 levels, however, with ETS emissions in 2021 being 36% below 2005 levels when the ETS started.

Projections provided by participating countries, based on a ‘with additional measures’ scenario, indicate that, in 2030, ETS emissions will be 47% below 2005 levels. Emissions are projected to remain under the existing cap level until then. The power sector and, to a lesser extent, manufacturing industries are expected to account for most of the projected reduction in ETS emissions.

The current 2030 target to reduce ETS emissions by 43% compared with 2005 levels is likely to be met. In July 2021, the European Commission adopted a series of legislative proposals that aim to decrease GHG emissions by 55% overall by 2030, compared with 2005 — the Fit for 55 package. They also aim to achieve climate neutrality by 2050. For emissions covered by the EU ETS, this would mean a more ambitious target, of a 61% reduction compared with 2005, and a more stringent yearly emissions cap. More efforts to decarbonise the sectors covered by the ETS will be required to meet the newly proposed target.

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 (61%), hence explaining why the reduction in this sector is responsible for most of the overall reduction in emissions in the last decade. Although emissions from ‘combustion of fuels’ increased in 2021, they did remain below pre-pandemic levels.

ETS emissions from industry show a mixed picture. Overall, industry emissions have declined slightly since 2013, driven by decreases in emissions from oil refining and the iron and steel sector. All industry sectors dropped in emissions in 2020, followed by a rebound. Notably, emissions from the iron and steel sector made a full recovery in 2021.

Flights departing from and landing in certain European countries 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. Aviation emissions rebounded slightly in 2021 and are expected to climb in the coming years.

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