The EU Emissions Trading System (EU ETS) is a key instrument in the fight against climate change in Europe. It aims to reduce emissions in the most cost-effective manner by creating a carbon market. It is the world’s first major carbon market and remains the biggest.
The EU ETS is a ‘cap and trade system’, whereby a cap (i.e. a determined quantity of emission allowances) is set on the emissions from the installations covered by the system. The cap decreases gradually to achieve emission reductions over time. Installations can trade emission allowances with one another, which ensures that emission reductions take place where it costs least.
The EU ETS covers most manufacturing industries, as well as the power sector and intra-EU aviation (departing and landing within participating countries). Its geographical scope is the 27 Member States of the EU (EU-27) plus Norway, Iceland, Liechtenstein and the power sector in Northern Ireland. Due to data availability, this section does not include data for Liechtenstein and Northern Ireland.
What the data are telling us
- Since the start of the EU ETS in 2005, emissions from stationary installations have decreased by 36 %, mostly in the power sector.
- The main driver behind this reduction has been the increasing price of carbon, promoting a switch from coal to less carbon-intensive energy sources. Other important factors are economic downturns (e.g. linked to the COVID-19 pandemic), more affordable renewable energy, efficiency measures and the effect of climate policies.
- Emissions increased between 2020 and 2021, likely linked to the reopening of the economy post-pandemic.
- Projections of emissions estimate that greenhouse gas (GHG) emissions under the ETS will continue to decrease in the coming decades. However, the projected rate is insufficient to achieve the objective of a carbon-neutral continent by 2050. Emissions from aviation under the EU ETS have been increasing steadily, with the exception of 2020. They are expected to continue rising in the future unless measures are taken.