European Union Emissions Trading System - Statistics & Facts
The European Union’s Emissions Trading System (EU ETS) has helped cut emissions from sectors covered by the scheme by more than 40 percent since its launch in 2005. It has also generated billions in revenue for climate action. One of the key tools in the European Union’s climate strategy over the years, the EU ETS incentives companies to reduce climate pollution by putting a price on carbon dioxide (CO₂). It is now the world’s most valuable carbon market by far, and is set to continue playing an integral role in the EU’s decarbonization efforts going forward.
Though there were doubts about the scheme’s ability to reduce emissions in its early days, owing to low carbon prices, the EU ETS is now seen as being an important driver of decarbonization. The upcoming reforms are only likely to strengthen the ETS as an instrument for achieving the EU's climate goals.
How does the EU ETS work?
Designed to reduce greenhouse gas emissions in a cost-effective manner through a cap-and-trade principle, the EU ETS sets a limit on the amount of CO₂ that can be emitted by the power, industry, and aviation sectors. This is done by putting a fixed number of allowances (EUAs) on the market, which entities covered by the scheme need to have for every metric ton of CO₂ they emit within one calendar year. Allowances are either purchased, received, or can also be traded with other emitters if needed. Over time the emissions cap reduces, and fewer EUAs are issued so that total emissions fall.The changing cost of carbon
Reforms to the EU ETS have seen the average cost of EU carbon permits increase markedly in recent years, with prices averaging 84 euros/tCO₂ in 2023. But while February of that year saw daily EU carbon permits surpass the 100 euros/tCO₂ threshold for the first time, prices have fallen since then. In February 2024, EUAs were trading at roughly half what they were a year prior, owing to factors like lower gas prices and falling energy demands from industry. Nevertheless, EU allowance prices are forecast to recover in the coming years, and are estimated to average almost 150 euros by the end of the decade.What does the future hold for the EU ETS?
The EU ETS has seen several revisions since it first launched due to strengthened climate targets, and more are incoming. Having expanded to include the aviation industry in 2012, the EU ETS has also recently extended to include maritime transportation. The EU ETS II will also become operational in 2027 and will cover emissions from buildings and road transportation, the latter being the biggest emitter in the EU. Additionally, free allowances will be phased out from 2026 and be replaced by the Carbon Border Adjustment Mechanism (CBAM), which will impose a levy on imports that are highly susceptible to carbon leakage. The EU has also set a 2030 target for ETS emissions, at 62 percent below 2005 levels, compared with the previous target of 43 percent.Though there were doubts about the scheme’s ability to reduce emissions in its early days, owing to low carbon prices, the EU ETS is now seen as being an important driver of decarbonization. The upcoming reforms are only likely to strengthen the ETS as an instrument for achieving the EU's climate goals.
