The European Commission has today adopted its annual Carbon Market Report, which tracks the functioning of the EU Emissions Trading System (EU ETS) from the beginning of the fourth trading phase in 2021 up until to mid-2022.
The report finds that ETS emissions from stationary installations (energy and carbon-intensive industry) increased in 2021, by 6.6% compared to 2020, but remained below the pre-pandemic 2019 levels. The increase reflects higher electricity demand due to the post-COVID economic recovery drive and an increased use of coal due to rising gas prices and shortages of other energy sources. In the aviation sector, following a drop of some 60% in 2020, emissions increased in 2021 by 30%. Still, they remained 50% below the 2019 level. The year-on-year increase in emissions meant greater demand for allowances in the EU ETS, contributing to an increase in the carbon price.
The auctioning of allowances in the EU ETS, generated unprecedented annual revenues of €51.7 billion in the period January 2021 – June 2022. In 2021, €25 billion in auction revenues went directly to Member States’ budgets, up from €14.4 billion in 2020. On average, Member States reported having spent76% of these revenues on climate- and energy-related projects, mostly in renewable energy and transport. Member States also reported having used auction revenues to fund measures cushioning the impacts of the energy crisis e.g. tax breaks and social support. A detailed analysis of Member States’ reporting on this spending can be found in the Climate Action Progress Report 2022.
The higher carbon price prompted some stakeholders to question whether there has been excessive speculation in the EU ETS. The Commission therefore asked European Securities and Markets Authority (ESMA) to analyse behaviour on the carbon market. In their final report, ESMA dismissed claims of excessive speculation, concluding that the EU carbon market was functioning well and that the carbon price signal was in line with market fundamentals.
Background
The EU ETS currently regulates greenhouse gas emissions from over 9 000 installations, from power and energy-intensive sectors of industry, and from aviation operators. This represents about 40% of all EU emissions. Since 2005, the emissions within the scope of the system have gone down by 34.6%.
The Carbon Market Report is part the European Commission’s annual State of the Energy Union Report, which highlights the challenges that the energy sector has faced in the past 12 months and the progress made in addressing both shorter-term issues and Europe’s long-term climate goals. In particular, the report takes stock of the EU’s energy policy response to the current energy crisis, exacerbated by Russia’s war in Ukraine.
On the road to climate neutrality by mid-century, the EU has committed to reducing emissions by at least 55% by 2030 compared to 1990 levels. The EU ETS will continue to play a critical role in achieving this. In July 2021, the European Commission presented a package of policy reforms to deliver the European Green Deal, including a revision of the EU ETS. The negotiations on this proposal between the European Parliament, the Council and the Commission are ongoing.
For more information
Staff Working Document accompanying the Carbon Market Report
