The European Union (EU) Emission Trading System (ETS) covers about 45% of the EU's total greenhouse gas (GHG) emissions. GHG emissions from the installations included in the ETS decreased by 24% between 2005 and 2014. The emission level reached in 2014 was the lowest since 2005, when the system was launched. It was also lower than the 21% reduction target for the year 2020.
Between 2013 and 2014, emissions of stationary installations decreased by 5%. This latest decrease resulted mainly from a reduction in emissions from power plants, driven by decreasing use of fossil fuels and a mild winter. At the same time, emissions from industrial activities such as iron, steel and coke production, as well as from cement, clinker and lime production, increased compared to 2013 levels. Emissions from aviation have also been covered by the EU ETS since 2012. These emissions increased by 3% between 2013 and 2014.
In 2014, ETS emissions exceeded the quantity of ETS emission credits (allowances) which had been auctioned or freely allocated to operators. It was the first time since 2008 that the demand for EU emission allowances was greater than the existing supply. This was a direct consequence of the decision to postpone the auctioning of 400 million EU emission allowances (EUAs) for the year 2014 ('backloading'). Taking into account the additional supply of allowances resulting from the use of international emission credits generated under the Kyoto Protocol, overall supply and demand of allowances were balanced in 2014. The overall surplus of allowances (accumulated over recent years) therefore remained at a level of about 2.1 billion EUAs.
According to the projections Member States submitted in 2015 under the EU reporting regulation, with the existing measures in place, emissions from stationary installations under the EU ETS will decrease by 8% between 2015 and 2020, and by 5% between 2020 and 2030 (compared to 2015 levels). In line with this projection, it is anticipated that in 2020 ETS emissions will stand at least 26% below their 2005 levels, and in 2030 at least 31% below 2005 levels. Most of the projected reductions by 2020 and 2030 are expected to occur in the sector of energy industries, while emissions from other activities are to remain relatively stable during this period.
The European legislators recently approved the use of a market stability reserve (MSR) from 2019 onwards. The supply of allowances in circulation will be regulated by transferring surplus allowances into and out of the MSR, based upon a set of predefined rules. By adjusting the supply of allowances to be auctioned, the MSR is expected to reduce the surplus of allowances available for trading, in order to support carbon prices. Based on national projections of ETS emissions reported by Member States, the surplus of allowances is expected to start declining in 2015. Taking into account the proposed change in the linear reduction factor of the ETS cap after 2020 (in order to achieve a 43% reduction of emissions by 2030 compared to 2005), the surplus could be completely absorbed by the MSR by 2030.
About this report
This 2015 report of the European Environment Agency (EEA) provides an analysis of past, present and future emissions trends under the EU ETS, based on the latest data and information available from the European Commission (i.e. May 2015 data on verified emissions and compliance in 2014 by operators under the EU ETS) and Member States (projections of ETS emissions until 2030, reported under the EU Monitoring Mechanism Regulation). The report also analyses the balance between supply and demand of allowances in the market. The report's annexes provide extensive material describing the functioning, scope and cap of the EU ETS, as well as a specific analysis of emissions of non-CO2 gases covered by the EU ETS. This report complements the annual EEA Trends and Projections in Europe report, where it was included until 2014 as a chapter on the EU ETS. In 2015, this chapter has become a separate publication of its own. This report also complements EEA Technical report 3/2015, Application of the EU Emissions Trading Directive.