EU ETS emissions continued to decline during the Covid-19 pandemic

Under current and planned measures, EU Member States project that ETS emissions will continue to decrease in the coming decades albeit at a slower pace than historically, according to the latest annual European Environment Agency (EEA) briefing ‘Trends and projections in the EU ETS’ published on 12th January 2022. On recent trends, greenhouse gas emissions from stationary installations recorded under the EU’s Emissions Trading System (ETS) declined by just over 11% between 2019 and 2020.

Based on the projections from Member States submitted to the EEA, ETS emissions are expected to decrease by between 41% and 48% by 2030, and by between 55% and 62% by 2040, relative to 2005. Most of this decrease is projected to occur in the energy sector and it represents a slowdown compared to historical reductions, according to the briefing ‘Trends and projections in the EU ETS’. The projected reductions might become more pronounced as the ‘Fit for 55’ package is implemented and Member States include more ambitious measures in their projections.

As for the latest trends, 2020 saw the largest yearly drop in emissions since the ETS started in 2005. While a downward trend in ETS emissions has been observed in recent years, including a momentous 9 % drop between 2018 and 2019,  decreases in power demand and industrial activity during the first year of the Covid-19 pandemic drove further substantial reductions.

Other key findings

• Greenhouse gas emissions from stationary installations in the EU ETS decreased from 1,530 million tonnes of carbon dioxide equivalent (MtCO2e) in 2019 to 1,355 MtCO2e in 2020, a reduction of 11.4%. This represents the largest drop in emissions since the ETS began operating in 2005. It is comparable only to the decrease observed in 2009 at the height of the financial crisis.
• ETS emissions from aircraft operators plummeted by 63%, as air travel almost halted during the pandemic.
• The number of available allowances surpassed annual emissions for the first time since 2013, mainly because of low demand. Carbon prices dropped sharply in March 2020 but recovered by the end of the year.

The EU’s ETS is a cap-and-trade system, which covers about 36% of the EU’s total greenhouse gas emissions. It sets a limit on emissions from emission-intensive activities like electricity and heat production, cement manufacture, iron and steel production, oil refining and other industrial activities, and aviation within the European Economic Area. Within this emissions budget, companies can reduce their emissions and trade allowances to achieve reductions in greenhouse gas emissions at the least cost.