The European Commission has adopted its annual report on the functioning of the European carbon market. The report covers 2019 and certain developments in 2020.
The report finds that emissions from installations covered by the EU Emissions Trading System (ETS) decreased by 9.1% in 2019 compared to 2018 - the equivalent of around 152 million tonnes of CO2. As in previous years, this decrease was mainly driven by the power sector, while industrial emissions saw their sharpest decrease yet in phase 3 (2013-2020). On the other hand, verified emissions from aviation continued to grow, albeit more modestly, with an increase of 1% compared to the previous year, or around 0.7 million tonnes CO2 equivalent.
Concerning the surplus of allowances on the market, the 2020 Market Stability Reserve surplus indicator (1.385 billion allowances) continues to lead to allowances being placed in the reserve, reducing the 2020 auction volume by some 35% (almost 375 million allowances).
In 2019, Member States generated some 14 billion Euro from auctioning ETS allowances. This amount was similar to the revenues generated in the previous year. Member States spent or planned to spend close to 77% of 2019 revenues on advancing climate and energy objectives - well above the 50% required in the legislation.
Implementation work ahead of the start of phase 4 of the EU ETS (2021-2030) continues to progress, with new implementing legislation adopted on the adjustment of free allocation based on activity level changes in late 2019 and on the operation of the Modernisation Fund over the course of 2020.
The linking of the EU ETS with the Swiss ETS entered into force on 1 January 2020, and became operational in September 2020. Additionally, the suspension of UK auctioning and free allocation processes was lifted in 2020, following the entry into force of the Agreement on the withdrawal of the United Kingdom from the EU.
The issues covered by the report include:
The Commission continues to monitor the carbon market and intends to adopt the next annual report in late 2021.