Climate Action

Carbon Market Report: Surplus of EU ETS allowances continues to shrink

17/12/2018

The European Commission has adopted its annual report on the functioning of the European carbon market. Covering the year 2017, the report also presents certain initiatives proposed or agreed in 2018.

The report shows that in 2017 the EU power sector reduced its greenhouse gas emissions for the sixth year in a row. Emissions of industrial installations, however, which receive the vast majority of their emission allowances for free, slightly increased, leading to an overall increase in ETS emissions by 0.18% in comparison to 2016. While this breaks the decreasing trend since 2013, it can be explained by the highest growth in real GDP since 2011. Verified emissions from aviation continued to grow, marking an increase of 4.5% compared to 2016.

Efforts to reduce the surplus of allowances on the carbon market are starting to bear fruit. The surplus has declined for the third year in a row, by an overall amount of almost half a billion allowances. As of next year, the Market Stability Reserve will further reduce the surplus by 24% of its overall amount each year from 2019 until 2023.

The total revenues raised from selling ETS allowances from 2012 until the end of 2017 exceeded EUR 21 billion – on average EUR 3.5 billion per year. In 2017, EU Member States spent or planned to spend 80% of auction revenues on advancing climate and energy objectives – well above the 50% rule set under the EU ETS Directive.

The issues covered by the report include:

  • EU ETS infrastructure,
  • Functioning of the carbon market (allowances put in and taken out of circulation, balancing supply and demand),
  • Aviation,
  • Market oversight,
  • Monitoring, reporting and verification of emissions,
  • Overview of administrative arrangements in Member States,
  • Compliance and enforcement.

New elements this year include a chapter on the EU ETS framework in the next decade and an appendix on implementation progress, as well as information on the Member States' contributions to the Market Stability Reserve in 2019. Following the enhanced transparency and reporting requirements of the revised EU ETS Directive, the report provides for the first time an overview of the actual amounts of State Aid spent by Member States on indirect carbon cost compensation in 2017.

The Commission will continue to monitor the carbon market and intends to adopt the next annual report in late 2019.

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