EU Carbon Market Report: driving emission reductions and enabling energy investment

On 14 December 2022, the European Commission adopted its annual Carbon Market Report, which tracks the functioning of the EU Emissions Trading System (EU ETS) from the beginning of 2021 up until to mid-2022.

The EU ETS currently regulates greenhouse gas emissions from over 9 000 European 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 report finds that ETS emissions from stationary installations (energy and carbon-intensive industry) increased in 2021, by 6.6% compared to 2020. 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%. The year-on-year increase in emissions meant greater demand for allowances in the EU ETS, contributing to an increase in the carbon price. European Securities and Markets Authority (ESMA) analysed behaviour on the carbon market and 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.

The auctioning of allowances in the EU ETS, generated unprecedented annual revenues of € 51.7 billion in the period January 2021 – June 2022. On average, Member States reported having spent these revenues on climate- and energy-related projects, mostly in renewable energy and transport, besides tax breaks and social support.

Click at the image below to download EU's Climate Action Progress Report 2022. In the report you can also read about the European Carbon market framework, with "Cap on emissions", "Auctioning of allowances", "Free allocation" and much more.