What are the main conclusions from the "State of the EU ETS" report by the ERCST?

What is the The European Roundtable on Climate Change and Sustainable Transition (ERCST) ?

The ERCST, a research think-thank for climate and carbon markets

The European Roundtable on Climate Change and Sustainable Transition (ERCST) is an independent, non-profit think tank based in Brussels, registered under Belgian law. Its mission is to create a neutral space for policymakers, regulators, and stakeholders to discuss climate change policy and the transition to a low-carbon society. Although it focuses on European climate policy, ERCST also considers global climate dimensions in its activities.

How does the ERCST ensure an optimal and efficient approach to climate research? 

ERCST provides rigorous intellectual analysis through the expertise of its staff and external research input. The purpose of the organization is to remain open to multiple researchers, NGOs, experts, and other stakeholders and to welcome diverse views. The European Roundtable on Climate Change and Sustainable Transition works through various formats, including online webinars, brainstorming sessions, task forces, moderated roundtables, briefings…

What are the main topics covered by the European Roundtable on Climate Change and sustainable transition? 

The main topics covered by the ERCST are the EU ETS, the European green deal, climate and trade, Article 6 of the Paris Agreement (providing a framework for post 2020-international carbon markets), Carbon Capture, Utilization and Storage (CCUS), hydrogen, electricity, and transportation decarbonization. 

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What is the State of EU ETS report published by the European Roundtable on Climate Change and Sustainable Transition?

The State of the EU ETS report by the ERCST

The State of the EU ETS Report assesses the performance of the EU ETS at the time of its production, offering a "snapshot" for policymakers and stakeholders on its status each April, based on data from the previous year. It has been issued since 2016, which makes the 2024 document the 9th edition of the report. 

Who are the contributors to the 2024 state of the EU ETS Report by the ERCST?

The 2024 State of the EU ETS report has been issued in cooperation with: 

• BloombergNEF (BNEF): a research provider that covers global commodity markets and technologies driving the low-carbon transition. It helps professionals in trading, corporate strategy, finance, and policy navigate changes and opportunities in the power, transport, industry, buildings, and agriculture sectors.
• The Wegener Center for Climate and Global Change at the University of Graz, Austria: focusing on interdisciplinary research in climate physics, meteorology, and economics. It emphasizes evidence-based approaches to energy system transformation, innovative analytical modeling, and the design of energy and climate policies.
• Compass Lexecon: an economic consulting firm that provides clear analysis of issues for law firms, corporations, and government clients. It offers expertise in competition, finance, intellectual property, international arbitration, and energy practices.

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The 2024 State of the EU ETS report by the ERCST launch event

Homaio is delighted to have had the opportunity to attend the 2024 State of the EU ETS Report launch event in Brussels on May 14th. We thank the organizers for facilitating a platform that provided such insightful perspectives from a multitude of stakeholders.

The 2024 State of the EU ETS report launch event speakers

The report was presented by Andrei Marcu, and we also had the opportunity to hear from co-authors Emma Coker, Florian Bourcier, Jean-Yves Caneill, and Stefan Schleicher. Later, reactions to the main takeaways were provided by Daniele Agostini from Enel, Emanuele Manigrassi from European Aluminium, Julian Viau from the French government,  Michael Pahle from PIK Potsdam and Sam Van den plas from Carbon Market Watch.

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What are the main takeaways from the 2024 state of the EU ETS report by the ERCST?

The 2024 state of the EU ETS report and regulatory measures 

Below are the main topics related to regulation in the 2024 state of the EU ETS report: 

• Concerns over regulatory interventions, such as the RePowerEU auction, which is criticized for limited transparency and predictability with regards to carbon markets in the context of the war in Ukraine and the global energy crisis.

The 2024 state of the EU ETS report and international carbon pricing

Below are the main topics related to exports and the Carbon Border Adjustment Mechanism in the 2024 state of the EU ETS report: 

• The necessity of international climate diplomacy is underscored, with the success of the Carbon Border Adjustment Mechanism (CBAM) to be used as a tool for enhancing global carbon pricing.
• The introduction of CBAM and the phase-out of free allocations are also seen as successes, providing protection against carbon leakage in the domestic market. 

The 2024 state of the EU ETS report and the cap-and-trade successes

Below are the main topics related to the EU ETS successes in the 2024 state of the EU ETS report: 

• Environmentally, 2023 was a standout year for the EU ETS, recording a 15.5% reduction in emissions, the largest decrease since its inception in 2005. This reduction was partly due to a 7% decrease in industrial emissions, influenced by a decline in industrial activity and high energy prices.
• The phase-out of free allowances has increased EU ETS revenues, making it an important funding source for the green transition. High EUA prices in 2022 and 2023 resulted in the Innovation Fund’s budget surpassing EUR 3 billion, and the Modernisation Fund has been strengthened and expanded to new recipients.
• From a market functioning perspective, the EU ETS was stable in 2023 compared to the turbulent 2022. Reforms finalized after two years of negotiations have provided market certainty, despite the perceived unpredictable regulatory interventions like the RepowerEU package that impacted prices. Reduced volatility and disruption led to a drop in open interest, with traded volumes and auction participation stabilizing.

The 2024 state of the EU ETS report and the european industrial sector

Below are the main topics related to the EU industrial sector in the 2024 state of the EU ETS report: 

• The report notes the increasing focus on industrial decarbonization, with sectoral emission intensity decreasing due to investments in low-carbon projects, although progress is uneven.
• The report identifies key performance indicators (KPIs) to evaluate EU ETS achievements against established baselines. Current trends suggest that industrial sectors under the EU ETS will face significant challenges in meeting the ambitious 2040 target of a 90% reduction in GHG emissions.

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What are the reactions to the 2024 State of the EU ETS report?

Damien Meadows, representing the EU Commission

Damien Meadows, representing the EU Commission, acknowledged the impact of the RePowerEU package on carbon pricing but emphasized that it was a highly necessary measure during a crisis like the war in Ukraine. He also advocated for the implementation of global carbon pricing mechanisms, and said that “The EU global task force will help other countries get their climate policies right and learn from our experience”. 

Daniele Agostini, representing Enel (electricity and gas)

Daniele Agostini, representing Enel, advocated for better redistribution of the revenues from the EU ETS auctions. “Carbon pricing is not destroying industrial competitiveness. It is adding flexibility”. He added “The EU ETS should not become a threat to productivity, but we should get the redistribution mechanism right. ”

Julien VIAU, representing the French government

“We have just started the carbon markets works - the system is improving and has proven its resilience as it has absorbed a lot of exogenous shocks. The EU ETS is a success story.” Julian Viau expressed that carbon markets continue to be strengthened as individual member states transpose the directives into their national laws.

Michael Pahle, representing the PIK Potsdam Institute

Pahle outlined that a strong carbon price has predictability, meaning explainability and credibility. For him, it is important to discern and explain the long-term price drivers as opposed to the short ones. “In 2023, the finance minister of every country should have realized how important the EU ETS is. “

Sam Van den Plas, representing Carbon Markets Watch

Sam Van den Plas defended a faster phasing out of free allowances, stressing that the volumes given away are still too high to bring upon the necessary industrial decarbonization efforts. Yet, he reminded that “The best achievements of the EU ETS were the invalidated volumes in January 2023. The MSR is the hero of the scheme.”

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