Total Number of Allowances in circulation (TNAC)

The Total Number of Allowances in Circulation (TNAC) is a key metric within the European Union Emissions Trading System (EU ETS). It quantifies the number of allowances that have been issued by regulators and are left in the market after the surrendering of allowances for compliance reasons. Calculated annually by the European Commission, the TNAC is determined by subtracting the total verified emissions from the total supply of allowances:

TNAC = Total Supply of Allowances - Verified Emissions

The TNAC plays a crucial role in the operation of the Market Stability Reserve (MSR), a mechanism designed to address the surplus or shortage of allowances in the EU ETS. When the TNAC exceeds a certain threshold, a portion of the surplus allowances is placed into the MSR to reduce oversupply and support carbon price stability. Conversely, if the TNAC falls below a predefined level, allowances may be released from the MSR to the market to prevent excessive price increases.

By managing the balance between supply and demand of emission allowances, the TNAC and MSR collectively aim to enhance the effectiveness of the EU ETS in reducing greenhouse gas emissions and promoting investment in low-carbon technologies.