How much have installations under the EU ETS decarbonized?
August 12, 2024
How much have installations under the EU ETS decarbonized?
Summary
The EU ETS has significantly reduced carbon emissions in Europe, particularly in the power sector, and is being strengthened to meet climate neutrality goals by 2050 through measures like carbon tax incentives. This encourages investing in renewable energy and responsible investing.
The European Union Emissions Trading Scheme (EU ETS) is the cornerstone of the European climate policy - it has a proven track record of massive emissions reduction. Yet, the work is not over until it meets its end objective - bringing Europe to climate neutrality by 2050.
The EU ETS decarbonization in numbers
The EU ETS covers around 11,000 installations across Europe and addresses approximately 38% of the bloc's total greenhouse gas emissions. Since its launch in 2005, the scheme has achieved notable success in reducing carbon emissions - more than 45% in 18 years. In 2023, emissions from these installations totaled 1.064 billion tonnes of CO2, a substantial decrease from the 2.059 billion tonnes in 2005. Within the same year, carbon pricing has brought a 16% emissions reduction in the bloc.
EU ETS vs. the overall EU decarbonization
Compared to the emissions reduction of over 45% since the EU ETS inception in 2005, the broad EU economy has seen its CO2 volumes decreased by 18%from 2005 to 2023. Putting a price on carbon is effective - it drives deeper carbon cuts by capping emissions and incentivizing industries to adopt cleaner technologies.
Different sectors, different measures
Decarbonization progress within the EU ETS has varied between different sectors. Industries facing significant technological challenges or those at risk of carbon leakage—where companies might move to regions with less strict climate rules—were given more free allowances in the past to stay competitive. On the other hand, the power sector, which is less likely to relocate and has clearer paths to reduce emissions, saw a faster reduction in free allowances and has made the most progress in cutting emissions.
The power sector, the leader of the EU ETS decarbonization
The power sector has been the standout performer in the EU ETS's decarbonization efforts, responsible for 75% of the total emissions reductions within the system since its inception. In 2023 alone, power generation emissions fell by 24%, driven by increased use of renewable energy and reduced reliance on fossil fuels. The phase-out of free allowances for this sector has effectively encouraged power producers to invest in and innovate with cleaner energy technologies.
More decarbonization to come - strengthening the EU ETS
The EU ETS is responding to the growing EU climate ambitions - the cap-and-trade scheme has been proven effective, but it has not finished its work yet. The new Linear Reduction Factor (LRF), which will lower annual carbon limits faster, and a more rapid reduction in free allowances allocation will speed up the process. Strict monitoring and reporting ensure the system remains effective in meeting Europe’s long-term climate goals.
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