2025 State of the EU ETS Report
Author(s): Andrei Marcu, Emma Coker, Florian Bourcier, Jean-Yves Caneill, Stefan Schleicher, Juan Fernando López Hernández, Nigel Caruana, Peter Chawah, Rosy Finlayson
The annual “State of the EU ETS” Report aims to provide an independent contribution to the policy debate, which is needed to ensure that the EU ETS is “fit for purpose”. The Report is intended as a “snapshot”, providing policymakers and stakeholders with an overview of how the EU ETS is doing by April of each year, based on the previous year’s data. This event will cover the 2025 Report. This year’s edition reflects the track record of the ETS last year, its recent developments, and the role the ETS is expected to play in the longer term.
Key takeaways
• The 2024 EU ETS context is shaped by a volatile economic and political landscape. 2024 saw the launch of the Draghi Report, the anniversary of the Antwerp Declaration and the Clean Industrial Deal (CID), placing carbon pricing at the heart of efforts to address competitiveness. That is a positive development, but the solution to balance prices of EUAs and cost of decarbonisation remains elusive.
• Some uneasiness resurfaced with regards to regulatory interventions, as illustrated by the announcement of the Industrial Decarbonisation Bank, as part of the CID, which is partly funded by EU ETS revenues, lacking in transparency and predictability, echoing governance concerns from to REPowerEU auctions.
• The EU ETS, like many of the EU climate change policies are facing uncertainty related to upcoming reviews as well as the impact of the 2040 target. The delay in putting forward a 2040 NDC provides the best illustration.
• The EU ETS cut emissions by 4.8% emissions reduction in 2024, recovering from the energy crisis, with over 50% of the 62% Phase 4 target (2030) already met, led mostly by the power sector and its
shift towards renewable energy sources. Yet, industrial reductions partly stem from lower production output.
• The focus is clearly now on industrial decarbonisation, with sectoral emission intensity decreasing rapidly, but unevenly, as a result of investments in low-carbon projects delivering efficiency gains.
• The phasing out of free allowances is increasing EU ETS revenues. The EU ETS is now an important source of funding for the green transition and is expected to become even more important in the future. In 2024, €5.6 billion went to the Modernisation Fund, with Slovenia joining 11 MS that have made use of this fund thus far. The Innovation Fund allocated €4.9 billion, with hydrogen overtaking cement and lime as the main 2023–2024 recipient, receiving €1.2 billion, mainly through the Hydrogen Bank auctions.
• EU ETS auction revenues reached €32 billion for Member States in 2023, a 9.8% increase from 2022. MS revenues made up 76% of the total EU ETS revenue generated in 2023, followed by the MF (13%), the RRF (6%), the IF (4%) and EFTA & NI (<1%). 2023 marked the first year that MS had the obligation of a harmonised reporting of their auction revenue. This allows us to assess where the €32 billion was spent, with 43% spent on energy supply, grids and storage, followed by public transport and mobility, 21%.
• The 2025 Market Sentiment Survey confirms strong confidence (83%) in the EU ETS’s decarbonisation signals to 2030, but 94% urge scrutiny of post-2030 drivers of decarbonisation in the EU ETS sectors, with the 2026 EU ETS review and 2040 target negotiations especially relevant for long-term predictability and signals.
• The stakeholder survey also reveals that despite 73% opposing the delay of introducing CBAM, 66% doubt that the CBAM can fully address carbon leakage and competitiveness, without further refinements. Support for integrating carbon removals into the EU ETS before 2030 grew to 75% in 2025. COP29’s Article 6 progress spurred 61% of respondents to favour international credit linkages, signalling a shift toward broader carbon market strategies.
• From a market functioning point of view, with 9.7 billion EUAs traded and a stable auction coverage ratio of 1.73, the EU ETS market functioned effectively in 2024. Though open interest fell 19% due to weaker demand from utilities, indicating a need to monitor liquidity trends.
• This makes the question of looking to the future of the EU ETS an important one for 2025 and 2026 for policy makers and stakeholders.
