The European Emission Trading System (ETS) has emerged as the backbone of the EU Climate Action and, especially in the last two years, as a crucial driver of decarbonization. The cap-and-trade system puts a price on carbon while ensuring GHG emissions decline through its cap. Market participants can trade emission allowances to compensate for the CO2 they emit. The EU ETS aims to facilitate cost-efficient decarbonization.

The EU ETS is the first and most developed, carbon market across the world and covers about 40% of all EU emissions. Over its first three phases, between 2005 and 2020, many reforms have been implemented to increase its effectiveness and market functioning. Since 2018, reforms for phase IV have been implemented and the ETS revision is also a large component of the Fit For 55 package, proposed by the Commission in July 2021.

Since ERCST’s inception, the EU ETS policy file has been central to ERCST’s efforts to facilitate cooperation between policymakers and other stakeholders in articulating cost-effective climate policy. Throughout the years, ERCST has organised numerous roundtables, circulated a wide range of publications and in the process, took a place among global thought leaders on the subject.

ERCST’s work on the EU ETS can be subdivided into two different strands:

State of the EU ETS
Preparing and monitoring the EU ETS revision and MSR review

State of the EU ETS

The EU ETS has always been presented as an important component of the EU climate change policy. How well it delivers is critical for the overall delivery by the EU on its climate change commitments.

Each year, ERCST together with its partners, publishes the State of the EU ETS report. This 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 previous year data. Within the constraints posed by the lack of publicly accessible data, the Report tries to assess the question whether the EU ETS is “fit for purpose”.

In 2022, the seventh annual report will be produced together with the Wegener Centre on Climate and Global Change, BloombergNEF and EcoAct. In addition to the report, the project aims to bring together small groups of stakeholders deeply involved in EU ETS discussions, through meetings held in Brussels and in other EU Member States.

Preparing and monitoring the EU ETS revision and MSR review

In July 2021, as part of the fit for 55 package, the Commission published its proposal for the EU ETS revision and Market Stability Reserve (MSR) review. The proposal to review the EU ETS Directive aims to align the emissions pathway of the ETS sectors with the new EU climate targets. Throughout the next decade, the ETS is required to both enable a deep decarbonization of the power sector and industry, while avoiding carbon leakage.

During this second stage of the revision process (amendments by the European Parliament and trilogue negotiations), ERCST aims at bringing together stakeholders on a regular basis to discuss the most important issues on the table, as well as track and report on crucial milestones in the political process. As issues come up in the process, ERCST intends to work together closely with civil society actors, policy makers and other stakeholders to produce publications that provide an outline of the issue at hand, as well as high-quality analysis supported by stakeholder inputs.