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EU carbon market continues to deliver emission reductions

The European Commission has today adopted the Carbon Market Report, which reviews the functioning of the EU Emissions Trading System (EU ETS) in 2022 and the first half of 2023.

The EU ETS puts a cap on greenhouse gas emissions from power and energy-intensive sectors of industry and aviation operating in Europe. This is about 36% of all EU greenhouse gas emissions. The cap decreases every year to reduce emissions in line with the EU climate targets. The report also captures key outcomes of the 2023 EU ETS revision in the context of the European Green Deal, which aligns the system with the EU’s target of at least 55% emission reductions by 2030 below 1990 levels.

To date, the EU ETS had helped bring down emissions from power and industry sectors to 37.3% below 2005 levels. External events such as first the COVID-19 pandemic and lately, energy crisis in 2022, put some strain on emissions reduction. Emissions from installations (power generation and heavy industry) decreased slightly, marked by an increased use of coal for electricity and heat generation due to security of supply needs, higher prices of natural gas and a reduced manufacturing output due to higher fuel and energy prices. In the aviation sector, emissions rebounded from an all-time drop in 2020 due to the pandemic.

Despite these temporary disruptions, the EU ETS worked effectively in 2022. Overall, emissions from installations (power plant and heavy industry) remained 7% below pre-pandemic-2019 levels. Auctions of allowances continued as planned. Except for a short-term dip coinciding with the start of Russia’s full-scale invasion of Ukraine, the carbon price signal remained robust, leading to nearly EUR 39 billion being raised in ETS auction revenue, distributed mainly to Member States’ budgets. This puts total revenue raised by the ETS at EUR 152 billion.