EU Emissions Trading

System

Hans Bergman, 

European Commission Presentation for the CFTC June 3,

2021
European Union and European Commission

• European Union (EU) has 27 Member States (450 million people)

• Free trade and free movement of people and labour

• Common legislation in large number of areas (Directives and Regulations)

• European Commission (“the Commission) executive branch

• Two co-legislators (European Parliament, and the Council (National 

governments)
EU climate policy

• EU has a common climate target of reducing emissions by 55% compared 

to 1990. Current legislation based on 40% reduction, so currently work on 

new legislation. 

• Emissions divided in two groups, ca half each, and both capped by 

economic instruments

• Large sources, covered with one cap for the entire EU, by EU ETS

• Small sources, capped for each Member State, with individual reduction 

targets, but MS can trade if they overachieve.
EU ETS in place since 2005

• EU ETS Applies to ca 11,000 installations including power, steel, cement, 

chemicals, paper, refineries and intra-EU aviation: 30 countries, around 

40% of EU's emissions.

• Two aims:

• It caps the emissions and set a declining trajectory to ensure climate target is met in a 

cost effective manner

• It sets a price on carbon to incentivize low carbon investments 

• Phases. 2005-7 (test), 2008-12, 2013-20, 2021-30 (since 2008 linked)
Revenues generated by EU ETS

• Important revenue for Member States from auctioning of allowances: 

around USD 50bn since 2012. Ca USD 17 bn 2020.

• Member States using ~70% of this revenue to tackle climate change

• Finances innovation across the EU and also provides solidarity financing 

from higher income to lower income Member States (notably for 

modernization of energy sector in low-income Member States)
Allocation of allowances

• The European Commission issue a fixed amount of allowances (1 ton of CO2) every year 

based on legislation (cost-efficient contribution of ETS to overall target). A more rigid 

system led to problem of surplus. New instrument in place since 2019 (market stability 

reserve), that can decrease or increase supply in a more flexible manner.

• Most of the allowances are sold on daily auctions, on a platform (EEX with which we have 

a contract) with revenues provided to the Member States. The quantities to be auctioned 

per day announced one year in advance. Currently ca 180 million USD per day per 

auction.

• Up to 43% of all allowances allocated for free to the energy intensive industries (risk of 

carbon leakage). Benchmark-based system => most efficient facilities receives most of its 

need. A less efficient facility has to buy what more of its need.

• Power producers receive no free allocation
Compliance

• By the end of March each year, each facility operator has to report 

emissions, verified by special independent verifiers. 

• By end of April each year, the facility operator has to surrender EU ETS 

allowances equivalent to reported emissions. 

• In case of delay, very high fine. Compliance rate is >99%
The EU ETS is performing well

• In 2020, emissions reduced by 13,3% compared to 2019. 

• Since the start of the ETS in 2005, total emissions from stationary 

installations reduced by 42.8%

• Real emissions were 

below original cap

• 2014-16 Reduction in 

auctions and from 

2019 Market Stability 

Reserve reduce 

amount auctioned
EU carbon prices have increased rapidly in 

recent years and months

2019 average

€24.84 2020 average

€24,78 
• By moving from a 40% to 55% target, major legislative overhaul

• For EU ETS, this implies fewer allowances coming to the market 

each year.

• We may also propose an EU wide carbon pricing in the form of 

emission trading for emissions from buildings (heating), road 

transport and maritime transport

• Legislative proposal 14 July

Updating the legislation
Financial market oversight

• Issues the CFTC should be aware of in its oversight of carbon derivatives 

markets

• I. Basic facts about the European carbon market 

• II. Summary overview of current financial rules

• III. Transparency and position reporting

• IV. Cooperation between competent authorities
Thank you

© European Union 2020

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