REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Report on the functioning of the European carbon market
Date: 2018-12-17
Institutions: Directorate-General for Climate Action, European Commission
Subjects: EU Emissions Trading Scheme, EU emission allowance, EU environmental policy, air transport, carbon, clean technology, environmental monitoring, greenhouse gas, market supervision, reduction of gas emissions

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 17.12.2018  COM(2018) 842 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Report on the functioning of the European carbon market  
 
 
Table of Contents 
List of acronyms and abbreviations ........................................................................................................ 3 

SUMMARY…………………………………………………….............................................................5 

1. 

INTRODUCTION .......................................................................................................................... 6 

2.  THE EU ETS FRAMEWORK IN PHASE 4 (2021-2030) ............................................................. 8 

2.1. A strengthened EU ETS ............................................................................................................... 8 

2.2. Better targeted carbon leakage rules ............................................................................................ 9 

2.3 Funding low-carbon innovation and energy sector modernisation ............................................. 10 

3.1 Coverage of activities, installations and aircraft operators ............................................................. 12 

3.2 Union Registry and the European Union Transaction Log (EUTL) ............................................... 14 

4. FUNCTIONING OF THE CARBON MARKET IN 2017 ............................................................... 15 

4.1. Supply: allowances put in circulation ........................................................................................ 16 

4.1.1. Cap ...................................................................................................................................... 16 

4.1.2. Issued allowances ................................................................................................................ 18 

4.1.3. International credits............................................................................................................. 28 

4.2. Demand: allowances taken out of circulation ............................................................................ 29 

4.3. Balancing supply and demand ................................................................................................... 29 

5. AVIATION ....................................................................................................................................... 33 

6. MARKET OVERSIGHT .................................................................................................................. 35 

6.1. The legal nature and fiscal treatment of emission allowances ................................................... 36 

7. MONITORING, REPORTING AND VERIFICATION OF EMISSIONS ...................................... 37 

8. OVERVIEW OF ADMINISTRATIVE ARRANGEMENTS .......................................................... 39 

9. COMPLIANCE AND ENFORCEMENT ........................................................................................ 40 

10. CONCLUSIONS AND OUTLOOK ............................................................................................... 43 

ANNEX ................................................................................................................................................ 45 

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List of acronyms and abbreviations 

AVR 

CA 

CCS 

CCU 

Accreditation and Verification Regulation 

Competent Authority 

Carbon Capture and Storage 

Carbon Capture and Utilisation 

CDM   

Clean Development Mechanism 

CERs   

Certified Emission Reductions 

CSCF   

Cross-Sectional Correction Factor 

EA 

EEA 

EEX 

EIB 

European Cooperation for Accreditation 

European Economic Area 

European Energy Exchange 

European Investment Bank 

ERUs   

Emission Reduction Units 

EU ETS 

European Union Emissions Trading System 

EUTL   

European Union Transaction Log 

GHG    

Greenhouse Gas 

ICAO   

International Civil Aviation Organization 

ICE 

JI 

ICE Future Europe 

Joint Implementation 

MAR   

Market Abuse Regulation 

MiFID2 

Directive on Markets in Financial Instruments 

MRR 

Monitoring and Reporting Regulation 

MRVA 

Monitoring, Reporting, Verification and Accreditation 

MSR     

Market Stability Reserve 

NAB 

NER 

National Accreditation Body 

New Entrants Reserve 

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PFCs 

RES 

Perfluorocarbons 

Renewable Energy Sources 

TNAC  

Total Number of Allowances in Circulation 

4 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SUMMARY 

In 2017, emissions from installations covered by the European Emissions Trading System 
(EU  ETS)  increased  slightly  by  0.18%  compared  to  2016.  While  this  breaks  the 
decreasing  emissions  trend  since  the  start  of  the  system’s  third  trading  period  (2013-
2020), it can be explained by growth in real GDP of 2.4%, which is higher than in  any 
year since the beginning of the period. The increase was mainly driven by industry, while 
emissions  from  the power sector decreased slightly for the  fourth  consecutive  year (see 
Table 7 in section 4.2). Verified emissions from aviation continued to grow, marking an 
increase of 4.5% compared to 2016 (see Table 8 in section 5). 

The revised EU ETS Directive, reforming the system for the next decade, was published 
on 14 March 2018. The reform aims to facilitate a 43% GHG emissions reduction from 
EU  ETS  sectors  by  2030  (in  line  with  the  EU's  2030  climate  objectives  and  its 
commitments  under  the  Paris  Agreement),  safeguard  industrial  competitiveness,  and 
foster low-carbon modernisation and innovation.  

Over  the  last  three  years,  the  surplus  of  allowances  in  the  European  carbon  market  has 
been steadily declining, by an overall amount of almost half a billion allowances, mainly 
due to the so-called backloading, i.e. postponed auctioning of allowances (see Figure 3 in 
section 4.3). The reformed ETS will further address the surplus by reinforcing the Market 
Stability Reserve - the EU's mechanism established in 2015 to reduce the oversupply of 
allowances and to  improve the EU ETS's resilience to  future shocks. From  2019 (when 
the reserve will start operating) to 2023, the percentage of the surplus to be placed in the 
Market  Stability  Reserve  will  be  doubled  from  the  initially  agreed  12%,  to  24%. 
Moreover, as of 2023, reserve holdings exceeding the previous year's auction volume will 
no longer be valid. Together with the second publication of the Market Stability Reserve 
surplus  indicator  in  May  2018,  these  reforms  will  lead  to  placing  almost  265  million 
allowances  (16%  of  the  surplus)  into  the  Market  Stability  Reserve  from  January  to 
August  2019  instead  of  auctioning  them.  This  will  reduce  the  auction  volume  over  the 
first 8 months of 2019 by some 40% compared to the corresponding volume in 2018. 

To  provide  continued  momentum  to  the  international  process  of  establishing  a  global 
scheme to curb aviation emissions, and to facilitate its future implementation in the EU, 
the  limited  scope  for  aviation  to  only  flights  within  the  European  Economic  Area  has 
been extended until 2023. As from 2021, a linear reduction factor will for the first time 
apply to the aviation sector, reducing the cap on aviation emissions by 2.2% annually.  

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1. INTRODUCTION 

The EU Emissions Trading System (EU ETS) has been the cornerstone of the EU's strategy 
for  reducing  greenhouse  gas  (GHG)  emissions  from  industry  and  the  power  sector  since 
2005.  It  contributes  significantly  to  the  achievement  of  the  EU's  target  of  cutting  GHG 
emissions by 20% from 1990 levels by 2020. While the EU is on track to surpass this target1, 
cutting  GHG  emissions  by  at  least  40%  by  2030  –  as  part  of  the  EU's  2030  climate  and 
energy  policy  framework  –  requires  continued  progress2.  A  well-functioning  EU  ETS 
constitutes the main mechanism to achieve the EU's 2030 target, by facilitating a decrease of 
43% of GHG emissions compared to 2005 levels in the sectors covered by the system. 

To enable the EU ETS to accomplish this goal, in 2015 the Commission adopted a proposal3 
to revise the EU ETS for its fourth trading period (2021- 2030). After extensive negotiations, 
the European Parliament and the Council formally supported the revision in February 2018, 
and the revised EU ETS Directive4 entered into force on 8 April 2018.  

In  2017,  the  EU  ETS  Directive  was  further  revised5  to  accommodate  the  development  of  a 
global  measure  for  reducing  aviation  emissions  by  the  International  Civil  Aviation 
Organisation (ICAO), by continuing to keep the systems' coverage confined to flights within 
the  European  Economic  Area  (EEA).  2017  also  marked  the  signature  of  an  agreement6 
between  the  EU  and  Switzerland  on  linking  the  Swiss  greenhouse  gas  emissions  trading 
system to the EU ETS - the first such agreement for the EU. 

This  Report  on  the  functioning  of  the  European  carbon  market  is  presented  in  accordance 
with  the  requirements  of  Articles  10(5)  and  21(2)  of  Directive  2003/87/EC7  (EU  ETS 
Directive). As stipulated by the Directive, the objective of the report is to provide a regular 
snapshot of developments in the European carbon market on an annual basis.  

The report covers the year 2017, but also presents initiatives proposed or agreed in the first 
half  of  2018.  Compared  to  last  year's  report8,  it  contains  a  new  chapter  on  the  EU  ETS 
framework  in  phase  4  and  a  new  appendix  on  implementation  progress,  as  well  as 
information on the 2018 Market Stability Reserve (MSR) surplus indicator and the Member 

1 In 2015, EU GHG emissions were already 22% below 1990 levels. 
2 According to national projections, emissions will further decrease until 2020, but additional policies will need 
to be implemented to achieve the 2030 target. 
3 COM (2015) 337, http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52015PC0337 
4 Directive (EU) 2018/410 of the European Parliament and of the Council of 14 March 2018 amending Directive 
2003/87/EC to enhance cost-effective emission reductions and low-carbon investments, and Decision (EU) 
2015/1814, OJ L 76, 19.03.2018, p.3 
5 Regulation (EU) 2017/2392 of the European Parliament and of the Council of 13 December 2017 amending 
Directive 2003/87/EC to continue current limitations of scope for aviation activities and to prepare to implement 
a global market-based measure from 2021, OJ L 350, 29.12.2017, p. 7 
6 Agreement between the European Union and the Swiss Confederation on the linking of their greenhouse gas 
emissions trading systems, OJ L 322, 07.12.2017, p.3 
7 Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a 
scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 
96/61/EC, OJ L 275, 25.10.2003, p. 32. 
8 Reports published in previous years can be accessed at: https://ec.europa.eu/clima/policies/ets_en#tab-0-1 

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States' contributions to the MSR in 2019. Following the enhanced transparency and reporting 
requirements of the revised EU ETS Directive, this year's report provides for the first time an 
overview of the actual amounts of state aid spent by Member States on indirect carbon cost 
compensation in 2017.  

Unless otherwise indicated, data used for this report were the ones publicly available and at 
the disposal of the Commission by end June 20189. General and descriptive information on 
the EU ETS is included in boxes throughout the report.  

9 The cut-off date used is 29 June 2018.  

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2.  THE EU ETS FRAMEWORK IN PHASE 4 (2021-2030) 

The revised EU ETS Directive for phase 4 aims to facilitate the achievement of the threefold 
objective  of  a  43%  GHG  emissions  reduction  for  EU  ETS  sectors  by  2030,  safeguarding 
industrial  competitiveness,  and  fostering  low-carbon  modernisation  and  innovation  by  a 
series of interlinked measures.  

Figure 1: Breakdown of phase 4 cap 

2.1. A strengthened EU ETS 

To  increase  the  pace  of  emissions  cuts,  the  overall  number  of  emission  allowances  will 
decline  at  an  annual  rate  of  2.2%  from  2021  onwards,  compared  to  1.74%  currently.  This 
increase implies a steady reduction of some 48 million allowances annually, compared to 38 
million  currently,  and  is  consistent  with  a  43%  reduction  in  GHG  emissions  from  ETS 
covered sectors by 2030, compared to 2005 levels. 

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Moreover, the Market Stability Reserve (MSR), as a mechanism set in place for reducing the 
imbalance  on  the  carbon  market,  will  be  substantially  reinforced.  Between  2019  and  2023, 
the rate at which allowances will be placed in the MSR will be doubled to 24% in order to 
restore the balance of emission allowances in the carbon market more swiftly. 

To  further  improve  the  functioning  of  the  EU  ETS  from  2023  onwards  the  number  of 
emission allowances held in the MSR will be limited to the auction volume of the previous 
year. Holdings above that amount will lose their validity, unless otherwise decided in the first 
MSR review in 2021. 

Member States may voluntarily cancel allowances from the total auction volume available to 
them  in  case  of  closure  of  electricity  generation  capacity  resulting  from  additional  national 
measures.  If  power  plants  are  closed  without  the  Member  State  concerned  opting  to  cancel 
allowances, the MSR rules will capture the effect, by increasing the reserve feeds or by later 
releases of allowances from the reserve. 

More  information  on  the  implementation  of  the  revised  MSR  provisions  is  available  in 
chapter 4.3 (Balancing supply and demand).  

2.2. Better targeted carbon leakage rules 

The  existing  free  allocation  framework  will  be  broadly  maintained  in  phase  4  to  ensure 
predictability  and  transparency  for  European  industry,  addressing  the  competitiveness 
concerns of industry in a globalised world. Free allocation will continue to be predictable and 
transparent,  based  on  benchmark  values  derived  with  reference  to  the  performance  of  the 
10%  most  efficient  installations  in  the  EU.  However,  a  number  of  practical  improvements 
have been introduced based upon implementation experience from the current trading period.  

In  phase  4,  free  allocation  will  be  focused  on  sectors  at  the  highest  risk  of  relocating  their 
production  outside  of  the  EU.  The  level  of  carbon  leakage  exposure  of  sectors  will  be 
assessed on the basis of an indicator reflecting trade and emissions intensity. Highly exposed 
sectors  will  be  placed  on  a  carbon  leakage  list  and  will  receive  allowances  equivalent  to 
100%  of  the  relevant  benchmark  for  free.  For  less  exposed  sectors,  free  allocation  will 
amount  to  30%  up  to  2026  and  will  be  phased  out  thereafter  by  2030.  The  Commission  is 
currently in the process of establishing the carbon leakage list for the next trading period (see 
Appendix 6 to the Annex) which will be valid for the entirety of phase 4.  

To avoid windfall profits and reflect the progress of technology and innovation since 2008, 
the 54 benchmark values determining the level of free allocation to each installation will be 
updated  twice  in  phase  4,  on  the  basis  of  real  data.  An  annual  reduction  rate  will  be 
determined for each benchmark. It will vary between a minimum annual rate of 0,2% for the 
sectors with lower innovation uptake and a maximum annual rate of 1,6% for the sectors with 
higher  innovation  uptake.  While  the  minimum  rate  will  ensure  contribution  from  sectors 
having  slower  emission  reduction  paths,  the  maximum  one  will  provide  an  incentive  for 
innovative sectors to reduce emissions more quickly. Work on the delegated act on revising 

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the free allocation rules for 2021-2030 is underway, while work on updating the benchmark 
values for free allocation for 2021-2025 is expected to commence in late 2019 (see Appendix 
6 to the Annex).  

Moreover,  allocations  to  individual  installations  may  be  adjusted  annually  to  reflect 
significant increases and decreases in production. The threshold for adjustments is set at 15% 
and will be assessed on the basis of a rolling average of two years. To prevent manipulation 
and abuse of the allocation adjustment system, the Commission may adopt implementing acts 
to define further arrangements for the adjustments. Work on the implementing act is expected 
to commence in late 2018 (see Appendix 6 to the Annex). 

To  avoid  the  application  of  a  cross-sectoral  correction  factor  (CSCF)  in  the  next  trading 
period, a major new safeguard in the form of a "free allocation buffer"  has been introduced. 
If a correction factor would need to be applied, the buffer will be deployed by reducing the 
share  of  allowances  to  be  auctioned  over  phase  4  by  up  to  3%  of  the  total  quantity  of 
allowances,  thus  increasing  the  amount  available  for  free  allocation.  If  the  allowances  set 
aside for the free allocation buffer remain unused, they will be made available to "top-up" the 
newly established Innovation and Modernisation Funds (see section 2.3). 

The possibility for Member States to provide state aid to sectors exposed to a carbon leakage 
risk  due  to  significant  indirect  carbon  costs  (i.e.  costs  resulting  from  increased  electricity 
prices)  will  be  continued  in  phase  4  (see  section  4.1.2.1.2).  It  will  furthermore  be 
accompanied by enhanced transparency and reporting provisions. Member States should seek 
to use no more than 25 % of auction revenues for this purpose, and if they exceed this amount 
they will have to provide justifications for doing so in a report for the sake of transparency. 
They  will  also  have  to  regularly  publish  the  amount  paid  out  to  beneficiaries  of  the 
compensation, both  per  sector  and in  total.  In view of the new provisions, the Commission 
has initiated a revision of the EU ETS State Aid Guidelines10 for the next trading period (see 
Appendix 6 to the Annex). 

2.3 Funding low-carbon innovation and energy sector modernisation 

Several  low-carbon  funding  mechanisms  will  help  industrial  sectors  and  the  power  sector 
meet the innovation and investment challenges of the transition to a low-carbon economy in 
phase 4. These include two new funds: 

  The  Innovation  Fund  will  support,  on  a  competitive  basis,  the  demonstration  of 
innovative  technologies  and  breakthrough  innovation  in  sectors  covered  by  the  EU 
ETS,  including  innovative  renewables,  carbon  capture  and  utilisation  (CCU)  and 
energy storage. The resources available will correspond to the market value of at least 
450 million allowances at the time of their auctioning. They will be supplemented by 
any  undisbursed  budget  from  the  NER  300  Programme,  and  up  to  50  million 
allowances  which  may  be  made  available  to  the  fund  if  not  needed  for  the  free 

10 Guidelines on certain State aid measures in the context of the greenhouse gas emission allowances trading 
scheme post 2012,OJ C158, 05.06.2012, p.4 

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allocation  buffer  as  explained  previously.  Projects  in  all  Member  States,  including 
small scale projects, will be eligible for support from the Innovation Fund. Work on 
establishing  the  Innovation  Fund  has  commenced  with  a  public  consultation  at  the 
start of 201811 (see Appendix 6 to the Annex). 

  The Modernisation Fund will support investments in modernising the power sector 
and  wider  energy  systems,  boosting  energy  efficiency  and  renewable  energy,  and 
facilitating  a  just  transition  in  carbon-dependent  regions  in  the  10  lowest-income 
Member  States.12  Energy  generation  facilities  using  solid  fossil  fuels  will  not  be 
eiligible for support.13 The fund will be sourced with allowances corresponding to 2 
%  of  the  total  quantity  in  phase  4,  auctioned  in  accordance  with  the  rules  and 
modalities  set  out  for  auctions  taking  place  on  the  common  auction  platform. 
Depending on the extent to which the auction share is reduced for the purposes of the 
free allocation buffer, the amount of allowances available for the fund may increase 
by  up  to  0.5%  of  the  total  quantity  of  allowances.  Work  on  establishing  the 
Modernisation  Fund  has  commenced  with  preparatory  workshops  in  beneficiary 
Member States starting in September 2018 (see Appendix 6 to the Annex). 

In addition to the two new funds, the optional transitional free allocation under Article 10c of 
the EU ETS Directive will continue to be available for modernising the energy sectors in the 
same lower-income Member States eligible for the Modernisation Fund. Transparency of the 
resource allocation procedures has been much enhanced. Projects with a value of over EUR 
12.5 million will be selected by competitive bidding, while investments below that value will 
have  to  be  selected  based  on  clear  and  transparent  criteria,  with  selection  results  being 
subjected  to  public  consultation  (unless  such  projects  are  also  selected  via  competitive 
bidding).  The  revised  EU  ETS  Directive  provides  that  unallocated  Article  10c  allowances 
from  the  third  trading  period  (2013-2020)  may  be  allocated  in  2021-2030  to  investments 
selected through such competitive bidding, unless the Member State concerned decides not to 
do  so  in  full  or  in  part  and  informs  the  Commission  accordingly  by  30  September  2019. 
Moreover,  according  to  the  new  provisions,  eligible  Member  States  may  use  all  or  part  of 
their Article 10c allocation to support investments within the framework of the Modernisation 
Fund,  provided  they  notify  the  respective  amounts  to  the  Commission  by  30  September 
2019.  

11 Information on the public consultation can be found here: https://ec.europa.eu/clima/consultations/public-
consultation-establishment-innovation-fund_en 
12 Bulgaria, the Czech Republic, Croatia, Estonia, Hungary, Latvia, Lithuania, Poland, Romania and Slovakia 
13 An exception has been made for efficient and sustainable district heating in Member States with a GDP per 
capita at market prices below 30 % of the EU average in 2013 (Bulgaria and Romania). This exception only 
concerns 30 % of available funds for these Member States. 
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3. EU ETS INFRASRUCTURE 

3.1 Coverage of activities, installations and aircraft operators 

The EU ETS operates in the 31 countries of the European Economic Area (EEA). It limits 
emissions  from  nearly  11,000  power  plants  and  manufacturing  installations  as  well  as 
over 500 aircraft operators flying between EEA's airports.  It  covers around 40% of the 
EU's GHG emissions. 

As of phase 3 (2013-2020)*, the sectors with stationary installations regulated by the EU 
ETS  are  energy  intensive  industries,  including  power  stations  and  other  combustion 
plants  with  >20MW  thermal  rated  input  (except  hazardous  or  municipal  waste 
installations), oil refineries, coke ovens, iron and steel, cement clinker, glass, lime, bricks, 
ceramics,  pulp,  paper  and  board,  aluminium,  petrochemicals,  ammonia,  nitric,  adipic, 
glyoxal and glyoxylic acid production, CO2 capture, transport in pipelines and geological 
storage of CO2.  

The  aviation  scope  of  the  EU  ETS  was  limited  to  flights  within  the  EEA  in  the  period 
2013-2016, pending the adoption of a global approach by the International Civil Aviation 
Organization (ICAO). In 2016, the ICAO agreed on a resolution on the Carbon Offsetting 
and Reduction Scheme for International Aviation (CORSIA), to start in 2021. Following 
the agreement and pending the application of CORSIA, in 2017 the intra-EEA scope for 
aviation was prolonged until 2023 (see Section 5).  

The  EU  ETS  covers  carbon  dioxide  (CO2)  emissions,  but  also  nitrous  oxide  (N2O) 
emissions  from  all  nitric,  adipic,  glyoxylic  acid  and  glyoxal  production,  and 
perfluorocarbons (PFC) emissions from aluminium production. Even though participation 
in the EU ETS is mandatory, in some sectors only installations above a certain size are 
included. Moreover, participating countries can exclude small installations (emitting less 
than 25 000 tonnes of  CO2e) from the system if alternative and equivalent measures are 
in place. The revised EU ETS Directive additionally provides that in phase 4 very small 
emitters (with reported emissions of less than 2 500 tonnes of CO2e in the last three years) 
can  be  excluded  from  the  EU  ETS  subject  to  the  existence  of  simplified  monitoring 
arrangements to assess the quantity of their emissions. If the emissions of the very small 
installations exceed this amount in any one calendar year,  they will be reintroduced into 
the system. Participating countries may also add more sectors and GHGs to the EU ETS. 

* Information on phases 1 and 2 of the EU ETS can be found here: https://ec.europa.eu/clima/policies/ets/pre2013_en 

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According to the Article 21 reports submitted by participating countries14 in 2018, there were 
a  total  of  10  688  permitted  installations  in  2017,  compared  to  10  790  in  2016  and 
approximately 10 950 in 2015.  

As was the case in previous years, the fuels combusted within the EU ETS in 2017 remained 
overwhelmingly fossil. However, 28 countries also reported biomass use (compared to 29 last 
year)  in  connection  with  2  181  installations  (20.4%  of  all  installations).  This  compares  to 
2079 installations making up 19% of all installations last year. Three countries (LI, LV and 
MT)  did  not  report  any  use  of  biomass15.  Emissions  from  biomass  in  2017  amounted  to 
approximately 145 million tonnes CO2 (8% of ETS reported emissions), only a slight increase 
from the approximately 141 million tonnes CO2 in 2016 (then also some 8% of ETS reported 
emissions).  For  2017,  only  Sweden  reported  use  of  biofuel  for  two  aircraft  operators  (for 
2016  and  2015,  both  Germany  and  Sweden  reported  such  use  for  three  and  four  aircraft 
operators, respectively). 

Within the installation categories based on annual emissions16, the data for 2017 shows that, 
as  in  previous  years,  72%  of  installations  are  category  A,  nearly  21%  are  category  B  and 
slightly over 7% are category C. 6 110 installations were reported as 'installations with low 
emissions' (57% of the total).  

EU  ETS  installations  involving  combustion  activities  can  be  found  in  all  participating 
countries, while oil refining, steel production, cement, lime, glass, ceramics, pulp and paper 
production can be found in the majority of them. Regarding EU ETS  activities additionally 
listed  for  non-CO2  emissions,  permits  are  reported  as  issued  in  12  countries  for  primary 
aluminium and perfluorocarbons (PFCs) (DE, FR, EL, IS, IT, NL, NO, RO, SE, SI, SK, UK), 
while for nitric acid  production and N2O permits are reported as issued  in  20 countries (all 
except  CY, DK, EE, ES,  IE,  IS,  LI,  LU,  LV, MT, and SI). The other N2O sectors  –  adipic 
acid production and glyoxal and glyoxylic acid production are reported in 3 (DE, FR, IT) and 
2 (DE, FR) countries, respectively. Only Norway declared CO2 capture and storage activities. 

Seven  countries  (ES,  FR,  HR,  IS,  IT,  SI,  UK)  have  made  use  of  the  possibility  to  exclude 
small emitters from the EU ETS in line with Article 27 of the EU ETS Directive). Emissions 
excluded  for  2017  amounted  to  2.85  million  tonnes  CO2  (some  0.16%  of  total  verified 
emissions). 

14 For the reference to Article 21 reports, "participating countries" or simply "countries" include the 28 EU 
Member States plus EEA countries (Iceland, Norway and Liechtenstein). 
15 Biomass emissions are zero-rated in the EU ETS, i.e. emissions have to be reported but no allowances have to 
be surrendered for them. 
16 Category C installations emit more than 500 000 tonnes CO2e per year, category B installations emit between 
500000 and 50000 tonnes CO2e per year, and category A installations emit less than 50000 tonnes CO2e per 
year. Furthermore, 'installations with low emissions' are a sub-set within category A installations which emit 
less than 25 000 tonnes CO2e per year. See Commission Regulation (EU) No 601/2012 of 21 June 2012 on the 
monitoring and reporting of GHG emissions pursuant to Directive 2003/87/EC of the European Parliament and 
of the Council, OJ L 181, 12.7.2012, p. 30 

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According to Article 21 submissions in 2018, so far eight countries (BE, DK, FR, HR, HU, 
LI, LT, NL) have taken advantage of the provision offered by Article 13 of the Monitoring 
and  Reporting  Regulation  (MRR)17  to  allow  use  of  simplified  monitoring  plans  in  low  risk 
cases for stationary installations. Only the Netherlands has joined since 2016. In the case of 
aircraft operators with low emissions, three countries reported use of this provision for 2017 
(BE, IS and PL). 

In 2017, 541 aircraft operators were reported to have a monitoring plan (compared to 503 for 
2016,  and  524  for  2015).  58%  (316)  of  the  reported  operators  were  commercial,  while  the 
other  42%  (225)  were  non-commercial.18  A  total  of  280  (nearly  52%)  qualified  as  small 
emitters (compared to 249 (50%) in 2016 and 274 (52%) in 2015).  

3.2 Union Registry and the European Union Transaction Log (EUTL) 

The  Union  Registry  and  the  European  Union  Transaction  Log  (EUTL)  track  the 
ownership  of  general  and  aviation  allowances  by  recording  the  amounts  owned  in  the 
accounts and the transactions between accounts. They are operated and maintained by the 
Commission, whereas the national registry administrators in the 31 participating countries 
remain the point of contact for the representatives of around 15 000 accounts (companies 
or natural  persons). While the Union Registry  holds  accounts  for stationary installations 
and  for  aircraft  operators,  the  EUTL  automatically  checks,  records  and  authorises  all 
transactions between accounts, thus ensuring that all transfers comply with EU ETS rules.  

The  data  recorded  in  the  Union  Registry  and  the  EUTL  is  an  important  source  of 
information  for  various  types  of  ETS  reporting,  such  as  the  calculation  of  the  Market 
Stability  Reserve  surplus  indicator  (see  section  4.3)  and  the  reporting  done  by  the 
European Environment Agency (EEA). The EUTL also provides transparency in the EU 
ETS,  publishing*  information  on  allocation  rights  and  on  the  compliance  of  stationary 
installations and aircraft operators with ETS provisions. 

* The information published by the EUTL can be found at: http://ec.europa.eu/environment/ets/ 

The  Union  Registry  and  the  EUTL  were  fully  operational  for  365  days  around  the  clock 
throughout  2017,  with  only  minor  interruptions  adding  up  to  a  total  of  approximately  17 
hours due to technical upgrades. 

In 2017, the Commission started to move to a more modern and secure hosting platform for 
both the Union Registry and the EUTL. The move was finalised in June 2018. Moreover, the 
Commision, in agreement with Member States, started implementing several changes aimed 
at improving the efficiency of working with the Union Registry. 

17 Commission Regulation (EU) No 601/2012 of 21 June 2012 on the monitoring and reporting of greenhouse 
gas emissions pursuant to Directive 2003/87/EC of the European Parliament and of the Council, OJ L 181, 
12.7.2012, p. 30. 
18 An example of a commercial aircraft operator would be a passenger airline providing services to the general 
public. An example of a non-commercial aircraft operator would be a privately owned aircraft. 

14 

 
 
 
                                                           
 
 
In February 2018, the EU ETS Registry Regulation19 was amended to implement safeguard 
measures to protect the environmental integrity of the EU ETS in cases where EU law ceases 
to apply to a Member State withdrawing from the EU. 

4. FUNCTIONING OF THE CARBON MARKET IN 2017  

This  chapter  provides  information  on  aspects  relating  to  the  supply  and  demand  of 
allowances  in  the  EU  ETS.  The  supply  side  section  includes  information  on  the  cap,  free 
allocation,  the  NER300  programme,  auctioning,  the  derogation  from  full  auctioning  for  the 
power sector (Article 10c), the use of international credits, and a chapter on indirect carbon 
cost compensation schemes. 

On the demand side, information is provided on the number of verified emissions and on the 
methods  of  balancing  the  supply  and  demand  of  allowances,  such  as  the  Market  Stability 
Reserve (MSR). 

19 Commission Regulation (EU) 2018/208 of 12 February 2018 amending Regulation (EU) No 389/2013 
establishing a Union Registry, OJ L 39/3, 13.02.2018, p.3 
15 

 
 
                                                           
4.1. Supply: allowances put in circulation  

4.1.1. Cap 

The cap is the absolute quantity of GHGs which may be emitted by entities covered by the 
system to ensure the emission reduction target is met and that it corresponds to the number 
of allowances put in circulation over a trading period. In phase 3 a common EU-wide cap 
applies, replacing the previous system of national caps.  

The  2013  cap  for  emissions  from  stationary  installations  was  set  at  2  084  301  856 
allowances.  This  cap  decreases  each  year  by  a  linear  reduction  factor  of  1.74%  of  the 
average total quantity of allowances issued annually in 2008-2012, thus ensuring that the 
number  of  allowances  that  can  be  used  by  stationary  installations  will  be  21%  lower  in 
2020 than in 2005. 

The  aviation  sector  cap  was  originally  set  at  210  349  264  aviation  allowances  per  year, 
which  is  5%  below  the  average  annual  level  of  aviation  emissions  in  2004-2006.  It 
increased  by  116  524  aviation  allowances  on  1  January  2014  to  accommodate  Croatia 
joining the EU ETS. This cap was meant to reflect the 2008 legislation* which stated that 
all flights  from, to and within the EEA would be included in the EU ETS. However, the 
scope of the EU ETS was temporarily limited to flights within the EEA between 2013 and 
2016 to support the development of a global measure by the ICAO to stabilise emissions 
from  international  aviation  at  2020  levels.  Therefore,  the  number  of  aviation  allowances 
put  into  circulation  in  2013-2016  was  significantly  lower  than  the  original  cap.  In  2017, 
pending the application of the ICAO global measure, the intra-EEA scope for aviation was 
prolonged until 2023 (see section 5). 

*  Directive  2008/101/EC  of  the  European  Parliament  and  of  the  Council  of  19  November  2008,amending  Directive 
2003/87/EC so as to include aviation activities in the scheme for greenhouse gas emission allowance trading within the 
Community 

Table 1 shows the figures for the cap for stationary installations and the number of aviation 
allowances put annually into circulation20 for each year during phase 3 of the EU ETS. 

20 The number of aviation allowances put into circulation since 2013 is the result of a bottom-up approach 
starting from free allocation (determined on the basis of activity-based benchmarks for operators' activity within 
the EEA). The number of allowances auctioned is then derived based on the fact that free allocation (including a 
special reserve for later distribution to fast-growing aircraft operators and new entrants) should be 85% of the 
total and auctioning should be 15%. 

16 

 
 
 
 
 
 
 
 
 
 
 
                                                           
 
 
 
 
 
 
Table 1: EU ETS cap 2013-2020 

Year 

Annual cap (installations) 

Annual aviation allowances put into 
circulation21 

2013 

2014 

2015 

2016 

2017 

2018 

2019 

2020 

2 084 301 856 

2 046 037 610 

2 007 773 364 

32 455 296 

41 866 834 

50 669 024 

1 969 509 118 

38 879 316 

1 931 244 873 

38 711 651 

1 892 980 627 

38 703 97122 

1 854 716 381 

1 816 452 135 

21 The updated figures include exchanges of international credits besides the free allocation and auctioned 
amounts.  
22 Includes information from the 2018 aviation auction calendar. 

17 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
4.1.2. Issued allowances 

4.1.2.1.Free allocation  

Although  in  phase  3  of  the  EU  ETS  auctioning  is  the  default  allocation  method,  a 
significant  amount  of  allowances  continue  to  be  allocated  for  free.  The  following 
principles apply: 

  Electricity production no longer receives free allowances; 
  Free allowances are distributed according to EU-wide harmonised rules; 
  Free  allocation  is  based  on  performance  benchmarks  to  strengthen  the  incentives  for 
GHG emission reductions and innovation and reward the most efficient installations; 
  An  EU-wide  New  Entrants'  Reserve  (NER)  for  new  installations  and  installations 
significantly  increasing  capacity  has  been  established,  equivalent  to  5%  of  the  total 
amount of allowances for phase 3. 

Free allocation is provided to industrial installations to address the risk of carbon leakage 
(a situation where companies transfer production to third countries with laxer constraints 
on  GHG  emissions,  which  may  lead  to  an  increase  in  their  total  emissions).  The  sectors 
and sub-sectors deemed to be exposed to a significant risk of carbon leakage are placed on 
a carbon leakage list*. While originally the list covered the period 2015-2019, the revised 
EU ETS Directive prolonged its validity to 2020. 

* The current carbon leakage list can be found here: http://eur-lex.europa.eu/legal-
content/EN/ALL/?uri=CELEX:32014D0746 

In  the  course  of  phase  3,  about  43%  of  the  total  quantity  of  available  allowances  will  be 
allocated  for  free  to  industry  and  electricity-generating  installations,  while  the  share  of 
allowances to be auctioned by Member States amounts to  57%. 

The  initial  New  Entrants  Reserve  (NER),  after  deducting  300  million  allowances  for  the 
NER300  programme,  held  480.2  million  allowances.  Until  June  2018,  153.1  million 
allowances have been reserved for 780 installations for the entirety of phase 3. The remaining 
NER, which amounts to 327.1 million allowances, can be distributed in the future. However, 
it is expected that a significant number of these allowances will remain unallocated.  

Until June 2018, free allocation has been reduced by around 376 million  allowances due to 
installations that have closed or reduced their production or production capacity compared to 
the one initially used to calculate phase 3 allocation. 

18 

 
 
 
Table 2: The number of allowances (in millions) allocated to industry for free from 2013 to 
201823 

Free allocation24  
(EU28+EEA EFTA states) 

Allocation from the new 
entrants reserve (greenfield 
investments and capacity 
increases) 

Free allowances remaining 
unallocated due to closures 
or changes in production or 
production capacity 

2013 

2014 

2015 

2016 

2017 

2018 

903.0 

874.8 

847.6 

821.3 

796.2 

771.9 

11.5 

14.7 

17.8 

20.3 

20.7 

20.0 

40.2 

58.6 

70.0 

66.1 

68.9 

72.2 

As  the  demand  for  free  allocation  exceeded  the  amount  available,  the  allocation  for  all 
installations under the EU ETS was reduced by the same percentage through the application 
of a "cross-sectoral correction factor (CSCF)"25. In January 2017, the Commission revised26 
the original CSCF values following a judgment27 of the Court of Justice. 

23 The figures include notifications by Member States received until June 2018 and may be subject to large 
changes due to later notifications. 
24 Initial amount, before application of the reductions mentioned below in the table.  
25 Commission Decision 2013/448/EU, OJ L 240, 7.9.2013, p.27. 
26 Commission Decision 2017/126/EU, OJ L 19, 25.1.2017, p. 93. 
27 Judgment of the Court  of Justice of 28 April 2016 in Joined Cases C-191/14, C-192/14, C-295/14, C-389/14 
and C-391/14 to C-393/14 Borealis Polyolefine GmbH and Others v Bundesminister für Land- und 
Forstwirtschaft, Umwelt und Wasserwirtschaft and Others, EU:C:2016:311. 

19 

 
 
 
 
                                                           
4.1.2.1.1. NER 300 programme 

The  NER300  is  a  large-scale  funding  programme  for  innovative  low-carbon  energy 
demonstration projects. It is aimed at demonstrating environmentally safe carbon capture 
and storage (CCS) and innovative renewable energy (RES) technologies on a commercial 
scale within the EU.  

The NER 300 is funded from the monetisation of 300 million emission allowances from 
the  NER.  The  funds  were  awarded  to  projects  selected  through  two  rounds  of  calls  for 
proposals in December 2012 and July 2014.  

As a result of the two calls for proposals, 38 RES projects and 1 CCS project were awarded 
in  total,  in  20  EU  Member  States  and  amounting  to  EUR  2.1  billion.  Of  them,  6  are 
operational:  bionergy  projects  BEST  in  Italy  and  Verbiostraw  in  Germany,  on-shore  wind 
projects Windpark Blaiken in Sweden and Windpark Handalm in Austria, and offshore wind 
projects Veja Mate and Nordsee One in Germany. 

13 more projects have so far reached their final investment decision, while 14 projects have 
been cancelled. 11 projects are under various stages of preparation. The NER 300 Decision 
was amendend on 20 November 201728 to allow for re-investment of the released funds from 
the  cancelled  projects  of  the  first  call  (EUR  487  million  so  far)  in  existing  financial 
instruments - the InnovFin Energy Demo Projects and the Connecting Europe Facility Debt 
Instrument, both managed by the European Investment Bank. 

The released funds from the cancelled projects of the second call (EUR 515 million so far) 
will be added to the resources avaible for the Innovation Fund (see Chapter 2.3 and Appendix 
6).  

Table 3: NER 300 projects awarded under the first and second calls for proposals29 

1st Call for proposals 

2nd Call for proposals 

Projects in preparation 

Projects in operation 

Projects withdrawn 

Total 

8 

6 

6 

20 

11 

0 

8 

19 

28 Commission Decision (EU) 2017/2172 of 20 November 2017 amending Decision 2010/670/EU as regards the 
deployment of non-disbursed revenues from the first round of calls for proposals. 
29 In line with Commission Decision 2010/670/EU, projects awarded under the first call had to reach final 
investment decision by end 2016, while projects awarded under the second call had to do so by end June 2018. 
20 

 
 
 
 
 
 
                                                           
 
 
4.1.2.1.2. Compensation of indirect carbon costs 

In addition to free allocation to cover direct carbon costs, EU Member States may grant 
State  aid  to  compensate  some  electro-intensive  industries  for  indirect  carbon  costs,  i.e. 
costs  resulting  from  increased  electricity  prices  due  to  power  generators  passing  on  the 
costs of  purchasing allowances to consumers.  

To  ensure  harmonized  application  of  indirect  carbon  cost  compensation  across  Member 
States  and  minimize  competition  distortions  in  the  internal  market,  the  Commission  has 
adopted  the  EU  ETS  State  Aid  Guidelines*,  which  are  valid  until  end  of  2020.  The 
Guidelines determine, inter alia, eligible sectors and maximum amounts for compensation 
of  indirect  carbon  costs.  The  Guidelines  only  allow  for  a  partial  and  degressive 
compensation  of  eligible  costs**,  therefore  retaining  the  incentives  for  electricity 
efficiency  and  the  transition  to  ‘green’  electricity,  in  line  with  the  EU's  decarbonisation 
objectives.  The  revised  ETS  Directive  allows  Member  States  to  continue  providing 
indirect  carbon  cost  compensation  in  phase  4,  and  complements  it  with  enhanced 
transparency and reporting provisions (see section 2.2). In view of the new provisions, the 
Commission  has  initiated  a  revision  of  the  EU  ETS  State  Aid  Guidelines  for  the  next 
trading period (see Appendix 6 to the Annex) 

*  Guidelines  on  certain  State  aid  measures  in  the  context  of  the  greenhouse  gas  emission  allowances  trading  scheme 
post 2012,OJ C158, 05.06.2012, p.4 

** The maximum share of eligible costs declines from 85% for the period 2013-2015, to 80% for the period 2016-2018 
and to 75 % for the period 2019-2020. 

To date, the Commission has approved 1230 indirect carbon cost compensation schemes in 11 
Member  States.  The  latest  additions  are  the  Walloon  scheme,  which  entered  into  force  on 
16.03.2018  and  the  Luxembourgish  scheme,  which  received  state  aid  clearance  on  6  July 
2018.  

As set out in section 2.2., new transparency and reporting requirements entered into force in 
2018 as part of the revised EU ETS Directive. As a result, within three months of the end of 
each year, Member States that have such financial measures in place should make available 
to the public, in an easily accessible form, the total amount of compensation provided and a 
breakdown per benefitting sector and subsector.  

A summary of the data published by the Member States for compensation paid out in 2017 is 
set out in Table 4. 

30 In addition, modificantions have been adopted to the French and Spanish schemes. 

21 

 
 
 
 
 
 
                                                           
 
Table 4: Indirect carbon cost compensation paid out by Member States in 2017 

Member 
State 

Duration of 
the scheme 

UK31 
DE33 
BE (FL)34 
NL35 
EL36 
LT37 
SK38 
FR39 
FI40 
ES41 

2013 - 2020 

2013 - 2020 

2013 - 2020 

2013 - 2020 

2013 - 2020 

2014 - 2020 

2014 - 2020 

2015 - 2020 

2016 - 2020 

2013 - 2020 

Compensation 
disbursed in 2017 
for indirect costs 
incurred in 2016 
(in million EUR) 
1932 

289 

46,7 

53,5 

12,4 

1 

10 

140 

38 

84 

Number of 
beneficiaries 
(installations) 

Auction 
revenue 2016 
(in million 
EUR) 

Percentage of 
auction 
revenues spent 
on indirect cost 
compensation 

95 

902 

107 

92 

52 

1 

5 

296 

55 

136 

419 

846 

107 

145,5 

147 

21 

65 

231 

71 

365 

4,6% 

34,1% 

43,6% 

37% 

8,4% 

4,8% 

15,4% 

60,0% 

40,0% 

23% 

The  combined  indirect  cost  compensation  paid  out  by  the  10  Member  States  in  2017 
amounted to  about  EUR 694 million.  The Member States in  which compensation schemes 
are in place account for some 70% of EU GDP. The largest recipients of compensation were, 
respectively, the chemical sector, the non-ferrous metals sector, and the iron and steel sector. 

One of the transparency provisions in the revised EU ETS Directive determines that Member 
States that have spent more than 25% of their auction revenues on indirect cost compensation 
in any  year have to publish a report setting out the reasons why this amount was exceeded. 
Concerned Member States therefore compared their indirect  cost  pay-outs  in  2017 with  the 
auction  revenues  in  calendar  year  2016.42  In  2017,  Belgium  (Flanders),  Finland,  France, 

31https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/723181/Indi
rect_Cost_Compensation_EU_ETS_UK_Publication_2017_Revised.pdf  
32 Based on the average EUR/GBP exchange rate over 2017 of 0.88723. 
33 https://www.strompreiskompensation.de/SPK/SharedDocs/news/SPK-Auswertungsbericht.html?__site=SPK  
34 https://www.cnc-nkc.be/sites/default/files/report/file/2018-08-
13_rapportering_icl_2017_goedgekeurd_door_nkc_fr_en_nl.pdf 
35 https://www.rvo.nl/subsidies-regelingen/subsidieregeling-indirecte-emissiekosten-ets 
36 http://www.lagie.gr/anakoinoseis/anakoinoseis/anakoinosi/article/1605/  
37 http://ukmin.lrv.lt/lt/veiklos-sritvs/versloaplinka/pramone/valstybes-pagalba  
38 http://www.envirofond.sk/_img/Prehlady/Dotacie/Dotacie_2017.pdf  
39 https://www.ecologique-
solidaire.gouv.fr/sites/default/files/Informations%20sur%20la%20compensation%20des%20coûts%20indirects
%20en%20France.pdf  
40https://tem.fi/documents/1410877/2414868/Päästökauppadirektiivin+mukaiset+tiedot+2017+maksetusta+kom
pensaatiotuesta/86ca7fc7-04f7-446b-843d-
c4c6fb861386/Päästökauppadirektiivin+mukaiset+tiedot+2017+maksetusta+kompensaatiotuesta.pdf   
41 http://www.mincotur.gob.es/PortalAyudas/emisionesCO2/concesion/2017/Paginas/Resolucion.aspx and 
http://www.mincotur.gob.es/PortalAyudas/emisionesCO2/concesion/2017/Paginas/PropComplementaria.aspx 
42 The reason for comparing 2017 pay-outs with 2016 auction revenues is that 2017 pay-outs constitute 
compensation for indirect costs incurred by consumers for power purchases in calendar year 2016.  

22 

 
 
 
                                                           
Germany  and  the  Netherlands  exceeded  the  25%  threshold  and  produced  a  report 
accordingly.  

4.1.2.2. Auctioning of allowances 

As of Phase 3 of the EU ETS, auctioning via the primary market is the default mode for 
allocating  allowances.  Primary  auctions  are  governed  by  the  Auctioning  Regulation* 
which specifies the timing, administration and other aspects of how auctions should take 
place to ensure an open, transparent, harmonised and non-discriminatory process. 

* Commission Regulation (EU) No 1031/2010 of 12 November 2010 on the timing, administration and other aspects of 
auctioning of greenhouse gas emission allowances pursuant to Directive 2003/87/EC of the European Parliament and of 
the Council establishing a scheme for greenhouse gas emission allowances trading within the Community, OJ L 302, 
18.11.2010, p.1. 

In 2017, the Auctioning Regulation was amended to reappoint ICE Future Europe (ICE) as 
UK's  auction  platform  from  10  November  2017.  The  amendment  also  covered  provisions 
made necessary by the forthcoming implementation of the Market Stability Reserve (MSR). 
The Auctioning Regulation  is  currently being amended  further to  relist  EEX as Germany's 
auction  platform  and  to  enable  the  auctioning  of  the  first  50  million  allowances  for  the 
Innovation Fund taken from the Market Stability Reserve in 2020. 

The auctions over the reporting period took place through the following auction platforms: 

  European Energy Exchange AG ('EEX'), auctioning as the common auction platform 
for 25 Member States participating in a joint procurement procedure, and for Poland, 
which  opted-out  from  the  joint  procurement  procedure  but  has  not  appointed  a 
separate auction platform. As of 5 September 2016, EEX is conducting auctions as 
the second common auction platform appointed on 13 July 2016;  

  EEX, auctioning for Germany as an 'opt-out' auction platform; 

 

ICE, auctioning for the UK as an 'opt-out' auction platform. 

Iceland,  Liechtenstein  and  Norway  have  not  started  to  auction  allowances  yet.  Work  is 
ongoing to enable auctioning of these allowances on the common auction platform.  

In  2017,  EEX,  auctioning  on  behalf  of  its  27  Member  States  auctioned  89%  of  the  total 
auctioned amount, while ICE auctioned 11% of the total amount on behalf of the UK. More 
than 1270 auctions were held by 30 June 2018.  

Table 5 provides an overview of the volumes of allowances43 auctioned by EEX and ICE up 
to 30 June 2018, including the early auctions44 of general allowances.  

43 The volumes of general allowances have been determined taking into account Decision 1359/2013/EU. The 
volumes of aviation allowances have been determined taking into account Decision No 377/2013/EU and 
Regulation (EU) No 421/2014. 
44 Early auctions of allowances in phase 3 were performed in 2012 in view of the widespread commercial 
practice in the electricity sector of selling power on a forward basis and purchasing the required inputs 
(including allowances) when they sell their output. 

23 

 
 
 
                                                           
 
 
Table 5: Total volume of phase 3 allowances auctioned in 2012-2018 

Year 

2012 

2013 

2014 

2015 

2016 

2017   

2018 (until 30 June 2018)  

General allowances  

Aviation allowances  

89 701 500 

808 146 500 

528 399 500 

632 725 500 

715 289 500 

951 195 500 

482 921 500 

2 500 000 

0  

9 278 000 

16 390 500 

5 997 500 

4 730 500 

1 930 000 

The  auctions  were  generally  conducted  smoothly  and  the  auction  clearing  prices  were 
generally closely aligned with secondary market prices.  

Between January 2017 and June 2018 four auctions were cancelled due either to the reserve 
price not being met or due to the total bid volume falling short of the auctioned volume. With 
these four, a total  of nine auctions have been cancelled out  of the more than 1270 auctions 
held since late 2012. An overview of the auction clearing prices, number of participants and 
cover ratio for the auctions of general allowances from 2013 to 30 June 2018 is provided in 
Appendix  2.  The  auction  platforms  publish  detailed  results  of  each  auction  on  dedicated 
websites  and  in  a  timely  manner.  Further  information  on  the  performance  of  the  auctions, 
including  on  the  participation,  cover  ratios  and  prices,  can  be  found  in  the  Member  States' 
reports published on the Commission's website45. 

The total revenues generated by Member States from the auctions between 2012 and 30 June 
2018  exceeded  EUR  26  billion  (in  2017  alone,  the  generated  total  revenues  were  EUR  5.6 
billion). The EU ETS Directive provides that at least 50% of auction revenues, including all 
revenues  generated  from  allowances  distributed  for  the  purposes  of  solidarity  and  growth, 
should be used by Member States for climate and energy related purposes. According to the 
information  submitted  to  the  Commission,  Member  States  spent  or  planned  to  spend 
approximately  80%  of  these  revenues  for  specified  climate  and  energy  related  purposes  in 
201746. 

45 http://ec.europa.eu/clima/policies/ets/auctioning/documentation_en.htm 
46 More information on the use of auction revenues by Member States is available in the 2018 Climate Action 
Progress Report:  COM/2018/716 final, https://eur-lex.europa.eu/legal-
content/EN/TXT/?uri=COM:2018:716:FIN  

24 

 
 
 
 
 
 
                                                           
4.1.2.3. Derogation from full auctioning for the power sector 

Article  10c  of  the  EU  ETS  Directive  provides  a  derogation  from  the  general  rule  of 
auctioning to support investments in the modernisation of the electricity sector in certain 
lower income EU Member States. Eight out of ten eligible Member States* make use of 
this  derogation  and  allocate  to  electricity  generators  a  number  of  allowances  for  free 
provided corresponding investments are carried out.  

The free allowances under Article 10c are deducted from the quantity that the respective 
Member  State  would  otherwise  auction.  Depending  on  the  national  rules  for  the 
implementation of the derogation, electricity generators can receive free allowances of an 
equivalent value to the investments they carry out from their National  Investment Plans, 
or to  payments made into a national  fund through which such investments  are financed. 
As the free allocation of allowances to electricity generators under Article 10c of the ETS 
the 
involve  State  aid, 
Directive  would 
implementation of the Article 10c derogation have been cleared under state aid rules and 
are subject to the requirements of the State Aid Guilelines.** 

the  national  schemes  for 

in  principle 

Transitional  free  allocation  under  Article  10c  will  continue  to  be  available  in  the  next 
trading period, but with enhanced transparency provisions and with the option for eligible 
Member  States  to  use  all  or  part  of  their  Article  10c  allocation  to  support  investments 
within the framework of the Modernisation Fund (see section 2.3).   

*Bulgaria,  Cyprus,  Czech  Republic,  Estonia,  Hungary,  Latvia,  Lithuania,  Malta, Poland  and  Romania  are  eligible  for 
the derogation. Malta and Latvia decided not to make use of it. 

** Guidelines on certain State aid measures in the context of the greenhouse gas emission allowances trading scheme 
post 2012,OJ C158, 05.06.2012, p.4 

The number of allowances allocated for free to electricity generators in 2017 is indicated in 
Table  1,  Appendix  1  to  the  Annex,  while  the  maximum  number  of  allowances  per  year  is 
indicated in Table 2 of Appendix 1. 

The total value of reported investment support during the years 2009 to 2017 is around EUR 
11.3  billion.  About  80%  of  this  amount  was  dedicated  to  upgrading  and  retrofitting 
infrastructure, while the rest of the investments were in clean technologies or diversification 
of supply.  

Unallocated  allowances  may  either be  auctioned  or, following the provisions of the revised 
EU  ETS  Directive,  may  be  allocated  in  2021-2030  to  Article  10c  investments  selected 
through competitive bidding (see section 2.3). Figure 2 shows the number of allowances that 
have been allocated during the years 2013-2017. 

25 

 
 
 
 
 
 
 
 
 
 
 
 
  Figure 2: Allowances allocated for free pursuant to Article 10c 

Figure 3 shows, for 10c allowances, the extent to which they have been allocated, added to 
the  auctions,  or  remain  unused  (neither  allocated  nor  added  to  the  auctions).  For  example, 
113 million of the allowances that have been deducted from Poland's share of allowances to 
auction between 2013 and 2017 for the purpose of Article 10c, have not yet been allocated or 
added to the auctions.  

Figure 3: Distribution of allowances (allocated, auctioned, unused remaining)  

Allocated 
allowances 
Auctioned 
allowances 
Unused remaining 
allowances 

26 

 
 
 
 
 
 
 
 
 
 
 
Table  6  shows  the  number  of  10c  allowances  for  the  years  until  2017  which  have  been 
auctioned in  the period 2013-2017, as well as the number of remaining unused allowances. 
The last column of the table indicates how  many allowances so far may  be transferred and 
allocated in 2021-2030 to investments selected through competitive bidding processes. 

Table 6: Treatment of unused 10c allowances 2013-2017 

Member State 

Number of 10c allowances  
which have been auctioned (in million) 

Number of remaining unused 
allowances47 (in million) 

BG 

CY 

CZ 

EE 

HU 

LT 

PL 

RO 

Total 

7,8 

0,0 

0,2 

0,3 

0 

0,7 

0,0 

12,4 

21,4 

1,1 

0,0 

0,2 

0,4 

0,9 

0,4 

113,3 

4,4 

119,6 

27 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
 
4.1.3. International credits 

Participants in the EU ETS can use international credits from the Kyoto Protocol's Clean 
Development Mechanism (CDM) and Joint Implementation (JI) towards fulfilling part of 
their  EU  ETS  obligations  until  2020*.  These  credits  are  financial  instruments  that 
represent  a  tonne  of  CO2  removed  or  reduced  from  the  atmosphere  as  a  result  of  an 
emissions  reduction  project.  In  phase  3  credits  are  no  longer  surrendered  directly,  but 
instead may be exchanged for allowances at any time during the calendar year.  

A  number  of  qualitative  standards  apply  to  the  use  of  credits  by  EU  ETS  participants: 
credits  are  not  accepted  from  nuclear,  afforestation  and  reforestation  projects,  and  new 
projects  registered  after  2012  must  be  in  least  developed  countries.  There  are  also 
maximum  levels  of  credits  that  can  be  used  by  stationary  installations  and  aircraft 
operators**.  

According to the provisions of the revised EU ETS Directive, international credits will no 
longer be used for EU ETS compliance in the next trading period. 

* CDM and JI projects generate Kyoto carbon credits: Certified Emission Reductions (CERs) and Emission Reduction 
Units (ERUs) respectively. Commission Regulation (EU)  No 389/2013 stipulates that  ERUs issued by third countries 
which do not have legally binding quantified emission targets from 2013 to 2020 as set out within the Doha amendment 
to the Kyoto Protocol or that have not deposited an instrument of ratification relating to the amendment, should only be 
held  in  the  Union  Registry  if  they  have  been  certified  to  relate  to  emission  reductions  verified  as  having  taken  place 
before 
2013. 
**Commission  Regulation  (EU)  No  1123/2013  of  8  November  2013  on  determining  international  credit  entitlements 
pursuant to Directive 2003/87/EC of the European Parliament and of the Council, OJ L 299, 9.11.2013, p. 32 

Although  the  exact  quantity  of  international  credit  entitlements  over  phases  2  and  3  (2008-
2020)  will  partially  depend  on  the  quantity  of  future  verified  emissions,  market  analysts 
estimate that it will amount to approximately 1.6 billion credits. As of 30 June 2018, the total 
number  of  international  credits  used  or  exchanged  amounts  to  1.49  billion,  accounting  for 
over 90% of the estimate for the allowed maximum. 

For a full overview of the international credits exchange, see Appendix 3 to the Annex. 

28 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.2. Demand: allowances taken out of circulation 

In  2017,  emissions  from  installations  participating  in  the  EU  ETS  are  estimated  to  have 
increased  slightly  by  0.18%  compared  to  2016  based  on  the  information  recorded  in  the 
Union  Registry.  While  the  slight  increase  breaks  the  decreasing  emissions  trend  since  the 
start of phase 3 in 2013, it can be explained by a growth in real GDP of 2.4%, which is higher 
than in any year since the beginning of the current trading period.  

Table 7: Verified emissions (in million tonnes CO2 equivalents) 

Year 

2011 

2012 

2013 

2014 

2015 

2016 

2017 

Verified total emissions 

1904 

1867 

1908 

1814 

1803 

1751 

1754 

Change to year x-1 

-1.8% 

-2% 

2.2% 

-4.9% 

-0.6% 

-2.9% 

0.2% 

Verified emissions from 
power sector 

1.155 

1.153 

1.101 

1.011 

1.005 

957 

949 

Change to year x-1 

-0,2% 

-4,5% 

-8,1% 

-0,6% 

-4,8% 

-0,8% 

Verified emissions from 
industrial installations 

749 

714 

807 

803 

798 

794 

805 

Change to year x-1 

-4,7% 

13,1% 

-0,6% 

-0,6% 

-0,5% 

1,4% 

Real GDP48 growth rate 
EU28 

1.7% 

-0.5% 

0.2% 

1.7% 

2.2% 

1.9% 

2.4% 

GDP data as reported on: 
http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&plugin=1&language=en&pcode=tec00115  
(accessed in July 2018). Verified aviation emissions are reported separately in section 5. 

As the table demonstrates, the increase in emissions was mainly driven by industry, whereas 
emissions from the power sector slightly decreased. 

The number of allowances cancelled on a voluntary basis amounts to 84 827 allowances in 
2017.  In  total,  voluntary  cancellations  of  300  181  allowances  have  been  recorded  until  end 
June 2018. 

4.3. Balancing supply and demand  

At the start of phase 3 in 2013, the EU ETS was characterised by a large structural imbalance 
between the supply and demand of allowances, equaling 2.1 billion allowances. The surplus 
has been decreasing steadily over the course of the current trading period, remaining stable in 
2014 and falling significantly to 1.78 billion allowances in 2015, 1.69 billion allowances in 

48 GDP data as reported on: 
http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&plugin=1&language=en&pcode=tec00115  
(accessed in July 2018) 

29 

 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
2016, and 1.65 billion allowances in 2017. This amounts to an overall decrease of almost half 
a  billion  over  three  years.  The  decrease  reflects  the  impact  of  the  back-loading  measure49 
applied in 2014 to 2016, which has been counter-balanced partially by declining emissions in 
the period from 2013 to 2016.  

Figure 4 presents the development of the surplus in the European carbon market by end 2017.  

Figure 4: Development of the surplus in the European carbon market in 2013-2017 

To address the structural imbalance between the supply and demand of allowances, a Market 
Stability  Reserve  (MSR)  was  created  in  201550  to  render  the  auction  supply  of  emission 
allowances more flexible. The MSR will start operating in 2019. 

49 Decision No 1359/2013/EU of the European Parliament and of the Council of 17 December 2013 amending 
Directive 2003/87/EC clarifying provisions on the timing of auctions of greenhouse gas allowances, OJ L 343, 
19.12.2013, p. 1. 
50 Decision (EU) 2015/1814 of the European Parliament and of the Council of 6 October 2015 concerning the 
establishment and operation of a market stability reserve for the Union greenhouse gas emission trading scheme 
and amending Directive 2003/87/EC, OJ L 264, 9.10.2015, p. 1. 

30 

 
 
 
                                                           
A  key  notion  for  the  functioning  of  the  MSR  is  the  total  number  of  allowances  in 
circulation  (TNAC).  Allowances  will  be  added  to  the  reserve,  if  the  TNAC  is  above  a 
predefined upper threshold (833 million allowances) and will be released from the reserve, 
if  the  number  is  below  a  predefined  lower  threshold  (below  400  million  allowances)*. 
Thus,  the  MSR  absorbs  or  releases  allowances  if  the  circulating  ones  are  outside  of  a 
predefined range. Back-loaded and so-called unallocated** allowances will also be put in 
the reserve. 

The total number of allowances in circulation relevant for determining the MSR feeds and 
releases is calculated on the basis of the following formula: 

TNAC = Supply – (Demand + allowances in the MSR) 

The  components  of  supply  and  demand  used  in  the  formula  are  described  in  detail  in 
Table 1 in Appendix 4 to the Annex. 

*Or where measures are adopted under Article 29a of the EU ETS Directive 

**Unallocated  allowances  are  allowances  not  allocated  pursuant  to  Article  10a(7)  of  the  EU  ETS  Directive,  i.e. 
allowances remaining in the new entrants' reserve, and resulting from the application of Article 10a(19) and (20), i.e. 
allowances  foreseen  for  free  allocation  to  installations  but  remaining  unallocated  because  of  (partial)  cessation  of 
operations or significant capacity reductions. De facto "unallocated" allowances stemming  from the application of the 
relevant carbon leakage factor to sectors not included in the carbon leakage list during the current period, as well as any 
allowances that are not allocated under Article 10c of the ETS Directive, are not foreseen to be placed in the Market 
Stability  Reserve  under  Article  1(3)  of  Decision  (EU)  2015/1814.  Such  allowances  are  therefore  not  covered  (please 
refer to p. 225 of the Impact Assessment (SWD(2015) 135 final) accompanying the proposal for a revision the EU ETS 
Directive in phase 4. 

The carbon market report allows for the consolidation of supply and demand figures which 
are published according to the timeline of reporting obligations stemming from the EU ETS 
Directive and its implementing provisions. This timeline, relevant data and scope are outlined 
in Table 2, Appendix 4 to the Annex. Figure 5 shows the composition of supply and demand 
in 2017. The relevant data have also been published as part of the communication on the total 
number of allowances in circulation (TNAC) for MSR purposes51. 

51 C(2018) 2801 final, https://ec.europa.eu/clima/sites/clima/files/ets/reform/docs/c_2018_2801_en.pdf 

31 

 
 
 
 
 
 
 
 
 
 
                                                           
 
Figure 5: Composition of cumulative supply and demand until the end of 2017 

Supply (cumulative, millions) 

                                Demand (cumulative, millions) 

Verified emissions 

Cancellations 

Free allocation 

International credits exchanged 

Free allocation (NER) 

Free allocation (10c) 

NER 300 monetisation by EIB 

Auctioning 

Early auctioning 

Banking 

In  preparation  for  the  MSR  becoming  operational  in  2019,  the  Commission  has  regularly 
published  as  from  mid-May  201752  the  TNAC  for  the  preceding  year.  In  May  2018,  the 
TNAC was published for the second time, corresponding to 1 654 574 598 allowances53. The 
2018 publication will for the first time lead to placing allowances in the MSR, reducing the 
auction volume over the first 8 months of 2019. 

The  revised  EU  ETS  Directive  makes  two  notable  changes  to  the  functioning  of  the  MSR 
(see  also  section  2.1).  First,  the  percentage  of  the  TNAC  to  be  placed  in  the  reserve  from 
2019 to 2023 is doubled from 12% to 24%. This substantially increases the pace of reducing 
the surplus. Second, from  2023, allowances held in  the MSR exceeding  the previous  year's 
auction volume will no longer be valid.  

52 C(2017) 3228 final, https://ec.europa.eu/clima/sites/clima/files/ets/reform/docs/c_2017_3228_en.pdf 
53 C(2018) 2801 final, https://ec.europa.eu/clima/sites/clima/files/ets/reform/docs/c_2018_2801_en.pdf 

32 

 
 
 
  
  
  
  
  
  
  
  
 
                                                           
  
  
Thus, on the basis of the 2018 TNAC and the revised legislation, the 2019 auction volumes 
will  be  reduced  by  close  to  265  million  allowances  over  the  first  8  months  of  2019, 
corresponding to 16% of the surplus. As a result, in the first eight months of 2019 some 40% 
fewer allowances will be auctioned than in the corresponding period in 2018. Based on the 
auction volume for 2019, Appendix 7 provides information on the contributions by Member 
State  to the MSR from January to August 2019. 

5. AVIATION 

The  aviation  sector  has  been  part  of  the  EU  ETS  since  2012.  The  original  legislation 
covered  all flights  in  and out  of the European Economic Area  (EEA). However, the EU 
limited  the  obligations  for  2012-2016  to  flights  within  the  EEA,  in  order  to  support  the 
development of a global measure by the International Civil Aviation Organisation (ICAO) 
for reducing aviation emissions.  

In October 2016, the ICAO Assembly agreed on a resolution on the Carbon Offsetting and 
Reduction  Scheme  for  International  Aviation  (CORSIA),  to  start  in  2021.  CORSIA  is 
conceived as a carbon offsetting scheme with the objective of stabilising emissions from 
international aviation at 2020 levels. In light of this outcome, the EU ETS Directive was 
amended in 2017 to prolong the intra-EEA scope for aviation until 2023. 

Pending the ICAO's adoption of the relevant CORSIA instruments and subsequent decisions 
by the EU on the possible implementation of CORSIA in the EU, and to provide continued 
momentum  to  the  international  process,  the  EU  decided  in  2017  to  extend  the  current 
derogation  from  EU  ETS  obligations  for  flights  to  and  from  third  countries  until  31 
December  2023,  subject  to  review.54  The  current  intra-EEA  scope  is  thus  maintained  until 
2023. After that, in the absence of a review, it would revert back to the original "full scope".  

Moreover,  the  revised  EU  ETS  Directive  foresees  that  the  European  Commission  should 
report to the European Parliament and to the Council on ways to implement CORSIA in EU 
law  through  a  revision  of  the  Directive.  It  also  provides  for  the  application  of  the  linear 
reduction factor of 2.2%  to aviation allowances as from 2021.  

In  2017,  allowances  were  issued  in  line  with  the  intra-EEA  scope.  The  free  allocation 
amounted to slightly over 33.1 million allowances. This number comprises the free allocation 
(slightly over 32.0 million allowances) and nearly 1.1 million free allowances allocated from 
the special reserve for new entrants and fast growing operators. Allocations from this reserve 
are doubled in 2017-2020 as they relate to the full period 2013-2020. 

With regard to developments in aviation emissions, verified emissions continued to grow and 
amounted to 64.2 million tonnes of CO2 in 2017, an increase of 4.5% compared to 2016.   

54 Regulation (EU) 2017/2392 of the European Parliament and of the Council of 13 December 2017 amending 
Directive 2003/87/EC to continue current limitations of scope for aviation activities and to prepare to implement 
a global market-based measure from 2021, OJ L 350, 29.12.2017, p. 7 

33 

 
 
 
                                                           
 
 
The volume auctioned between January and December 2017 was approximately 4.7 million 
allowances. 

Table 8 shows a summary of verified emissions, free allocation, and auction volumes for the 
aviation sector since the start of phase 3.  

Table 8: Verified emissions and allocation to the aviation sector 

Year 

2013 

2014 

2015 

2016 

2017 

2018 

Verified emissions (in million 
tonnes CO2) 

Change of verified emissions 
to year x-1 

Free allocation (EU28+EEA 
EFTA states, in million 
allowances)55 

Free allocation from special 
reserve for new entrants and 
fast growing operators (in 
million allowances) 

Volumes of allowances 
auctioned (in millions) 

53.5  

54.8 

57.1 

61.5 

64.2 

2.5% 

4.1% 

7.6% 

4.5% 

32.5 

32.4 

32.2 

32.0 

32.0 

0 

0 

0 

0 

0 

1.1 

1.1 

9.3 

16.4 

5.9 

4.7 

1.956 

The volumes of aviation allowances auctioned over the period 2013-2015 reflect the 2013 co-
legislator's decision to "stop the clock"57 and limit climate obligations only to flights within 
the  EEA.  Compliance  for  the  aviation  sector  was  postponed  for  2012  and  2013.  The 
postponed 2012 volumes were thus auctioned in 2014, while compliance took place between 
January and April 2015 for aviation emissions from 2013 and 2014. 

55 These numbers do not take into account closures of aircraft operators.  
56 Until end June 2018. 
57 Decision No 377/2013/EU of the European Parliament and of the Council of 24 April 2013 derogating 
temporarily from Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading 
within the Community Text with EEA relevance, OJ L 113, 25.4.2013, p. 1. 

34 

 
 
 
 
 
 
 
 
 
 
                                                           
6. MARKET OVERSIGHT 

Under  the  new  Directive  on  Markets  in  Financial  Instruments*  (MiFID2)  emission 
allowances  are  classified  as  financial  instruments  as  of  3  January  2018.  This  means  that 
rules  applicable  to  traditional  financial  markets  (those  including  carbon  derivatives  trade 
on  leading  platforms  or  over-the-counter  (OTC))  also  apply  to  the  spot  segment  of  the 
secondary  carbon  market  (transactions  in  emission  allowances  for  immediate  delivery  in 
the  secondary  market).  This  segment  is  thus  put  on  equal  footing  with  the  derivatives 
market in terms of transparency, investor protection and integrity. Oversight in the primary 
market continues to be covered by the Auctioning Regulation, other than issues related to 
market abuse. 

By virtue of cross-references to MiFID2 definitions of financial instruments, other pieces 
of  financial  market  legislation  apply.  This  is  in  particular  the  case  for  the  Market  Abuse 
Regulation  (MAR)**,  which  covers  transactions  and  conduct  involving  emission 
allowances,  on  both  primary  and  secondary  markets.  Similarly,  a  cross-reference  to 
MiFID2 in the Anti-Money Laundering Directive*** will trigger a mandatory application 
of customer due diligence checks by MiFID-licensed carbon traders to their clients in the 
secondary spot market in emission allowances. **** 

*  Directive  2014/65/EU  of  the  European  Parliament  and  of  the  Council  of  15  May  2014  on  markets  in  financial 
instruments and amending Directive 2002/92/EC and Directive 2011/61/EU  

**  Regulation  (EU)  No  596/2014  of  the  European  Parliament  and  of  the  Council  of  16  April  2014  on  market  abuse 
(market  abuse  regulation)  and  repealing  Directive  2003/6/EC  of  the  European  Parliament  and  of  the  Council  and 
Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC 

*** Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use 
of  the  financial  system  for  the  purposes  of  money  laundering  or  terrorist  financing,  amending  Regulation  (EU)  No 
648/2012  of  the  European  Parliament  and  of  the  Council,  and  repealing  Directive  2005/60/EC  of  the  European 
Parliament and of the Council and Commission Directive 2006/70/EC  

****Due  diligence  checks  are  already  mandatory  in  the  primary  market  and  in  the  secondary  market  in  emission 
allowances' derivatives. 

MiFID2 and MAR, both adopted in 2014, envisage certain adaptations of the general regime 
to carbon market specificities (see Carbon Market Report 2015)58.  

Several  measures  regulating  detailed  aspects  of  the  provisions  under  MiFID259  and  MAR60 
were adopted in the period 2016 - 2018.  

58 COM(2015) 576 final, 
https://ec.europa.eu/clima/sites/clima/files/strategies/progress/docs/com_2015_576_annex_1_cover_en.pdf 
59 https://ec.europa.eu/info/law/markets-financial-instruments-mifid-ii-directive-2014-65-eu/amending-and-
supplementary-acts/implementing-and-delegated-acts_en 
60 https://ec.europa.eu/info/law/market-abuse-regulation-eu-no-596-2014/amending-and-supplementary-
acts/implementing-and-delegated-acts_en 

35 

 
 
 
                                                           
6.1. The legal nature and fiscal treatment of emission allowances 

The legal nature and fiscal treatment of emission allowances vary across countries, since 
these  two  aspects  are  not  defined  in  the  ETS  Directive.  Countries  are  obliged  to  report 
annually  on  their  national  regimes  related  to  the  legal  nature  and  fiscal  treatment  of 
allowances  as  part  of  their  Article  21  reports.  Despite  non-harmonisation,  a  mature  and 
very liquid market has developed over the last decade. The current regulatory framework 
provides  the  necessary  legal  underpinnings  for  a  transparent  and  liquid  carbon  market, 
whilst ensuring the market's stability and integrity. 

The  legal  nature  of  allowances  across  countries  ranges  from  financial  instruments  and 
intangible assets to property rights and commodities. According to Article 21 submissions in 
2018,  at  least  five  participating  countries  (DE,  IE,  IT,  NO,  SE)      reported  implemented  or 
envisaged changes to national legislation, mostly regarding the implementation of MiFID261. 

As regards the fiscal treatment of allowances, only three countries report that value added tax 
(VAT) applies to the issuance of emission allowances. In contrast, VAT is due on transaction 
of  emission  allowances  on  the  secondary  market  in  most  participating  countries  (all  except 
CY, EE, IS, LI).  

The majority of countries report that they apply the reverse-charge mechanism on domestic 
transactions  involving  emission  allowances.  The  reverse  charge  derogation  moves  the 
responsibility for the payment of the VAT transaction from the seller to the buyer of a good 
or service and constitutes an effective safeguard against VAT fraud. In November 2018, the 
Council adopted an amendment62 to Directive 2006/112/EC (the VAT Directive) in order to 
extend the application of the derogation beyond the end of 2018, until 30 June 2022. Member 
States  are  encouraged  to  keep  applying  the  reverse  charge  mechanism  in  order  to  provide 
continued adequate protection to the carbon market. 

Emission allowances for corporations can additionally be taxed (e.g. via the application of a 
corporate tax or a  corporate income tax). Sixteen countries reported that  there was no such 
taxation. 

61 MiFID2's classification of emission allowances under financial instruments at the EU level does not 
automatically  require legal (re)classification of the allowances under national law, since it is made for the 
purposes of applying the EU financial markets regulation and is not aimed to deal with the legal nature of 
emission allowances (on the grounds of private law) or their accounting treatment. 
62 Council Directive (EU) 2018/1695 of 6 November 2018 amending Directive 2006/112/EC on the common 
system of value added tax as regards the period of application of the optional reverse charge mechanism in 
relation to supplies of certain goods and services susceptible to fraud and of the Quick Reaction Mechanism 
against VAT fraud, OJ L 282, 12.11.2018, p. 5–7 

36 

 
 
 
                                                           
7. MONITORING, REPORTING AND VERIFICATION OF EMISSIONS 

The monitoring, reporting, verification and accreditation (MRVA) requirements of the EU 
ETS  are  harmonised  in  the  Monitoring  and  Reporting  Regulation  (MRR)*  and  the 
Accreditation and Verification Regulation (AVR)**. 

The monitoring system  in the EU ETS  is  designed as a  'building block'  approach which 
allows  a  high  degree  of  flexibility  for  operators  to  ensure  cost-efficiency,  while  at  the 
same time to achieve a high reliability of the monitored emissions data. For this purpose, 
several  monitoring  methods  ('calculation-based'  or  'measurement-based',  as  well  as  by 
exception  'fall-back  approaches')  are  allowed.  Methods  may  be  combined  for  individual 
parts  of  an  installation.  For  aircraft  operators,  only  calculation-based  approaches  are 
feasible,  with  fuel  consumption  being  the  central  parameter  to  be  determined  for  the 
flights covered by the EU ETS. The requirement for installations and aircraft operators to 
have  a  monitoring  plan  approved  by  the  competent  authority  on  the  basis  of  the  MRR 
prevents arbitrary selection of monitoring methods and temporal variations. 

With  the  AVR  for  phase  3  and  beyond  an  EU-wide  harmonised  approach  towards  the 
accreditation of verifiers has been introduced. Verifiers who are a legal person or a legal 
entity must be accredited by a National  Accreditation Body (NAB) in order to carry out 
verifications in compliance with the AVR. This uniform accreditation system provides the 
advantage of allowing verifiers to operate with mutual recognition across all participating 
countries,  thereby  taking  full  advantage  of  the  internal  market  and  helping  to  ensure 
sufficient availability overall.  

* Commission Regulation (EU) No 601/2012 of 21 June 2012 on the monitoring and reporting of 
greenhouse gas emissions pursuant to Directive 2003/87/EC of the European Parliament and of the Council, 
OJ L 181, 12.7.2012, p. 30. 

** Commission Regulation (EU) No 600/2012 of 21 June 2012 on the verification of greenhouse gas 
emission reports and tonne-kilometre reports and the accreditation of verifiers pursuant to Directive 
2003/87/EC of the European Parliament and of the Council, OJ L 181, 12.7.2012, p. 1. 

7.1.  General Developments 

The Commission continues to encourage improvements in countries' implementation of the 
MRR and AVR, based on the guidance and templates provided63. 

Experience with the implementation of these two regulations has shown the need for further 
improvement,  clarification  and  simplification  of  the  MRVA  rules  to  further  promote 
harmonisation, reduce administrative burden for the operators and participating countries, and 
further enhance the efficiency of the system. 

63 MRR and AVR templates and guidance documents can be found here: 
https://ec.europa.eu/clima/policies/ets/monitoring_en#tab-0-1 

37 

 
 
 
                                                           
 
Starting  in  February  2017,  participating  countries  have  been  consulted  with  a  view  to 
updating these two Regulations so as to prepare for phase 4 of the EU ETS, and to improve 
and simplify the MRVA processes.  

It  is  recognised  that  the  efficiency  of  the  compliance  system  has  improved  since  the  MRR 
allowed countries to make electronic reporting mandatory. In 2018, 16 participating countries 
reported  the  use  of  electronic  templates  or  specific  file  formats  for  monitoring  plans, 
emissions reports, verification reports and /  or improvement reports based on the minimum 
requirements  set  by  the  Commission.  Twelve  participating  countries  report  that  they  use 
some form of automated IT system for EU ETS reporting. 

7.2. Monitoring applied 

According to the Article 21 reports submitted in 2018, most installations use the calculation-
based  methodology64.  Only  179  installations  (1.7%)  in  23  countries  were  reported  to  use 
continuous  emissions  measurement  systems,  most  frequently  in  Germany,  France,  and  the 
Czech Republic. While the number of countries is the same as last  year,  there are 29 more 
installations overall using this approach. 

Only  11  countries  reported  the  use  of  the  fall-back  approach  by  36  installations,  covering 
approximately  3.4  million  tonnes  CO2e  (compared  to  5.1  million  tonnes  CO2e  the  year 
before). One installation in  the Netherlands is  responsible for 35% of the overall emissions 
reported in relation to fall-back methodology. 

The minimum tier defaults65 of the MRR are met by the vast majority of installations. Only 
106 category C installations (one more than last year), that is 13.7% (compared to 13% last 
year)  were reported to  deviate for  at  least  one parameter from  the requirement to  apply the 
highest  tiers  for  the  major  source  streams.  These  deviations  are  only  allowed  where  the 
operator demonstrates that the highest tier is  technically not feasible or incurs unreasonable 
costs.  Once  these  conditions  no  longer  apply,  the  operator  has  to  improve  their  monitoring 
system  accordingly.  In  the  2013  reporting  period,  16%  of  the  total  category  C  installations 
were reported as not meeting highest tiers in one way or another. Therefore, an improvement 
in category C installation highest tier compliance can be seen since the beginning of phase 3. 

Similarly,  reports  from  23  participating  countries  indicate  that  overall  21%  of  category  B 
installations are permitted with some form of deviation from the MRR default requirements, 
compared to 22% last year and 26% the year before, demonstrating a steady improvement in 
highest tier compliance. 

64 The main reason for this is that the measurement-based methodology involves the deployment of significant 
resources and know-how for the continuous measurement of the concentration of relevant GHGs, which a lot of 
smaller operators do not have. 
65 Commission Regulation (EU) No 601/2012 requires all operators to meet certain minimum tiers, with larger 
emission sources required to meet higher tiers (involving more reliable data quality), while for cost-efficiency 
reasons less strict requirements apply for smaller sources. 
38 

 
 
 
                                                           
7.3. Accredited verification 

The total number of verifiers is not reported in Article 21 reports, but a reasonable estimate 
based  on  the  number  accredited  for  combustion  (the  primary  scope  of  accreditation)  is  that 
there  were  at  least  124  different  accredited  verifiers  overall  concerning  2017  verifications. 
Concerning  aviation,  Article  21  submissions  in  2018  indicate  that  there  were  46  individual 
verifiers  accredited  for  2017.  The  European  cooperation  for  Accreditation  (EA)  provides  a 
central  link  to  relevant  National  Accreditation  Bodies  (NABs)  and  their  lists  of  EU  ETS 
accredited verifiers66.        

The  mutual  recognition  of  verifiers  among  participating  countries  is  working  successfully: 
twenty-six countries reported that at least one foreign verifier is active in their territory. 

Compliance of verifiers with the AVR is found to be high. Poland reported a suspension of 
one verifier, while two countries (PL and CZ) reported withdrawals of accreditation in 2017 
of one and two verifiers, respectively. This compares to one suspension and one withdrawal 
for  2016  and  no  reported  suspensions  or  withdrawals  for  2015.  Only  Poland  reported  a 
reduction  made  in  the  scope  of  two  verifiers'  accreditation  for  2017,  compared  to  one 
reduction  for  one  verifier  in  2016,  and  four  countries  reporting  such  reductions  for  five 
verifiers in 2015.  

Nine  countries  reported  complaints  received  about  verifiers  this  year  (one  more  than  last 
year).  The  overall  number  of  complaints  is  however  12%  lower.  95%  of  the  complaints 
received  are  reported  as  resolved  (similar  to  last  year  when  this  rate  was  96%).  Twelve 
countries  reported  identification  of  verifier  non-conformities  as  part  of  the  information 
exchange process between NABs and competent authorities (compared to nine last year). 

8. OVERVIEW OF ADMINISTRATIVE ARRANGEMENTS  

Countries participating in the EU ETS use different approaches regarding the competent 
authorities in charge of its implementation. In some countries several local authorities are 
involved, while in others the approach is much more centralised.  

No  significant  changes  have  been  observed  in  the  administrative  arrangements  of 
participating countries since the last reporting period. According to Article 21 submissions in 
2018, there were, on  average, 5  competent  authorities involved in  EU ETS  implementation 
per  country.67  With  regard  to  the  coordination  between  authorities,  different  tools  and 
methods were reported, such as legislative instruments for central management of monitoring 
plans or emission reports (in 13 countries), provision of binding instructions and guidance by 
a central competent authority to local authorities (in 9 countries), regular working groups or 
meetings  between  authorities  (in  15  countries),  and  the  use  of  a  joint  IT  platform  (in  11 

66 EA list of access points to NABs accrediting verifiers for EU ETS: http://www.european-
accreditation.org/information/national-accreditation-bodies-having-been-successfully-peer-evaluated-by-ea  
67 In some cases countries may be reporting a multiple number of regional/local authorities as one competent 
authority. 

39 

 
 
 
                                                           
 
countries),  among  others.  Eight  countries  (CY,  EE,  IE,  IS,  IT,  LI,  LU,  MT)  indicated  that 
none of the above are in place.  

On administrative fees  charged in  relation  to  permitting and approved monitoring plans, 14 
countries reported in 2018 that they do not charge any fees to installation operators (CY, DE, 
EE, FR, GR,  IE,  LI,  LT,  LU,  LV, MT, NL, SE,  SK), the same as last  year. Again  with  no 
difference to last year, aircraft operators in 15 countries do not pay fees  (BE, CY, CZ, DE, 
EE,  ES,  GR,  LI,  LT,  LU,  LV,  MT,  NL,  SE,  SK).  Charges  vary  significantly  according  to 
country and the particular service involved.  For example, the fees for permit and monitoring 
plan approval for installations vary from EUR 5 to EUR 7690, while for aviation the fees for 
monitoring plan approval range from EUR 5 to EUR 2400. 

Overall,  participating  countries'  systems  are 
their 
administrative organisation. Communication between local authorities and the sharing of best 
practices  among  Competent  Authorities,  including  via  the  activities  of  the  EU  ETS 
Compliance Forum  and the annual  EU ETS  Compliance Conference, should continue to  be 
reinforced and encouraged.  

largely  effective  as  aligned 

to 

9. COMPLIANCE AND ENFORCEMENT  

The EU ETS Directive provides for an excess emissions penalty in the form of EUR 100 
(indexed) for each tonne of CO2 emitted for which no allowance has been surrendered in 
due  time.  Other  penalties  applicable  to  infringements  in  implementation  of  EU  ETS  are 
according to the national provisions set by the concerned country. 

The  EU  ETS  has  a  very  high  compliance  rate:  each  year  around  99%  of  the  emissions  are 
covered  by  the  required  number  of  allowances  on  time.  In  2017  approximately  1%  of  the 
installations reporting emissions did not surrender allowances covering all their emissions by 
the deadline of 30 April 2018. These installations accounted for approximately 0.4% of EU 
ETS  emissions.    In  the  aviation  sector  the  level  of  compliance  was  also  very  high:  aircraft 
operators responsible for 98% of EU ETS aviation emissions complied.  

The  competent  authorities  continue  to  carry  out  different  compliance  checks  on  the  annual 
emissions  reports.  According  to  Article  21  submissions  in  2018,  all  participating  countries 
check annual emission reports for completeness (100% of reports except ES  95%, FR 99%, 
SE 3%, and UK 59%). The reports further indicate that on average countries check close to 
80% of reports for consistency against monitoring plans (all countries) and about 74% against 
allocation data (all countries except FI, IT, MT, NO, and SE). Twenty four countries reported 
that they also carry out cross-checks against other data.  

Based on  Article 21 submissions in  2018, competent authorities in fifteen countries carried 
out conservative estimates regarding missing data in the case of 131 installations.  However, 
79  of  these  were  reported  by  the  UK  for  emissions  in  years  prior  to  2017,  based  on  newly 
discovered  historic  errors.  Discounting  the  UK  data  from  the  totals  for  2017,  conservative 
estimates  were  reported  for  52  installations  (approximately  0.5%  of  installations  overall), 
40 

 
 
 
 
compared to 57 installations (0.5%) for 2016 and 45 (0.4%) for 2015. The reported quantity 
of affected 2017 emissions was 2.8 million tonnes CO2 (compared to 1.9 million tonnes CO2 
last  year  and  8.3  million  tonnes  the  year  before),  approximately  0.2%  of  overall  emissions 
(compared  to  0.1%  and  0.5%  for  2016  and  2015,  respectively).  The  most  common  reasons 
given for making conservative estimates were the absence of an emission report by 31 March 
or emission reports that were not fully in line with MRR/AVR requirements. 

Conservative  estimates  regarding  missing  data  for  aviation  were  reported  by  8  countries 
concerning  33  aircraft  operators  (6.1%  of  the  total),  and  0.8%  of  aviation  emissions.  This 
compares to 18 aircraft operators (3.5%) reported by four countries last year. 

Competent  authorities' checks also  remain important  to  supplement the verifier’s work.  For 
2017, all countries confirmed that they  carry  out  further checks in the case of installations. 
Most countries  reported  a similar approach regarding aircraft operators (all except  CY, EL, 
IT,  LI,  and  RO).  Most  countries  (all  except  EL,  IT,  LU,  MT,  and  SE)  reported  that  they 
carried out spot checks at installations in 2017. 

For  2017,  the  application  of  excess  emissions  penalty  was  reported  for  30  installations  by 
nine countries (BE 1, BG 3, CZ 1, FR 1, IT 8, PL 1, PT 1, RO 6 and UK 8). For aviation, 
excess emission penalties were reported for 61 aircraft operators (DE 7, ES 3, FR 1, IT 6, LT 
1, NL 1, PL 1, PT 6, and UK 35).  

Nine  countries  confirmed  issue  of  penalties  (other  than  excess  emissions  penalties)  in  the 
2017  reporting  period.  No  imprisonments  were  reported,  but  fines,  formal  notices,  or  final 
warning letters concerning 73 installations and 27 aircraft operators were noted amounting to 
a total financial value of EUR 37,8 million.68  

The  most  common  offences  reported  for  2017  were  failure  to  report  capacity  changes  (24 
cases),  failure  to  submit  verified  annual  emission  reports  by  the  due  deadline  (23  cases), 
operation  without  a  permit  (17  cases),  and  failure  to  hold  a  duly  approved  monitoring  plan 
(11 cases).  

A  fifth  EU  ETS  compliance  cycle  evaluation  has  started  at  the  beginning  of  2018.  This 
evaluation aims to identify EU ETS compliance issues at the level of participating countries 
and  support  them  in  improving  their  implementation  of  the  EU  ETS  by  identifying 
improvement options, best practices, and training needs. The new evaluation will build on the 
previous  evaluation  in  2014  and  on  further  compliance  review  work  conducted  in  the  EU 
ETS MRVA Support project in 2015-2016 in which action plans were formulated to support 
participating countries in their EU ETS compliance. 

A  key  novelty  of  the  new  evaluation  is  a  proficiency  test  in  which  a  Competent  Authority 
representative  of  each  country  is  requested  to  review  a  sample    monitoring  plan,  an  annual 
emission  report  and  further  reports  of  an  installation.  In  addition,  a  set  of  EU  ETS  MRVA 
documents for one specific installation in each country will be analysed and country-specific 

68 This total excludes fines imposed to the aviation sector in Portugal as the fine values were not yet determined 
due to ongoing sanctioning processes.  

41 

 
 
                                                           
surveys will be formulated to complete the understanding of the implementation of EU ETS 
permitting, inspection and enforcement as well as MRVA. 

42 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10. CONCLUSIONS AND OUTLOOK  

The most important development over the course of the past year has been the adoption of an 
ambitious reform of the EU ETS for its next trading period.  The reform enables the EU ETS 
to contribute to achieving the EU's 2030 climate objectives and deliver on its commitments 
under the Paris Agreement. The reformed ETS will deliver reductions in emissions by 43% 
by  2030  whilst  at  the  same  time  safeguarding  the  competitiveness  of  European  industry. 
Moreover,  it  will  assist  industry  and  the  power  sector  in  meeting  the  innovation  and 
investment  challenges  of  the  low-carbon  transition.  Following  the  adoption  of  the  revised 
legislation, the focus has now shifted towards implementing the new provisions ahead of the 
start of phase 4. Implementation work, in particular on carbon leakage and free allocation, as 
well as on the Innovation Fund is in full swing (see Appendix 6). 

The legislative changes agreed in recent years to address the surplus of allowances also start 
bearing  fruit.  Mainly  due  to  back-loading,  the  surplus  of  allowances  has  already  fallen 
significantly and in 2017 reached its lowest level since the start of phase 3. This year's second 
publication  of  the  Market  Stability  Reserve  surplus  indicator  triggers  for  the  first  time  a 
transfer  of  allowances  to  the  reserve.  Combined  with  the  strengthening  measures  of  the 
reformed ETS, this will reduce the auction volume over the first 8 months of 2019 by some 
40%  compared  to  the  corresponding  volume  in  2018.  Due  to  the  doubled  amount  of 
allowances  to  be  placed  in  the  reserve  for  the  first  five  years  of  its  operation,  it  is  widely 
expected that the surplus will continue to decline substantially in the coming years. Progress 
on these fronts has translated into increased confidence by market participants as illustrated 
by the reinforced carbon price signal over the last year. 

Important  progress  has  also  been  achieved  in  the  field  of  aviation.  To  provide  continued 
momentum  to  the  international  process  of  establishing  a  global  scheme  to  curb  aviation 
emissions,  and  to  facilitate  its  future  implementation  in  the  EU,  the  intra-EEA  scope  for 
aviation has been extended until 2023. The level of ambition has also been raised – as from 
2021,  the  same  linear  reduction  factor  as  for  installations  will  for  the  first  time  apply  to 
aviation and the cap on aviation allowances will thus decrease by 2.2% annually.  

Also  in  the  fifth  year  of  phase  3,  the  EU  ETS  architecture  has  remained  robust  and  the 
administrative organisation across Member States has proven to be effective. Moreover, the 
overall  level  of  transparency,  investor  protection,  and  integrity  in  the  carbon  market  has 
increased  with  the  classification  of  emission  allowances  as  financial  instruments  under  the 
new  financial  market  rules.  An  important  step  has  also  been  taken  towards  the  continued 
protection  of  the  European  carbon  market  against  VAT  fraud,  with  the  adoption  of  an 
amendment to the VAT Directive to extend the application of the reverse charge mechanism 
derogation beyond the end of 2018.  

The  reinforced  and  strengthened  ETS  also  underlines  the  case  of  active  collaboration  with 
other regulators and partners outside Europe developing or implementing carbon markets. 

43 

 
 
The Commission will continue to monitor the European carbon market and provide the next 
report in late 2019. 

44 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ANNEX  

Appendix 1 

Table 1: Number of free allowances allocated for modernising the electricity sector  

Member State 

BG 

CY 

CZ 

EE 

HU 

LT 

PL 

RO 

Number of free allowances requested by Member State pursuant to Article 10c 
2017 
2015 
2013 

2016 

2014 

11 009 416 

9 779 243 

8 259 680 

6 593 238 

3 812 436 

2 519 077 

2 195 195 

1 907 302 

1 583 420 

1 259 538 

25 285 353 

22 383 398 

20 623 005 

15 831 329 

11 681 994 

5 135 166 

4 401 568 

3 667 975 

2 934 380 

2 055 614 

7 047 25569 

n.a. 

n.a. 

n.a. 

n.a. 

322 449 

297 113 

269 475 

237 230 

200 379 

65 992 703 

52 920 889 

43 594 320 

31 621 148 

21 752 908 

15 748 011 

8 591 461 

9 210 797 

7 189 961 

6 222 255 

Total 

133 059 430 

100 568 867 

87 532 554 

65 990 706 

46 985 124 

Table 2: Maximum number of free allowances per year under the derogation from full auctioning for the 
power sector 

Member 
State 

Maximum number of allowances per year 

2013 

2014 

2015 

2016 

2017 

2018 

2019 

Total 

BG 

CY 

CZ 

EE 

HU 

LT 

PL 

RO 

13 542 000 

11 607 428 

9 672 857 

7 738 286 

5 803 714 

3 869 143 

1 934 571 

54 167 999 

2 519 077 

2 195 195 

1 907 302 

1 583 420 

1 259 538 

935 657 

575 789 

10 975 978 

26 916 667 

23 071 429 

19 226 191 

15 380 953 

11 535 714 

7 690 476 

3 845 238 

107 666 668 

5 288 827 

4 533 280 

3 777 733 

3 022 187 

2 266 640 

1 511 093 

755 547 

21 155 307 

7 047 255 

0 

0 

0 

0 

0 

0 

7 047 255 

582 373 

536 615 

486 698 

428 460 

361 903 

287 027 

170 552 

2 853 628 

77 816 756 

72 258 416 

66 700 076 

60 030 069 

52 248 393 

43 355 049 

32 238 370 

404 647 129 

17 852 479 

15 302 125 

12 751 771 

10 201 417 

7 651 063 

5 100 708 

2 550 354 

71 409 917 

Total 

151 565 434 

129 504 488 

114 522 628 

98 384 792 

81 126 965 

62 749 153 

42 070 421 

679 923 881 

69 HU made use of the Article 10c derogation only in 2013.  

45 

 
 
 
 
 
 
 
 
 
 
                                                           
Appendix 2 

Figure 1: Overview of general allowances auctions from 2013 to 30 June 2018 

___ Auction Clearing Price 
   .        Cover Rate 

46 

 
 
 
 
 
 
 
 
 
Appendix 3 

Table 1: Summary of international credits exchange until end June 2018 

million 

percentages 

International 
credits 
exchanged by 
30 June 2018 

million 

percentages 

243,66 

181,41 

15,78 

9,44 

5,27 

3,16 

2,93 

2,86 

55,91% 

ERUs 

74,45% 

Ukraine 

6,48% 

Russia 

3,87% 

Poland 

2,16% 

Germany 

1,30% 

France 

1,20% 

Bulgaria 

1,17% 

Others 

192,07 

147,69 

32,06 

2,82 

1,65 

1,24 

0,50 

6,11 

44,09% 

76,89% 

16,69% 

1,46% 

0,85% 

0,64% 

0,26% 

3,21% 

22,81 

9,36% 

435,73 

100% 

International 
credits 
exchanged 
by end June 
2018 
CERs 

China 

India 

Uzbekistan 

Brazil 

Chile 

Korea 

Mexico 

Others 

TOTAL 
CERs and 
ERUs 

Appendix 4 

Table 1: ETS supply and demand elements 

Element 

Banking total 
phase 2 
Early phase 3 
auctions  

Supply or 
demand? 
Supply 

Supply 

Allowances 
for NER 300 
Aviation 
auctions 

Supply 

Supply 

Phase 3 
auctions 

Supply 

Publication 

Update and uncertainties 

Carbon market 
report 
DG Climate 
website, EEX 
and ICE 
websites 
EIB website 

DG Climate 
website, EEX 
and ICE 
websites 

DG Climate 
website, EEX 
and ICE 
websites 

No update is foreseen as phase 2 ended. 
Final figure.  
Not part of phase 2 banking total. Final 
figures. 

300 million allowances were monetised in 
2012-2014. Final figures. 
No – adjustments are reflected in the 
volumes for the following year. 

2013 and 2014 auctions took place in 
2015. 
No - the figure is not subject to revision. 
However, allowances (e.g. due to delays 
to start of auctioning for certain Member 
States, e.g. those for EEA-EFTA) 
withheld from auctions can be auctioned 

47 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
in subsequent years. 

Supply 

EUTL, tables 

These figures are updated throughout the 
year.  

Free 
allocation 
(NIMs) 

Free 
allocation 
(NER) 
Free 
allocation 
(aviation) 
Free 
allocation 
(Article 10c) 
Emissions 
(stationary 
installations) 

Supply 

EUTL, tables 

Supply 

Supply 

EUTL, MS 
publication of 
allocation tables 
EUTL, status 
table 

Demand 

EUTL, 
compliance data 

Emissions 
(aviation) 
Allowances 
cancelled 

Demand 

Demand 

Table 2: Timeline for data publication  

Timing 

Data 

- Member State may provide late 
submissions for previous years or actual 
allocation can be lower than the amount 
initially foreseen.  

The EUTL provides an accurate state of 
play of actual allocation. 

emissions 

Compliance  data  made  public  on  1  May 
surrendered 
shows 
allowances  for  installations  that  are  in 
compliance 
installations 
(i.e. 
reporting for all years concerned).70 

those 

and 

Compliance  for  aviation  operators  for 
both 2013 and 2014 took place in 2015. 
Carbon market report 

1 January – 30 April year 
x 

Updates to free allocation to power 
(Article 10c) 

Scope 

Year x-1 

1 April year x 

Verified emissions 

Year x-1 

1 May year x 

Free allocation (Article 10a(5) – 
NIMs) 

Compliance deadline: verified 
emissions and surrendered 
allowances 

Year x-1 

May/October year x 

International credits exchanged 

Last quarter of year x 

Carbon Market report 

Year x-1 

70 Compliance data for previous years can be retroactively corrected due to e.g. late submissions. 

48 

 
 
 
 
 
 
 
 
 
 
                                                           
January/July year x 

Status of new entrants' reserve  - 
NER table 

Not published at EU level 

Free allocation to aviation published 
at Member States level 

Appendix 5 

Table 1: Rulings of the Court of Justice of the EU relevant to the functioning of the EU ETS in the period 
July 2017 to June 2018 

Parties 

Context of the case 

Date 

Finding by the Court 

Case 
referenc
e 
C-
302/17 

Legislation 
Concerned 

Directive 
2003/87/EC 

C-
229/17 

Directive 
2003/87/EC,  
Decision 
2011/278/EU  

PPC Power 
a.s./ 
Financial 
Directorate 
of SK, Tax 
Office for 
selected tax 
subjects 
Evonik 
Degussa 
GmbH / DE 

Case C-
577/16  

Directive 
2003/87/EC,  
Decision 
2011/278/EU  

Trinseo 
Deutschland 
Anlagengesel
lschaft mbH/ 
DE 

C-
572/16  

Directive 
2003/87/EC, 
Decision 
2011/278/EU  

INEOS Köln 
GmbH / DE 

Request for a preliminary 
ruling: Is it in line with the 
Directive 2003/87/EC to tax 
emission allowances 
allocated free of charge 
which have not been used or 
have been transferred? 

Request for a preliminary 
ruling: Does the definition 
of "production of hydrogen" 
within the meaning of 
Annex  I of Decision 
2011/278/EU include the 
isolation of hydrogen 
already contained in a gas 
mixture? 
Request for a preliminary 
ruling: Does Article 1 of  
Directive 2003/87/EC cover 
the production of polymers 
in installations with a 
production capacity 
exceeding 100 tonnes? If so, 
can such an installation 
receive free allocation even 
if the Member State in 
question did not include this 
activity in its national 
transposing legislation? 
Request for a preliminary 
ruling: Is it in line with 
Directive 2003/87/EC and 
with Decision 2011/278/EU 
for Germany to set a 
deadline for operators to 
submit applications for the 
allocation of free emissions 
allowances to the national 
competent authority? Can 
the submissions be 
corrected after the deadline 

49 

12.04.
2018 

The tax is not compatible 
with the EU ETS 
Directive. 

17.05.
2018 

28.02.
2018 

22.02.
2018 

No, the definition of 
"production of hydrogen" 
within the meaning of 
Annex  I of Decision 
2011/278/EU does not 
include the isolation of 
hydrogen already 
contained in a gas 
mixture. 
An installation for the 
production of polymers, 
in particular the polymer 
polycarbonate, which 
obtains the heat needed 
for that production from a 
third-party installation, 
does not fall within the 
scope of the EU ETS, 
since it does not generate 
direct CO2 emissions 

Directive 2003/87/EC 
and Decision 
2011/278/EU do not 
preclude national 
provisions laying down a 
mandatory time limit for 
the submission of an 
application for free 
allocation, after which 
the applicant has no 
means of correcting its 
application. 

 
 
 
 
 
Case C‑
80/16 

Directive 
2003/87/EC, 
Decision 
2011/278/EU 

Case C-
5/16 

Decision 
2015/1814/E
U 

ArcelorMittal 
Atlantique et 
Lorraine / 
Ministry of 
Ecology, 
Sustainable 
Development 
and Energy 
of FR  
PL/ 
European 
Parliament, 
Council of 
the EU 

Case C-
58/17 

Decision 
2011/278/EU 

INEOS Köln 
GmbH/ DE 

has passed? 

Validity of the method for 
determining the product 
benchmark for hot metal 

26.07.
2017 

The Court confirmed the 
validity of Commission's 
methdology used to 
determine the hot metal 
and sintered ore 
benchmarks (see also -
180/15 and C-506/14). 

21.06.
2018 

The Court dismissed the 
action. 

18.01.
2018 

The Court found that it is 
possible to exclude 
incompletely oxidised 
carbon in a liquid state 
from the definition of 
process emissions. 

PL contested the adoption 
procedure and content  of 
Decision 2015/1814/EU 
establishing the Market 
Stability Reserve and 
requested its annulment, 
claiming that it constitutes a 
measure significantly 
affecting a Member State’s 
choice between different 
energy sources and the 
general structure of its 
energy supply, which should 
have been adopted by the 
Council unanimously, in 
accordance with first 
subparagraph of Article 
192(2) TFEU. 
Request for a preliminary 
ruling: Does the definition 
of ‘process emissions sub-
installation’ in Article 3(h) 
of Decision 2011/278/EU 
cover only incompletely 
oxidised carbon in a gaseous 
state, or does it also include 
incompletely oxidised 
carbon in a liquid state? 

Appendix 6 

Table 1: State of play of EU ETS phase 4 implementation  

Measure 

Purpose 

Type of 
legislative act 

Foreseen adoption 

Carbon Leakage 
List for 2021-2030 

Revision of the free 
allocation rules for 
2021-2030 

Establishing the new Carbon Leakage 
List for phase 4 of the EU ETS based 
on the criteria for determining sectors 
significantly exposed to the risk of 
carbon leakage 
Revising Commission Decision 
2011/278/EU on  determining 
transitional union-wide rules for 
harmonised free allocation so as adapt 
it to the new legal context set for phase 
4 

50 

Delegated act 

1st quarter 2019 

Delegated act 

December 2018 

 
 
 
 
Adjustment to free 
allocation due to 
production changes 

Update of the 
benchmark values 
for free allocation 
for 2021-2025 
Establishment of 
the Innovation 
Fund 
Establishment of 
the Modernisation 
Fund 

Revision of 
Regulation (EU) 
No 389/2013 (the 
Registry 
Regulation) 

Amendment of 
Regulation (EU) 
No 1031/2010 (the 
Auctioning 
Regulation) 

Revision of 
Regulation (EU) 
No 1031/2010 (the 
Auctioning 
Regulation) 

Revision of 
Regulation N° 
601/2012 on 
Monitoring and 
Reporting 

Revision of 
Regulation N° 
600/2012 on 
Verification and 
Accreditation 

EU ETS State Aid 
Guidelines 2021-
2030 

Defining the arrangements for the 
operationalisation of the adjustment of 
the level of free allocation to 
installations on the basis of changing 
levels of production of more than 15% 
upwards or downwards on average over 
a period of two years 
Determining updated benchmarks for 
2021-2025 on the basis of data 
submitted by Member States for the 
years 2016 and 2017. 
Determining the rules on the operation 
of the Innovation Fund, including the 
selection procedure and criteria 

Determining the rules for the operation 
of the Modernisation Fund 

Laying down the requirements for the 
Union Registry for phase 4 in the form 
of standardised electronic databases 
containing common data elements to 
track the issue, holding, transfer and 
cancellation of allowances, and to 
provide for public access and 
confidentiality 

Enabling the auctioning of the first 50 
million allowances for the Innovation 
Fund taken from the Market Stability 
Reserve (MSR) in 2020 

Revising some aspects of the auctioning 
process to implement requirements for 
phase 4, in particular to enable the 
auctioning of allowances for the 
Innovation Fund and the Modernisation 
Fund, as well as to reflect the 
classification of EU ETS allowances as 
financial instruments  under Directive 
2014/65/EU on markets in financial 
instruments (MiFID2). 

Simplifying, improving and clarifying 
the monitoring and reporting rules and 
reducing administrative burden, based 
on implementation experience from 
phase 3 
Simplifying, improving and clarifying 
the accreditation and verification rules 
and reducing administrative burden to 
the extent possible, based on 
implementation experience from phase 
3 
Revising the EU ETS State Aid 
Guidelines for phase 4 to accommodate 
the new provisions on enhanced 
transparency and reporting introduced 
by the revised EU ETS Directive for 
indirect carbon cost compensations 
schemes 

51 

Implementing act 

2019 

Implementing act 

2020 

Delegated act 

2019 

Implementing act 

2020 

Delegated act 

1st quarter 2019 

Delegated act 

October 2018 

Delegated act 

2019 

Implementing act 

4th quarter 2018 

Implementing act 

4th quarter 2018 

Communication 
from the 
Commission 

2020 

 
 
State of play  
Planned 
Ongoing 
Done 

Appendix 7 

Table 1: Member State contributions  to the Market Stability Reserve from January to August 2019 

Member State/ EEA 
EFTA State 

MSR contributions71 
(January-August 2019) 

Austria 
Belgium 
Bulgaria 
Croatia 
Cyprus 
Czech Republic 
Denmark 
Estonia 
Finland 
France 
Germany 
Greece 
Hungary 
Iceland 
Ireland 
Italy 
Latvia 
Liechtenstein 
Lithuania 
Luxembourg 
Malta 
Netherlands 
Norway 
Poland 
Portugal 
Romania 
Slovakia 
Slovenia 
Spain 
Sweden 
United Kingdom 
Total 

3 956 898 
6 564 219 
5 528 107 
1 076 583 
621 854 
10 270 545 
3 560 260 
1 936 082 
4 753 029 
15 563 476 
56 922 669 
8 455 757 
3 410 242 
110 959 
2 660 749 
26 868 005 
576 962 
2 483 
1 194 802 
311 575 
236 516 
9 526 964 
2 209 564 
26 186 345 
4 318 892 
9 960 187 
3 168 128 
1 051 738 
21 772 019 
2 304 582 
29 651 746 
264 731 936 

71 Communication from the Commission C(2018) 2801 final of 15.5.2018, available on 
https://ec.europa.eu/clima/sites/clima/files/ets/reform/docs/c_2018_2801_en.pdf  published pursuant to Decision 
(EU) 2015/1814 of the European Parliament and of the Council of 6.10.2015 ('MSR Decision'). 

52