REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Report on the functioning of the European carbon market
Date: 2020-01-16
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, 16.1.2020  COM(2019) 557 final/2  CORRIGENDUM This document corrects document COM/2019/557 final of 31.10.2019. Concerns all language versions. Corrections to the following clerical mistakes have been made: - Correction of the title of Directive 2003/87/EC on p. 6, footnote 3; - Addition of Spain to the list of Member States which have EU ETS installations emitting PFCs and N2O on p. 8;  - Addition of reference to the OJ publication of Directive 2014/65/EU on p. 10, footnote 14; - Correction of the inconsistent and incorrect use of decimal commas and points in Tables 4 and 7; - Correction of the number of total cancelled auctions on p. 21; - Correction of the publication date of Regulation (EU) No 600/2014 on p. 34, footnote 61; - Correction of the title of DG Climate Action in Figures 2, 3, 4, and 5, in Tables 6 and 8, as well as in Tables 1.1., 1.2 and 1.3 of Annex 1, and Table 4.1. of Annex 4. The text shall read as follows: 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 ........................................................................................... 2 

SUMMARY ............................................................................................................................... 4 

1. INTRODUCTION ................................................................................................................. 5 

2.1 Coverage of activities, installations and aircraft operators .................................................. 7 

2.2 Union Registry and the European Union Transaction Log (EUTL) .................................... 9 

3. FUNCTIONING OF THE CARBON MARKET IN 2018.................................................. 10 

3.1. Supply: allowances put in circulation ........................................................................... 11 

3.1.1. Cap .......................................................................................................................... 11 

3.1.2. Issued allowances ................................................................................................... 13 

3.1.2.1.Free allocation ................................................................................................... 13 

3.1.2.2. NER 300 programme and the Innovation Fund ............................................... 16 

3.1.2.3. Compensation of indirect carbon costs ............................................................ 18 

3.1.2.4. Auctioning of allowances ................................................................................ 20 

3.1.2.5. Derogation from full auctioning for electricity and heat production ............... 23 

3.1.3. International credits ................................................................................................ 26 

3.2. Demand: allowances taken out of circulation ............................................................... 27 

3.3. Balancing supply and demand ...................................................................................... 28 

4. AVIATION .......................................................................................................................... 31 

5. MARKET OVERSIGHT ..................................................................................................... 33 

5.1. The legal nature and fiscal treatment of emission allowances ...................................... 35 

6. MONITORING, REPORTING AND VERIFICATION OF EMISSIONS ........................ 36 

7. OVERVIEW OF ADMINISTRATIVE ARRANGEMENTS ............................................. 38 

8. COMPLIANCE AND ENFORCEMENT ........................................................................... 39 

9. CONCLUSIONS AND OUTLOOK ................................................................................... 40 

ANNEX.................................................................................................................................... 42 

1 

 
 
 
List of acronyms and abbreviations 

AVR 

CA 

CCS 

CCU 

CDM   

CERs   

Accreditation and Verification Regulation 

Competent Authority 

Carbon Capture and Storage 

Carbon Capture and Utilisation 

Clean Development Mechanism 

Certified Emission Reductions 

CORSIA 

Carbon Offsetting and Reduction Scheme for International Aviation 

CSCF   

Cross-Sectional Correction Factor 

EA 

EEA 

EEA 

EEX 

EIB 

ERUs   

ESMA  

European Cooperation for Accreditation 

European Economic Area 

European Environment Agency 

European Energy Exchange 

European Investment Bank 

Emission Reduction Units 

European Securities and Markets Authority 

EU ETS 

European Union Emissions Trading System 

EUTL   

GHG    

ICAO   

ICE 

European Union Transaction Log 

Greenhouse Gas 

International Civil Aviation Organization 

InterContinental Exchange Futures Europe  

InnovFin EDP InnovFin Energy Demonstration Projects  

JI 

Joint Implementation 

MAR   

Market Abuse Regulation 

MiFID2 

Directive on Markets in Financial Instruments 

MiFIR  

Regulation on Markets in Financial Instruments 

MRR 

MRVA 

MSR     

NAB 

NER 

Monitoring and Reporting Regulation 

Monitoring, Reporting, Verification and Accreditation 

Market Stability Reserve 

National Accreditation Body 

New Entrants Reserve 

2 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OTC 

PFCs 

RES 

SARPs  

TNAC  

Over-the-counter 

Perfluorocarbons 

Renewable Energy Sources 

CORSIA Standards and Recommended Practices 

Total Number of Allowances in Circulation 

3 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SUMMARY 

In 2018, emissions from installations covered by the European Emissions Trading System 
(EU  ETS)  decreased  by  4.1%  compared  to  2017.  The  decrease  was  mainly  driven  by 
electricity and heat production, whereas emissions from industry decreased only slightly 
(see Table 7 in section 3.2). Verified emissions from aviation continued to grow, marking 
an increase of 3.9% compared to 2017 (see Table 8 in section 4). 

Following the adoption  of the revised EU ETS  Directive, the focus has  shifted towards 
implementing the new provisions ahead of the start of phase 4. Implementation work is in 
full swing, with new implementing legislation on the carbon leakage list, free allocation 
rules, the  Innovation Fund, auctioning, MRVA, and  on the Union Registry having been 
adopted over the past year (see chapters 2.2, 3.1.2 and 6.1).  

The  Market  Stability  Reserve  surplus  indicator  was  published  for  the  third  time, 
corresponding to  1 654  909 824 allowances.  Its  publication will continue to  lead to  the 
placement of allowances in the reserve, reducing the auction volume by  nearly 40%, or 
close to 397 million allowances in 2019 (see chapter 3.3). 

In 2018, a strengthened carbon price signal in the European carbon market led to a record 
amount  of  revenues  of  some  EUR  14  billion  from  the  auctioning  of  allowances  for 
Member States. Member States spent or planned to spend close to 70% of these revenues 
for specified climate and energy related purposes over the course of the year (see chapter 
3.1.2.4)  

4 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
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  electricity  and  heat 
production  since  2005.  It  contributes  significantly  to  achieving  the  overall  EU  target  of 
cutting  GHG  emissions  by  20%  from  1990  levels  by  2020.  While  the  EU  is  on  track  to 
surpass this target, cutting GHG emissions by at least 40% (as part of the EU's current 2030 
climate and energy policy framework) and at least 50%, going towards 55% in a responsible 
way  (taking  into  account  the  Political  Guidelines1  for  the  incoming  Commission),  would 
require continued progress. 

Following  the  entering  into  force  of  the  EU  ETS  revision2  for  phase  4  in  April  2018,  the 
adoption of the implementing legislation for the fourth trading period is progressing at a fast 
pace.  Over  the  past  year,  implementing  legislation  on  the  new  carbon  leakage  list  and  free 
allocation rules has been adopted, and the legal framework for the Union Registry system has 
been revised to  accommodate the required adjustments for phase 4. Moreover,  the rules for 
the operationalisation of the Innovation Fund – the ETS’s main instrument for the funding of 
low-carbon  innovative  technologies  and  breakthrough  innovation  in  phase  4  -  have  been 
established.  At  the  same  time,  the  Auctioning  Regulation  has  been  revised  to  enable  the 
auctioning  of  the  first  50  million  allowances  for  the  Innovation  Fund  in  2020.  A  second 
revision  to  create  the  institutional  framework  for  the  auctioning  of  allowances  for  the 
Innovation  and  the  Modernisation  Funds  in  phase  4  was  adopted  by  the  Commission  in 
August  2019.  Last,  but  not  least,  the  monitoring,  reporting,  verification  and  accreditation 
(MRVA) framework of the EU ETS has been updated to improve and clarify existing rules 
based on the implementation experience from phase 3. The Commission is swiftly finalising 
the remaining implementing provisions, with the aim of having them adopted before January 
2021, when the new trading period will start.  

The  legislative  changes  agreed  in  recent  years  to  address  the  surplus  of  allowances  in  the 
carbon  market  have  started  to  bear  fruit.  Since  the  publication  of  the  last  carbon  market 
report, the Market Stability Reserve surplus indicator has been published for the third time. 
Based on the indicator and the revised EU ETS legislation, auction volumes in 2019 will be 
reduced by almost 400 million allowances, corresponding to 24% of the surplus.  

The past year was also marked by the increased confidence of market participants, which was 
reflected in a reinforced carbon price signal. The higher price of emission allowances led to a 
substantial  increase  in  the  total  revenues  from  auctioning  generated  by  Member  States  -  in 
2018, the generated total revenues were EUR 14  billion, more than two times higher than the 
revenues generated in 2017. Based on data submitted by Member States, over the course of 
2018, close to 70% of these revenues were spent (or were planned for spending) on specified 
climate and energy related purposes. 

1 https://ec.europa.eu/commission/sites/beta-political/files/political-guidelines-next-commission_en.pdf 
2 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 

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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/EC3  (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 2018, but also presents initiatives proposed or  agreed in the first 
half of 2019.  

Unless otherwise indicated, data used for this report were the ones publicly available and at 
the disposal of the Commission by end June 20194. General and descriptive information on 
the EU ETS is included in boxes throughout the report. 

3  Directive  2003/87/EC  of  the  European  Parliament  and  of  the  Council  of  13  October  2003  establishing  a  system  for 
greenhouse  gas  emission  allowance  trading  within  the  Union  and  amending  Council  Directive  96/61/EC,  OJ  L  275, 
25.10.2003, p. 32. 
4 The cut-off date used is 28 June 2019.  

6 

 
 
 
 
                                                           
2. EU ETS INFRASRUCTURE 

2.1 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  39%  of  the 
EU's GHG emissions. 

In  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).  To  support  the  development  of  the  Carbon  Offsetting  and 
Reduction Scheme for International Aviation (CORSIA), in 2017 the limitation to intra-
EEA flights was prolonged until 2023 (see chapter 4).  

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. 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 
their  emissions. 
to  assess 
Participating  countries  may  also  add  more  sectors  and  GHGs  to  the  EU  ETS  so  called 
“opt-in”). 

the  quantity  of 

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

According to the Article 21 reports submitted by participating countries5 in 2019, there were 
a total of 10 744 permitted installations in 2018. 

As was the case in previous years, the fuels combusted within the EU ETS in 2018 remained 
overwhelmingly fossil. However, 29 countries also reported biomass use in connection with 2 
181 installations (20.3% of all installations). Two countries (LI and MT) did not report any 

5 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). 

7 

 
 
 
 
                                                           
 
use  of  biomass.  Total  emissions  from  biomass  in  2018  amounted  to  approximately  151 
million tonnes CO2 (9% of ETS reported emissions), a slight increase from the 145 million 
tonnes CO2 in 2017 (8% of ETS reported emissions). Out of these, 99.2% were zero-rated6. 
For  2018,  no  country  reported  use  of  biofuel  for  aircraft  operators,  while  for  2017  only 
Sweden had reported such use for two aircraft operators. 

Within the installation categories based on annual emissions7, the data for 2018 shows that, as 
in  previous  years,  72%  of  installations  are  category  A,  21%  are  category  B  and  7%  are 
category C. 6 113 installations were reported as “installations with low emissions”8 (57% of 
the total).   

Regarding EU ETS activities additionally listed for non-CO2 emissions, permits are reported 
as issued in 13 countries for primary aluminium and perfluorocarbons (PFCs) (DE, FR, EL, 
ES, IS, IT, NL, NO, RO, SE, SI, SK, UK), while for nitric acid production and N2O permits 
are reported as issued in 21 countries (all except CY, DK, EE, IE, IS, LI, LU, LV, MT, and 
SI).  The  other  N2O  sectors  –  adipic  acid  production  and  glyoxal  and  glyoxylic  acid 
production are reported in three (DE, FR, IT) and two (DE, FR) countries, respectively. Only 
Norway and Austria declared CO2 capture and storage activities. 

As last year, 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  2018  amounted  to  2.92  million  tonnes  CO2  (some  0.17%  of  total 
verified emissions, compared to 0.16% the year before). 

According to Article 21 submissions in 2019, 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)9  to  allow  use  of  simplified  monitoring  plans  in  low  risk 
cases  for  stationary  installations.  In  the  case  of  aircraft  operators  with  low  emissions,  three 
countries reported use of this provision for 2018 (BE, IS and PL). 

In 2018, 655 aircraft operators were reported to have a monitoring plan (compared to 541 for 
2017,  and  503  for  2016).  50%  (328)  of  the  reported  operators  were  commercial,  while  the 

6 In the EU ETS, the emission factor of biomass is set to zero if the definition of the term “biomass” is fulfilled and where– 
if biofuels or bio-liquids are concerned  – the sustainability criteria pursuant to Article 17(1) of Directive 2009/28/EC (the 
Renewable Energy Directive) are met. No allowances have to be surrendered for zero-rated emissions. In the 2019 Article 21 
submissions, three participating countries (LV, LT, and DK) only reported the energy content of zero-rated biomass, and not 
the actual emissions. Their emissions are therefore not taken into account in the total provided.  
7 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.  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 
8 Installations with low emissions are a sub-set within category A installations, which emit less than 25 000 tonnes CO2e per 
year (see Article 47(2) of Regulation (EU) No 601/2012).  
9 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. 

8 

 
 
                                                           
other  50%  (327)  were  non-commercial.10  A  total  of  287  (44%)  qualified  as  small  emitters 
(compared to 280 (52%) in 2017 and 249 (50%) in 2016).  

2.2 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  participating  countries 
remain the point of contact for the representatives of the 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  chapter  3.3)  and  the  reporting  done  by  the 
European Environment Agency (EEA). The EUTL also provides transparency in the EU 
ETS,  publishing*  information  on  the  compliance  of  stationary  installations  and  aircraft 
operators with ETS provisions. 

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

The  Union  Registry  and  the  EUTL  were  fully  operational  for  365  days  around  the  clock 
throughout  2018,  with  only  minor  interruptions  adding  up  to  a  total  of  approximately  26 
hours due to technical upgrades. 

From 1 January 2019, the Commission suspended11 all processes for the UK relating to free 
allocation,  auctioning  and  the  exchange  of  international  credits,  in  accordance  with  the 
safeguard measures12 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.  

In  March  2019,  Commission  Delegated  Regulation  (EU)  2019/112213  was  adopted,  setting 
the rules for the functioning of the Union Registry in the next EU ETS trading period (2021-
2030). The Regulation enables the Union Registry to comply with the requirements for phase 
4 set  by the  revised EU  ETS  Directive, for example by  adjusting  the  functionalities  so  that 
allowances are valid indefinitely and can only be used to cover emissions as of the first year 
of the ten-year period in which they were issued, as well as to ensure that international credits 

10 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. 
11  Commission  Decision  C(2018)  8707  of  17.12.2018  on  instructing  the  central  administrator  to  temporarily  suspend  the 
acceptance by the European Union Transaction Log of relevant processes for the United Kingdom relating to free allocation, 
auctioning and the exchange of international credits  
12  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. 
13      Commission  Delegated  Regulation  (EU)  2019/1122  of  12  March  2019  supplementing  Directive  2003/87/EC  of  the 
European Parliament and of the Council as regards the functioning of the Union Registry, OJ L 177, 2.7.2019, p. 3. 

9 

 
 
 
                                                           
 
 
cannot be used to cover emissions as of 2021. Moreover, the new Regulation adapts the rules 
regulating  the  Union  Registry  to  align  them  with  the  requirements  of  financial  market 
legislation,  following  the  classification  of  emission  allowances  as  ‘financial  instruments’ 
under Directive 2014/65/EU14 as of 3 January 2018 and with the requirements of the revised 
data protection rules.  

3. FUNCTIONING OF THE CARBON MARKET IN 2018  

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  (including  preparations  for  the  forthcoming  Innovation 
Fund),  auctioning,  the  derogation  from  full  auctioning  for  electricity  and  heat  production 
(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 
balancing  of  the  supply  and  demand  of  allowances  in  the  carbon  market  via  the  Market 
Stability Reserve (MSR). 

14 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, OJ L 173, 12.6.2014, p. 349. 

10 

 
 
                                                           
3.1. Supply: allowances put in circulation  

3.1.1. Cap 

The  cap  is  the  absolute  quantity  of  GHGs,  which  may  be  emitted  by  covered  entities  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, to 
support the development of the ICAO global measure, the limitation to intra-EEA flights 
was prolonged until 2023 (see chapter 4). 

*  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 circulation15 for each year during phase 3 of the EU ETS. 

15 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%. 

11 

 
 
 
 
 
 
 
 
 
 
 
 
                                                           
 
 
 
 
 
 
Table 1: EU ETS cap 2013-2020 

Year 

Annual cap (installations) 

Annual aviation allowances put into 
circulation16 

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 

38.909.625 

1 854 716 381 

35.172.89717 

1 816 452 135 

16 The updated figures include exchanges of international credits besides the free allocation and auctioned amounts.  
17  Includes  information  from  the  2019  aviation  auction  calendar.  UK  data  for  2019  is  not  included  due  to  the  safeguard 
measures adopted by the Commission 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 (see chapter 2.2). 

12 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
3.1.2. Issued allowances 

3.1.2.1.Free allocation  

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

  Electricity production does not receive free allowances; 
  Free  allowances  to  manufacturing  industry  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  industrial  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 until 31 December 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, while the share of allowances to be auctioned by Member States amounts 
to some 57%. 

The  initial  New  Entrants  Reserve,  after  deducting  300  million  allowances  for  the  NER300 
programme, held 480.2 million allowances. Until June 2019, 167.9 million allowances have 
been reserved for 937 installations for the entirety of phase 3. The remaining NER amounts to 
312.3  million  allowances.  It  is  expected  that  a  significant  number  of  these  allowances  will 
remain  unallocated.  These  will  be  placed  at  the  end  of  phase  3  in  the  Market  Stability 
Reserve (MSR), out of which 200 million will be used to establish a NER for phase 4. 

Until end June 2019, free allocation has been reduced by around 457 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. 

13 

 
 
 
Table 2: The number of allowances (in millions) allocated to industry for free from 2013 to 
201918 

2013 

2014 

2015 

2016 

2017 

2018 

2019 

903.0 

874.8 

847.6 

821.3 

796.2 

771.9 

748.120 

11.7 

15.3 

18.6 

21.8 

23.4 

23.6 

22.9 

40.1 

58.9 

70.8 

67.5 

71.6 

75.9 

71.9 

Free allocation19  
(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 

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)"21.  In  2017,  the  original  CSFC  values  were 
revised22. 

To  prevent  the  risk  of  carbon  leakage,  free  allocation  will  continue  after  2020,  based  on 
updated  benchmark  values  derived  with  reference  to  the  performance  of  the  10%  most 
efficient  installations  in  the  EU.  The  level  of  carbon  leakage  exposure  of  sectors  has  been 
assessed on the basis of a combined indicator multiplying the sector’s intensity of trade with 
third countries by the sector’s emission intensity. Based on this asessment, in February 2019 
the Commission adopted the carbon leakage list for the next trading period23, which will be 
valid for the entirety of phase 4. 

To reflect progress in technology and innovation, the benchmark values will be updated twice 
in phase 4, on the basis of real data. The installations applying for free allocation for the first 
allocation  period  (2021-2025)  had  to  submit  the  required  data  by  30  May  2019  to  the 
competent  authorities.  This  data  will  be  used  by  the  Commission  to  calculate  each 
installation’s allocation and for updating the benchmark values for 2021-2025. The delegated 

18 The figures include notifications by Member States received until June 2019 and may be subject to changes due to later 
notifications. 
19 Initial amount, before application of the reductions mentioned below.  
20  Allocation  concerning  the  UK  (48.0  million  allowances  of  the  total  for  2019)  was  suspended  due  to  the  safeguard 
measures adopted by the Commission 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 (see chapter 2.2). 
21 Commission Decision 2013/448/EU, OJ L 240, 7.9.2013, p.27. 
22 Commission Decision 2017/126/EU, OJ L 19, 25.1.2017, p. 93. 
23 
content/EN/TXT/PDF/?uri=OJ:L:2019:120:FULL&from=EN 

https://eur-lex.europa.eu/legal-

Commission 

Delegated 

2019/708, 

Decision 

(EU) 

14 

 
 
 
                                                           
act  on  revising  the  free  allocation  rules  for  2021-2030  was  adopted  in  December  201824, 
while work on updating the benchmark values  for 2021-2025 has started (see Appendix 7 to 
the Annex).  

In phase 4, allocations to individual installations will be adjusted in a timely manner to reflect 
significant  increases  and  decreases  in  operation.  To  prevent  manipulation  and  abuse  of  the 
allocation adjustment system and to avoid any undue administrative burden, the Commission 
will  adopt  an  implementing  act  to  define  further  arrangements  for  the  adjustments  (see 
Appendix 7 to the Annex). 

24 Commission Delegated Regulation (EU) 2019/331, https://eur-lex.europa.eu/legal-
content/EN/TXT/PDF/?uri=OJ:L:2019:059:FULL&from=EN 

15 

 
 
 
 
 
                                                           
3.1.2.2. NER 300 programme and the Innovation Fund  

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  was  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.  

The Innovation Fund is one of the two low-carbon mechanisms created by the revised EU 
ETS  Directive  for  phase  4.  It  will  support,  on  a  competitive  basis,  first-time  market 
development  and  commercial  scale  demonstration  of  innovative  technologies  and 
breakthrough  innovation  in  sectors  covered  by  the  EU  ETS,  including  innovative 
renewables, energy intensive industries, carbon capture and utilisation (CCU), and energy 
storage.  It  will  be  funded  by  the  auctioning  of  at  least  450  million  allowances  and  any 
undisbursed  budget  from  the  NER  300  Programme.  A  first  call  for  proposals  is  in 
preparation for 2020. 

As a result of the two calls for proposals of the NER 300, 38 RES projects and 1 CCS project 
were awarded in total in 20 EU Member States, amounting to EUR 2.1 billion. Of these, 7 
are  operational:  bionergy  projects  BEST  in  Italy  and  Verbiostraw  in  Germany,  on-shore 
wind  projects  Windpark  Blaiken  in  Sweden  and  Windpark  Handalm  in  Austria,  offshore 
wind projects Veja Mate and Nordsee One in Germany, and smart grid project Puglia Active 
Network in Italy. 

Five projects from the first call are expected to enter in operation by the end of 2019, while 4 
projects from the second call are advancing in their preparation to enter into operation by 30 
June  2021.  Given  the  challenging  economic  and  policy  context  since  the  NER  300 
programme  was  established,  19  projects  have  not  been  able  to  raise  sufficient  additional 
financial  support  and  have  been  withdrawn,  releasing  a  total  of  EUR  1.358  billion.  Four 
more projects are under various stages of development. 

The amended NER 300 Decision25 allowed for the re-investment of the released funds from 
the  cancelled  projects  of  the  first  call  (EUR  623  million  so  far)  in  existing  financial 
instruments  -  the  InnovFin  Energy  Demonstration  Projects  (EDP)  and  the  Connecting 
Europe Facility Debt Instrument, both managed by the European Investment Bank. This will 
allow maximising the benefits of the NER 300 programme and leveraging additional private 
investments in low-carbon innovation. 

So far, 3 projects have been selected to benefit from the unspent funds of the NER 300 under 
the InnovFin EDP, with the support amounting to some EUR 73 million (see Appendix 9 to 
the Annex). 

25 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. 

16 

 
 
 
                                                           
 
 
The released funds from the cancelled projects of the second call (EUR 735,5 million so far) 
will be added to the resources avaible for the Innovation Fund.  

Table 3: NER 300 projects awarded under the first and second calls for proposals26 

1st Call for proposals 

2nd Call for proposals 

Projects in preparation 

Projects in operation 

Projects withdrawn 

Total 

6 

6 

8 

20 

7 

1 

11 

19 

In  phase  4,  the  total  value  of  resources  available  for  the  demonstration  of  innovative 
technologies  and  breakthrough  innovation  under  the  Innovation  Fund  are  likely  to 
significantly exceed the EUR 2.1 billion for the NER30027. In February 2019, the Delegated 
Regulation28  on  the  operation  of  the  Innovation  Fund  was  adopted.  Projects  in  all  Member 
States, including small scale projects, will be eligible for support from the fund.  

To  raise  awareness  about  the  Innovation  Fund,  in  2019  and  the  first  half  of  2020  the 
Commission is  actively  engaging  in  outreach activities with  industry  and Member States to 
discuss the key issues for each sector related to the selection implementation of  projects. The 
first  call  for  proposals  under  the  Innovation  Fund  is  planned  for  2020,  followed  by  regular 
calls until 2030. 

26  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. 
27 The value of 450 million allowances available for the fund will depend on the carbon price. With an average price of EUR 
25 per allowance, resources for the fund would amount to EUR 11.3 billion.  
28  Commission  Delegated  Regulation  (EU)  2019/856  of  26  February  2019  supplementing  Directive  2003/87/EC  of  the 
European Parliament and of the Council with regard to the operation of the Innovation Fund,  OJ L 140, 28.5.2019, p. 6–17 
17 

 
 
 
  
 
 
 
 
 
 
 
 
 
                                                           
3.1.2.3. 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 electricity 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  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.  In  view of this,  the Commission  has initiated a revision  of the EU 
ETS State Aid Guidelines for the next trading period (see Appendix 7 to the Annex). As 
part  of  this  process,  the  Commission,  based  on  consultations  with  stakeholders  and 
Member  States  held  in  early  2019,  will  review  both  the  list  of  eligible  sectors  and  the 
factors determining the maximum aid amounts. 

*  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 

To date, the Commission has approved 1329 indirect carbon cost compensation schemes in 12 
Member  States.  In  2018,  the  Walloon  scheme  and  the  Luxembourg  scheme  paid  out 
compensation for the first time. The Spanish government notified a revision of its scheme to 
the Commission with a view to increase its budget. In 2019, Poland notified a draft measure 
to  the  Commission  and  received  State  aid  approval  for  a  scheme  that  will  start  paying  out 
support in 2020 for indirect costs incurred in 2019.  

The  EU  ETS  Directive  determines  that  within  three  months  after  the  end  of  each  year, 
Member  States  that  have  an  indirect  cost  compensation  scheme  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 2018 is 
set out in Table 4.  

29 In addition, modifications have been adopted to the French and Spanish schemes. 

18 

 
 
 
 
 
 
 
                                                           
Table 4: Indirect carbon cost compensation paid out by Member States in 201830 

Member 
State 

Duration 
of the 
scheme 

Compensation 
disbursed in 2018 
for indirect costs 
incurred in 2017 
(in million euros) 

Number of 
beneficiaries 
(installations) 

Auction revenue 
2017 (excluding 
aviation 
allowances, in 
million euros) 

Percentage of 
auction revenues 
spent on indirect 
cost compensation 

UK 

2013 - 2020 

22,3631 

DE 

2013 - 2020 

BE (FL) 

2013 - 2020 

BE (WL)  2017 - 2020 

NL 

EL 

LT 

SK 

FR 

FI 

ES 

LU 

2013 - 2020 

2013 - 2020 

2014 - 2020 

2014 - 2020 

2015 - 2020 

2016 - 2020 

2013 - 2015 

2018-2020 

202 

31,7 

7,5 

36,9 

16,8 

 0,24 

10 

98,7 

26,7 

6 

3,4 

6032 

891 

106  

30 

96 

 50 

1  

7 

296 

58 

151 

2 

160733 

1141,7 

143,5 

189 

196,6 

31,4 

87 

309,8 

94,6 

488,8 

6,8 

3,7% 

 17,6% 

27,3% 

19,5% 

8,5% 

 0,8% 

11,4% 

31,8% 

28,2% 

1,2% 

 50% 

The total indirect cost compensation paid out by the 11 Member States34 in 2018 amounted to 
about  EUR  462  million  which  represents  close  to  11%  of  the  auction  revenue  of  these 
Member  States.  The  Member  States  in  which  compensation  schemes  are  in  place  together 
account for some 70% of EU GDP. The largest recipients of compensation were 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. 
Based  on  the  auction  revenues  for  calendar  year  2017,  four  countries  exceeded  the  25% 
threshold in 2018.35   

30 Information on the disbursed compensation and the number of beneficiaries is based on the reporting obligation under 
Article 10a(6) of Directive (EU) 2018/410. 
31 GBP 19.7 million (for IC incurred in 2018), based on an average exchange rate GBP/EUR 1.1355. 
32 The UK has not reported installations, but businesses. 
33 Please note that the United Kingdom has paid out 2019 support for indirect costs incurred in 2018. That is why auction 
revenues from 2018 are shown for the UK.  
34 Poland is not included here, as it will start paying out support in 2020 for indirect costs incurred in 2019. 
35 The reason for comparing 2018 pay-outs with 2017 auction revenues is that 2018 pay-outs generally constitute 
compensation for indirect costs incurred by consumers in calendar year 2017.  

19 

 
 
  
 
 
                                                           
3.1.2.4. Auctioning of allowances 

In phase 3, auctioning 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  2018,  the  Auctioning  Regulation  was  amended36  to  reappoint  the  European  Energy 
Exchange (‘EEX’) as Germany’s opt-out auction platform and to enable the monetisation of 
a first batch of 50 million allowances from the Market Stability Reserve for the financing of 
the Innovation Fund in 2020. 

A  further  amendment  of  the  Auctioning  Regulation  was  adopted  by  the  Commission  in 
August  2019,  in  order  to  establish  the framework for  the auctioning of allowances  and the 
management of projects under the Innovation Fund and the Modernisation Fund in phase 4. 
The  amendment  also  reflects  the  classification  of  EU  ETS  allowances  as  financial 
instruments under Directive 2014/65/EU on markets in financial instruments (MiFID2). 

In accordance with the safeguard measures adopted to protect the environmental integrity of 
the  EU  ETS  (see  chapter  2.2),  allowances  issued  by  the  United  Kingdom  for  2018  were 
accepted  for  surrender,  but  no  allowances  have  been  auctioned  in  2019  on  behalf  of  the 
United Kingdom. 

The auctions in 2018 took place through the following auction platforms: 

  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 has been 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 started to auction allowances in June 2019, after the  
EEA  Agreement  was  amended  to  allow  them  to  participate  in  the  Joint  Procurement 
Agreement  for  the  common  auction  platform.  In  agreement  with  the  three  countries,  the 
auction volumes for 2013-2018 have been spread over the years 2019 and 2020 to ensure a 
stable and predictable supply of allowances to the market and to avoid any adverse effects on 

36 Commission Delegated Regulation (EU) 2019/7 of 30 October 2018 amending Regulation (EU) No 1031/2010 as regards 
the auctioning of 50 million unallocated allowances from the market stability reserve for the innovation fund and to list an 
auction platform to be appointed by Germany, OJ L 2, 04.01.2019, p.1-5. 

20 

 
 
 
                                                           
 
 
the  carbon  market  due  to  this  additional  supply.  The  revised  2019  and  2020  auction 
calendars thus include part of the previous volumes which were withheld from the auctions. 

In  2018,  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 1480 auctions were held by 30 June 2019.  

Table 5 provides an overview of the volumes of allowances37 auctioned by EEX and ICE up 
to 30 June 2019, including early auctions38 of general allowances.  

Table 5: Total volume of phase 3 allowances auctioned in 2012-2019 

Year 

2012 

2013 

2014 

2015 

2016 

2017   

2018  

2019 (until 30 June 2019)39 

Source: EEX 

General allowances  

Aviation allowances  

89 701 500 

808 146 500 

528 399 500 

632 725 500 

715 289 500 

951 195 500 

915 750 000 

292 975 500 

2 500 000 

0  

9 278 000 

16 390 500 

5 997 500 

4 730 500 

5 601 500 

2 032 500 

The  figures  for  2019  reflect  the  effect  of  the  entering  into  force  of  the  Market  Stability 
Reserve in January 2019, which substantially lowered the auction supply in 2019 (see chapter 
3.3). The  auctions were  generally  conducted smoothly and the auction clearing prices were 
generally closely aligned with secondary market prices.  

Between January 2018 and June 2019, five 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 five, a total of thirteen auctions have been cancelled out of the more than 1480 auctions 
held since late 2012. An overview of the auction clearing prices from 2013 to 30 June 2019 is 
provided in Figure 1: 

37 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. 
38 Early auctions of allowances in phase 3 were performed in 2012 in view of the widespread commercial practice in the 
electricity sector of selling electricity on a forward basis and purchasing the required inputs (including allowances) when 
they sell their output. 
39 UK data for 2019 is not included due to the safeguard measures adopted by the Commission 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 (see chapter 
2.2). 

21 

 
 
 
 
 
 
                                                           
Figure 1: Clearing price for general allowances auctions from 2013 to 30 June 2019 

Source: EEX 
___ Auction Clearing Price 

The number of participants in  the auctions of general allowances from 2013 to 30 June 2019 
is provided in Appendix 2. The auction platforms publish detailed results of each auction in a 
timely  manner  on  dedicated  websites.  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 website40. 

The total revenues generated by Member States from the auctions between 2012 and 30 June 
2019 exceeded EUR 42 billion (see Table 2.1 in Appendix 2). In 2018 alone, the generated 
total  revenues  were  EUR  14    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  by  Member 
States, Member States spent or planned to spend close to 70% of these revenues for specified 
climate and energy related purposes in 2018. In the period 2013-2018, about 80% of auction 
revenues were spent for such purposes. 

40 http://ec.europa.eu/clima/policies/ets/auctioning/documentation_en.htm 

22 

 
 
 
                                                           
3.1.2.5. Derogation from full auctioning for electricity and heat production 

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 in phase 3 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 
Directive  would 
the 
involve  State  aid, 
implementation of the Article 10c derogation have been cleared under state aid rules and 
are subject to the requirements of the State Aid Guidelines.** 

the  national  schemes  for 

in  principle 

Transitional free allocation under Article 10c will continue to be available in phase 4 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.  Based  on  information  submitted  to  the  Commission  by 
Member States, the use of Article 10c derogation will be very limited in the next trading 
period.  Seven  out  of  the  ten  eligible  Member  States,  including  Poland  and  the  Czech 
Republic, which had the highest volumes of transitional free allocation in phase 3, opted 
not to use the derogation any longer. 

*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 in phase 3. 

** 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 total value of reported investment support during the years 2009 to 2018 is around EUR 
12.4  billion.  About  82%  of  this  amount  was  dedicated  to  upgrading  and  retrofitting 
infrastructure, while the rest of the investments were in clean technologies or diversification 
of supply.  

The number of allowances allocated for free to electricity generators in 2018 is indicated in 
Table 1.1, Appendix 1 to the Annex, while the maximum number of allowances per year is 
indicated in Table 1.2 of Appendix 1. 

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.  Figure  2  shows  the  number  of  allowances  that  have  been 
allocated during the years 2013-2018. 

23 

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

Source: DG CLIMATE ACTION 

In December 2018, Poland informed the Commission that it intends to auction 55.8 million of 
its  unallocated  allowances  under  the  Article  10c  derogation  in  2019.  In  May  2019,  Poland 
further notified the Commission of its intention to add 49.52 million unallocated Article 10c 
allowances to the amount to be auctioned by Poland in 2020.  

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 yet).  

24 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Figure 3: Distribution of allowances (allocated, auctioned, unused remaining)41 

Source: DG CLIMATE ACTION 

Allocated 
allowances 
Auctioned 
allowances 
Unused remaining 
allowances 

Table 6 shows the number of 10c allowances which have been auctioned in the period 2013-
2018, as well as the number of remaining unused allowances.  

Table 6: Treatment of unused 10c allowances 2013-201842 

Member State 

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

Number of remaining unused 
allowances (in million) 

BG 

CY 

CZ 

EE 

LT 

PL 

RO 

HU 

Total 

 Source: DG CLIMATE ACTION 

9,5 

0,0 

0,3 

2,1 

1,1 

55,8 

15,4 

0 

84,2 

0,8 

0,0 

0,1 

0,0 

0,1 

68,9 

2,8 

0,9 

73,5 

41 The figures include amounts to auction from the 2019 auctioning calendar, so the 55.8 million unallocated allowances that 
Poland requested to auction in 2019 are reflected. 
42 The figues include amounts to auction from the 2019 auction calendar (from allocation years 2013-2018).  

25 

 
 
 
 
 
 
 
                                                           
 
 
 
The number of unallocated allowances that have been auctioned (or planned for auctioning) 
by Member States under the Article 10c derogation for each  year of phase 3 is indicated in 
Table 1.3 in Appendix 1 to the Annex. 

3.1.3. International credits 

Participants  in  the  EU  ETS  can  still  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*,  subject  to  qualitative  and  quantitative 
restrictions. 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.  

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.  

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  end  June  2019,  the 
total  number  of  international  credits  used  or  exchanged  amounts  to  around  1.51  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. 

26 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.2. Demand: allowances taken out of circulation 

In  2018,  emissions  from  installations  participating  in  the  EU  ETS  are  estimated  to  have 
decreased  by  4.1%  compared  to  2017  based  on  the  information  recorded  in  the  Union 
Registry. As table 7 demonstrates, the decrease in emissions was mainly driven by electricity 
and heat production , whereas emissions from industry decreased only very slightly.  

Table 7: Verified emissions (in million tonnes CO2 equivalents)43 

Year 

2011 

2012 

2013 

2014 

2015 

2016 

2017 

2018 

Verified total 
emissions 

1904 

1867 

1908 

1814 

1803 

1750 

1755 

1682 

Change to year x-1 

-1,8% 

-2% 

2.2% 

-4,9% 

-0,6% 

-2,9% 

0,2% 

-4,1% 

Verified emissions 
from electricity and 
heat production 

1190 

1184 

1125 

1037 

1032 

992 

985 

913 

Change to year x-1 

-0,5% 

-5,0% 

-7,8% 

-0,5% 

-3,8% 

-0,7% 

-7,3% 

Verified emissions 
from industrial 
installations 

715 

683 

783 

777 

771 

758 

769 

769 

Change to year x-1 

-4,5% 

14,7% 

-0,9% 

-0,7% 

-1,7% 

1,4% 

-0,1% 

Real GDPgrowth 
rate EU28 

1,8% 

-0,4% 

0,3% 

1,8% 

2,3% 

2,0% 

2,5% 

2,0% 

Source: EUTL, GDP data as reported 
onhttp://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&plugin=1&language=en&pcode=tec00115  
(accessed in July 2019). Verified aviation emissions are reported separately in chapter 4. 

A breakdown of ETS verified emissions from installations by type of greenhouse gas (CO2, 
N2O and PFCs) is provided in table 5.1, Appendix 5 to the Annex. 

The number of allowances cancelled on a voluntary basis amounts to  36 559 allowances in 
2018.  In  total,  voluntary  cancellations  of  345  893  allowances  have  been  recorded  until  end 
June 2019. 

43 The classification into electricity and heat production and industry categories used in Table 7 is consistent with the phase 4 
NACE classification used for the establishment of the Carbon Leakage List for the next trading period. 

27 

 
 
 
 
 
 
 
 
                                                           
3.3. 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 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 2016, 
and 1.65 billion allowances in 2017. In 2018, the surplus remained at 1.65 billion allowances.  

Figure 4 presents the development of the surplus in the European carbon market by end 2018.  

Figure 4: Development of the surplus in the European carbon market in 2013-2018 

Source: DG CLIMATE ACTION 

To address the structural imbalance between the supply and demand of allowances, a Market 
Stability  Reserve  (MSR)  was  created  in  201544  to  render  the  auction  supply  of  emission 
allowances more flexible. In the context of the revision of the EU ETS45, important changes 
were made to the functioning of the MSR, as shown in the text box below. The MSR began 
operating at the start of 2019. 

44 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. 
45  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 
http://eur-lex.europa.eu/legal-
3); 
content/EN/TXT/?uri=uriserv:OJ.L_.2018.076.01.0003.01.ENG&toc=OJ:L:2018:076:TOC  

available 

March 

2018, 

76, 

19 

at: 

p. 

28 

 
 
 
 
                                                           
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  TNAC  indicator  is  outside  of  a 
predefined  range.  Back-loaded  allowances  from  the  period  2014-2016**,  as  well  as  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 4.1, Appendix 4 to the Annex. 

The revised EU ETS Directive makes two notable changes to the functioning of the MSR. 
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.  

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

** 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. 

***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.  

Figure 5 shows the composition of supply and demand in 2018. The relevant data have also 
been  published  as  part  of  the  third  communication  on  the  total  number  of  allowances  in 
circulation (TNAC) for MSR purposes46. 

46 C(2019) 3288 final, https://ec.europa.eu/clima/sites/clima/files/ets/reform/docs/c_2019_3288_en.pdf 

29 

 
 
 
 
                                                           
 
Figure 5: Composition of cumulative supply and demand until the end of 2018 

Supply (cumulative, millions) 

                   Demand (cumulative, millions) 

s
n
o

i
l
l
i

M

14.000

12.000

10.000

8.000

6.000

4.000

2.000

0

s
n
o

i
l
l
i

M

14.000

12.000

10.000

8.000

6.000

4.000

2.000

0

Source: DG CLIMATE ACTION 

Auctioning 

Free allocation 

Free allocation (NER) 

Free allocation (10c) 

International credits exchanged 

NER 300 monetisation by EIB 

Early auctions 

Banking 

Verified emissions 

Cancellations 

In  preparation  for  the  MSR  becoming  operational  in  2019,  the  Commission  has  regularly 
published  as  from  mid-May  201747  the  TNAC  for  the  preceding  year.  In  May  2019,  the 
TNAC was published for the third time, corresponding to 1 654 909 824 allowances48. The 
2019  publication  leads  to  the  continued  placement  of  allowances  in  the  MSR,  reducing  the 
auction volumes in 2019 and 2020. 

Thus,  on  the  basis  of  the  2017  and  2018  TNAC  and  the  revised  legislation,  the  auction 
volumes in 2019 were reduced by  nearly 40%, or close to 397 million allowances. Auction 
volumes in 2020 will also be reduced in a corresponding manner.49 As a result, some 30%50 

47 C(2017) 3228 final, https://ec.europa.eu/clima/sites/clima/files/ets/reform/docs/c_2017_3228_en.pdf 
48 C(2019) 3288 final, https://ec.europa.eu/clima/sites/clima/files/ets/reform/docs/c_2019_3288_en.pdf 
49 The volume to be added to the MSR for the period between 1 January and 31 August 2020 was determined by the 2019 
publication of the surplus indicator, and amounted to nearly 265 million allowances. The rest of the volumes to be added to 
the MSR in 2020 will be determined by the 2020 publication of the surplus indicator. 

30 

 
 
 
  
  
  
  
  
  
 
  
 
                                                           
 
 
  
  
fewer allowances51 will be auctioned in 2019 than in 2018. Appendix 8 provides information 
on the contributions by Member State to the MSR for the whole of 2019, and from January to 
August 2020. 

4. 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).  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 limitation to intra-EEA flights until 31 December 2023. After that, in 
the absence of a review, the original full scope would be restored.   

The  revised  EU  ETS  Directive  foresees  that  the  European  Commission  should  report  to 
the  European  Parliament  and  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 to aviation as from 2021.   

In 2018, allowances were issued in line with the intra-EEA scope. Free allocation amounted 
to slightly over 32.3 million allowances. This number comprises both free allocation (slightly 
over  31.2  million  allowances)  for  incumbent  operators  and  nearly  1.1  million  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. The 
volume auctioned in 2018 was approximately 5.6 million allowances.  

Verified aviation emissions continued to grow and amounted to 67 million tonnes of carbon 
dioxide in 2018, an increase of 4% compared to 2017.    

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

50 Noting that the actual auctioned volumes depend also on other factors, such as the auctioning of leftovers from the Article 
10(c) derogation and the participation of EEA/EFTA states in the EU ETS. 
51 Taking into account that auction volumes from January to August 2019 were already reduced by the MSR based on the 
2017 surplus figure. 

31 

 
 
 
 
 
 
                                                                                                                                                                                     
 
 
Table 8: Verified emissions and allocation to the aviation sector 

Year 

2013 

2014 

2015 

2016 

2017 

2018 

2019 

Verified emissions (in 
million tonnes CO2 
equivalents) 

Change of verified 
emissions to year x-1 

Free 
allocation  (EU28+EEA 
EFTA states)52 

Free allocation from 
special reserve for new 
entrants and fast 
growing operators 

Volumes of allowances 
auctioned 

53,5 

54,8 

57,1 

61,5 

64,4 

67,0 

+2,5% 

+4,1% 

+7,6% 

+4,7% 

+4% 

32,4 

32,4 

32,1 

32,0 

33,1 

31,2 

31,253 

0 

0 

0 

0 

0 

1,1 

1,1 

1,1 

9,3 

16,4 

5,9 

4,7 

5,6 

2,054 

Sources: EUTL, DG CLIMATE ACTION, EEX 

In  2013,  the  decision55  to  limit  climate  obligations  only  to  flights  within  the  EEA  was 
adopted.  Compliance  for  the  aviation  sector  was  postponed  for  2012  and  2013.  The 
postponed 2012 volumes of allowances were thus auctioned in 2014, while compliance took 
place between January and April 2015 for aviation emissions from 2013 and 2014. 

In  June  2018,  the  ICAO  adopted  the  CORSIA  Standards  and  Recommended  Practices 
(SARPs)56.  These,  together  with  the  Implementation  Elements,  detail  the  functioning  of 
CORSIA. Important implementation elements, such as the Eligible Units and the Framework 
for  Alternative  Fuels,  have  not  been  adopted  yet.  While  acknowledging  and  supporting  the 
formal  adoption  of  the  SARPs  by  ICAO,  the  EU  and  its  Member  States  followed  ICAO 
procedures to notify the existing differences57 between relevant EU legislation and CORSIA. 

52 These numbers do not take into account all closures of aircraft operators. 
53  Allocation  concerning  the  UK  (4.31  million  allowances  of  the  total  for  2019)  was  suspended  due  to  the  safeguard 
measures adopted by the Commission 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 (see chapter 2.2). 
54 Until end June 2019 
55 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. 
56 https://www.icao.int/environmental-protection/CORSIA/Pages/SARPs-Annex-16-Volume-IV.aspx 
57  Council  Decision  (EU)  2018/2027  of  29  November  2018  on  the  position  to  be  taken  on  behalf  of  the  European  Union 
within  the  International  Civil  Aviation  Organization  in  respect  of  the  First  Edition  of  the  International  Standards  and 
32 

 
 
 
 
 
 
 
 
 
 
                                                           
As  of  1  January  2019,  aircraft  operators  are  required  to  monitor  and  report  their  emissions 
also  for  CORSIA.  The  monitoring,  reporting  and  verification  (MRV)  framework  under  the 
EU ETS was revised to introduce a legally binding obligation to this effect (see chapter 6.1).  
Such  an  integrated  approach  for  both  instruments  ensures  minimising  the  administrative 
burden. 

5. MARKET OVERSIGHT 

Under  the  revised  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. 

Following  the  reform  of  the  EU  ETS  for  phase  4,  a  number  of  market  participants  such  as 
major  financial  players  and  brokers  have  re-joined  the  market.  The  number  of  participants 
eligible  to  bid  in  the  auctions  at  the  common  auction  platform  increased  from  73  (January 
2018) to 79 (December 2018). The vast majority of participants were operators (73%), while 

Recommended  Practices  on  Environmental  Protection  —  Carbon  Offsetting  and  Reduction  Scheme  for  International 
Aviation (CORSIA), OJ L 325, 20.12.2018, p. 25–28 

33 

 
 
 
                                                                                                                                                                                     
the remainder consisted of investment firms and credit institutions (19%), as well as persons 
exempt from MiFID requirements (8%).58 In comparison, when auctions started in late 2012, 
there were 42 participants eligible to bid in the auctions, out of which 67% were operators, 
26% investment firms and credit institutions, and 7% non-financial intermediaries59. 

Under the existing market abuse rules, the national competent authorities60 are responsible for 
monitoring  the  market,  both  with  respect  to  the  auctions  and  the  secondary  market.  At 
European  level,  their  actions  are  coordinated  by  the  European  Securities  and  Markets 
Authority (ESMA), as is the case for other financial instruments.  

The  national  competent  authorities  have  the  power  to  impose  remedial  action  or  sanctions 
when they decide that certain behaviours give rise to market abuse. In order for them to carry 
out  their  market  monitoring  task,  the  financial  markets  legislation  establishes  a  number  of 
reporting and transparency  requirements  applicable to  trading venues  and investment  firms. 
As  part  of  the  reporting  requirements,  trading  venues  and  investment  firms  have  to 
communicate  to  the  competent  authorities  detailed  data  on  transactions  in  emission 
allowances  or  derivatives  thereof,  carried  out  on  the  trading  venues  and  over-the-counter 
(OTC)61.  The  reporting  requirements  also  include  an  obligation  for  trading  venues  and 
investment firms to provide the competent authorities with position data as regards emission 
allowances62. As part of the transparency  requirements,  trade data63 and  weekly aggregated 
position data64 are made public by trading venues and investment firms. 

58 All data is taken from the Common Auction Platform (CAP2) monthly reports to the Commission. 
59  According to Article 18 (2) Auctioning Regulation. 
60  The  list  of  national  competent  authorities  is  available  at:  https://ec.europa.eu/info/system/files/mar-2014-596-art-22-
list_en.pdf   
61  Under  Article  26 of  Regulation (EU)  No 600/2014 of  the  European Parliament  and of  the  Council  of  15 May  2014  on 
markets  in  financial  instruments  (MiFIR),  trading  venues  and  investment  firms  are  to  report  detailed  data  concerning 
transactions in allowances and derivatives thereof to competent authorities. 
62 The purpose of the position reporting obligation under Article 58 of MiFID2 is to allow the monitoring of positions held 
by different categories of persons with regards to emission allowances. 
63  The  pre-/post-trade  transparency  regime  established  by  articles  8,  10  and  21  of  MiFIR  aims  to  ensure  that  market 
participants have more reliable and accessible information on trading opportunities and prices. 
64  Publicly available weekly reports on positions provide transparency about the view of the market that certain categories of 
traders may be taking. 

34 

 
 
 
 
 
 
                                                           
5.1. 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 the absence of harmonisation in this 
respect the current regulatory framework provides the necessary legal underpinnings for a 
mature, transparent, and liquid carbon market,  whilst ensuring the market's stability and 
integrity. 

Following  a  recommendation  of  the  European  Court  of  Auditors,  in  July  2019  the 
Commission published  a study65 on the legal nature of allowances. The study, conducted by 
an independent consultant, did not identify practical problems linked to the lack of definition 
of the legal nature of allowances. It concluded that a harmonised definition would not provide 
more legal certainty, nor would it necessarily have an impact on the liquidity of the carbon 
market.  While  no  legislative  initiatives  were  recommended,  the  study  suggested  that 
information, advice, training and capacity-building should be provided to operators following 
the classification of allowances as financial instruments by MiFID266.  

As  regards  the  fiscal  treatment  of  allowances,  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 27 participating countries. The majority 
of  countries  report  that  they  apply  the  reverse-charge  mechanism  on  domestic  transactions 
involving emission allowances. The reverse charge derogation shifts 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 possibility for 
Member States to apply the derogation was extended until 30 June 202267. Member States are 
encouraged  to  keep  applying  the  reverse  charge  mechanism  in  order  to  provide  continued 
adequate protection to the carbon market. 

65  The  study  can  be  accessed  here:  https://publications.europa.eu/en/publication-detail/-/publication/9d985256-a6a9-11e9-
9d01-01aa75ed71a1/language-en 
66 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,  OJ  L  173  12.6.2014,  p.349.  Available  at:  https://eur-
lex.europa.eu/legal-content/EN/TXT/?qid=1536584176375&uri=CELEX:02014L0065-20160701 
67 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 

35 

 
 
 
                                                           
6. 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  achieving  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  allows 
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. 

6.1.  General Developments 

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

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. The first such update took place in 2018. In order to have 
a verification system in place for the free allocation data collection in 2019 and an updated 
MRVA  system  before  the  start  of  the  data  collection  for  CORSIA  (see  chapter  4),  revised 

36 

 
 
 
 
versions of the MRR68 and AVR69 started to be applicable on 1 January 2019. Further work 
and  consultations  are  ongoing  to  conclude  the  MRVA  revision  process  sufficiently  in 
advance of the beginning of phase 4. 

The efficiency of the compliance system has improved since the MRR allowed countries to 
make electronic reporting mandatory. In 2019, 17 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. 13 participating countries reported that they use some form of automated IT 
system for EU ETS reporting. 

6.2. Monitoring applied 

According to the Article 21 reports submitted in 2019, most installations use the calculation-
based  methodology70.  Only  182  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 three more 
installations overall using this approach. 

Only  11  countries  reported  the  use  of  the  fall-back  approach  by  38  installations,  covering 
approximately  2.6  million  tonnes  CO2e  (compared  to  3.4  million  tonnes  CO2e  the  year 
before). One installation in  the Netherlands is  responsible for 31% of the overall emissions 
reported in relation to fall-back methodology. 

The minimum tier defaults71 of the MRR are met by the vast majority of installations. Only 
97  category  C  installations  (compared  to  106  last  year),  that  is  13.4%,  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 2013, 16% 
of 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  22  participating  countries  indicate  that  overall  19%  of  category  B 
installations are permitted with some form of deviation from the MRR default requirements, 

68  Commission  Implementing  Regulation  (EU)  2018/2066  of  19  December  2018  on  the  monitoring  and  reporting  of 
greenhouse gas emissions pursuant to Directive 2003/87/EC of the European Parliament and of the Council and amending 
Commission Regulation (EU) No 601/2012, OJ L 334, 31.12.2018, p. 1–93 
69  Commission  Implementing  Regulation  (EU)  2018/2067  of  19  December  2018  on  the  verification  of  data  and  on  the 
accreditation  of  verifiers  pursuant  to  Directive  2003/87/EC  of  the  European  Parliament  and  of  the  Council,  OJ  L  334, 
31.12.2018, p. 94–134 
70 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. 
71  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. 

37 

 
 
                                                           
compared to 21% last year and 22% the year before, demonstrating a steady improvement in 
highest tier compliance. 

6.3. Accredited verification 

The  total  number  of  verifiers  is  not  reported  in  Article  21  reports.  However,  the  European 
cooperation for Accreditation (EA) provides a central link to relevant National Accreditation 
Bodies (NABs) and their lists of EU ETS accredited verifiers72.        

The mutual recognition of verifiers among participating countries is working successfully: 24 
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 no country reported withdrawals of accreditation in 2018. This compares 
to  one suspension and three withdrawals  for 2017. Germany,  France and Poland reported  a 
reduction  made  in  the  scope  of  respectively  two,  one  and  three  verifiers'  accreditation  for 
2018, compared to reductions for two verifiers from Poland in 2017.  

Ten countries reported complaints received about verifiers this year (one more than last year). 
The  overall  number  of  complaints  (71)  is  however  14%  lower.  93%  of  the  complaints 
received  are  reported  as  resolved  (last  year  this  rate  was  95%).  Ten  countries  reported 
identification  of  verifier  non-conformities  as  part  of  the  information  exchange  process 
between NABs and competent authorities (compared to twelve last year). 

7. 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.  

According  to  Article  21  submissions  in  2019,  there  were,  on  average,  five  competent 
authorities  involved  in  EU  ETS  implementation  per  country.73  With  regard  to  the 
coordination  between  authorities,  different  tools  were  reported,  such  as  legislative 
instruments  for  central  management  of  monitoring  plans  (in  14  countries),  binding 
instructions  and  guidance  by  a  central  competent  authority  to  local  authorities  (in  10 
countries),  and  regular  working  groups  or  meetings  between  authorities  (in  15  countries), 
among others. Seven countries indicated that no such tools are in place.  

On administrative fees  charged in  relation  to  permitting and approved monitoring plans, 13 
countries reported in 2019 that they do not charge any fees to installation operators (CY, DE, 
EE, EL, IE, LI, LT, LU, LV, MT, NL, SE, SK), one less than last year. With no difference to 
last year, aircraft operators in 15 countries do not pay fees (BE, CY, CZ, DE, EE, ES, EL, LI, 

72  EA  list  of  access  points  to  NABs  accrediting  verifiers  for  EU  ETS:  https://european-accreditation.org/national-
accreditation-bodies-having-successfully-undergone-peer-evaluation-by-ea/ 
73 In some cases, countries may be reporting a multiple number of regional/local authorities as one competent authority. 

38 

 
 
 
                                                           
 
LT,  LU,  LV,  MT,  NL,  SE,  SK).  Charges  vary  significantly  across  countries  and  types  of 
services, ranging from EUR 5 to EUR 6913.31 for permit and monitoring plan approval for 
installations and from EUR 5 to EUR 2400 for the same service for aviation operators. 

Overall,  participating  countries'  ETS  administrative  organisation  is  largely  effective. 
Communication and the sharing of best practices, including via the activities of the EU ETS 
Compliance Forum  and the annual  EU ETS  Compliance Conference, should continue to  be 
reinforced and encouraged.  

8. 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  2018,  less  than  0.5%  of  the 
installations reporting emissions did not surrender allowances covering all their emissions by 
the deadline of 30 April 2019. In the aviation sector, aircraft operators responsible for 99.1% 
of  EU  ETS  aviation  emissions  complied.  Non-compliant  operators  were  typically  small  or 
ceased operating in 2018. 

The  competent  authorities  continue  to  carry  out  different  compliance  checks  on  the  annual 
emissions reports. Based on Article 21 submissions in 2019, all participating countries check 
annual  emission  reports  for  completeness  (100%  of  reports  except  BE  31%,  ES  95%,  FR 
99%, and SE 1%). The reports further indicate that on average countries check close to 80% 
of reports for consistency against monitoring plans (all except HR) and close to 75% against 
allocation  data  (all  countries  except  FI,  HR,  MT,  NO,  and  SE).  Twenty-four  countries 
reported that they also carry out cross-checks against other data.  

Competent  authorities  in  12  countries  carried  out  conservative  estimates  regarding  missing 
data in the case of 57 installations (approximately 0.5% of installations overall), similar to 52 
installations (0.5%) for 2017 and 57 (0.5%) for 2016. The reported quantity of affected 2018 
emissions  was  11.2  million  tonnes  CO2  (compared  to  2.8  million  tonnes  CO2  in  2017), 
approximately  0.7%  of  overall  emissions  (compared  to  0.2%  in  2017).  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 seven countries 
concerning 31 aircraft operators (4.7% of the total), and 4.7% of aviation emissions.  

Competent  authorities' checks also remain important  to  supplement the verifier’s work.  For 
2018, 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, EE, 

39 

 
 
 
 
EL, IT, and LI). Most countries (all except EL, IT, LU and MT) reported that they carried out 
spot checks at installations in 2018. 

For 2018, the application of excess emissions penalty was reported for 36 installations by ten 
countries  (BG  1,  CZ  2,  FR  1,  IE  2,  IT  5,  NL  1,  PL  2,  PT  7,  RO  4,  UK  11).  For  aviation, 
excess emission penalties were reported for 26 aircraft operators (DE 2,  FR 1, IT 9, LT 1, 
NL 1, PT 8, SI 1, and UK 3).  

Twelve  countries  confirmed  issue  of  penalties  (other  than  excess  emissions  penalties)  in 
2018.  No  imprisonments  were  reported,  but  fines,  formal  notices,  and  final  warning  letters 
concerning 36 installations and 26 aircraft operators were noted amounting to a total financial 
value of EUR 5,4 million.74  

The  most  common  violations  reported  for  2018  were  failure  to  hold  a  duly  approved 
monitoring plan (9), operation without a permit (8), failure to comply with the conditions of 
the permit (6), and failure to submit verified annual emission reports by the due deadline (5 
cases).  

As  reported  last  year,  a  fifth  EU  ETS  compliance  cycle  evaluation  has  started  at  the 
beginning  of  2018,  with  the  aim  to  identify  EU  ETS  compliance  issues  at  the  level  of 
participating countries and support them in improving their implementation of the EU ETS. 
The evaluation will be concluded in late 2019. 

9. CONCLUSIONS AND OUTLOOK  

2018 was marked by significant progress in the adoption of the implementing provisions for 
phase  4  of  the  EU  ETS.  Provisions  on  carbon  leakage,  free  allocation,  auctioning,  the 
establishment  of  the  Innovation  Fund,  and  monitoring,  reporting  and  verification  were 
adopted over the course of the past year. The remaining implementing rules are being swiftly 
finalised and are envisaged to be adopted before the start of the new trading period in January 
2021.  

The  year  was  also  marked  by  a  substantial  fall  in  emissions  from  EU  ETS-covered 
installations.  The decrease of  4.1%  compared to  2017  was mainly driven by  electricity  and 
heat  production,  with  emissions  from  industry  falling  only  slightly.  However,  verified 
aviation emissions continued to grow in 2018, increasing by 3.9% compared to 2017.    

The legislative changes agreed in recent years to address the surplus of allowances continue 
to show marked results. The Market Stability Reserve surplus indicator was published for the 
third time in 2019, and together with the 2017 indicator, led to a reduction in auction volumes 
by  nearly  40%,  or  close  to  397  million  allowances  in  2019.  As  a  result,  some  30%  fewer 
allowances will be auctioned in 2019 than in 2018.  

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

40 

 
 
 
 
 
                                                           
Positive  developments  on  these  fronts  have  translated  into  increased  confidence  by  market 
participants and continued to reinforce the carbon price signal. The higher price of emission 
allowances  led  to  a  substantial  increase  in  the  total  auction  revenues  generated  by  Member 
States  -  in  2018,  the  total  revenues  were  more  than  two  times  higher  than  the  revenues 
generated in 2017.  

In 2018, EU ETS compliance has remained very high - the compliance rate exceeded 99% for 
both  stationary  installations  and  aircraft  operators.  The  EU  ETS  architecture  has  remained 
robust and the administrative organisation across Member States has proven to be effective.  

The Commission will continue to monitor the European carbon market and provide the next 
report in late 2020. 

41 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ANNEX  

Appendix 1 

Table 1.1: 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 

2013 

2014 

2015 

2016 

2017 

2018 

11 009 416 

9 779 243 

8 259 680 

6 593 238 

3 812 436 

2 471 297 

2 519 077 

2 195 195 

1 907 302 

1 583 420 

1 259 538 

935 657 

25 285 353 

22 383 398 

20 623 005 

15 831 329 

11 681 994 

7 661 840 

5 135 166 

4 401 568 

3 667 975 

2 934 380 

2 055 614 

38 939 

7 047 25575 

n.a. 

n.a. 

n.a. 

n.a. 

n.a. 

322 449 

297 113 

269 475 

237 230 

200 379 

158 922 

65 992 703 

52 920 889 

43 594 320 

31 621 148 

21 752 908 

31 942 281 

15 748 011 

8 591 461 

9 210 797 

7 189 961 

6 222 255 

3 778 439 

Total 

133 059 430 

100 568 867 

87 532 554 

65 990 706 

46 985 124 

46 987 375 

Source: DG CLIMATE ACTION 

Table 1.2: Maximum number of free allowances per year under the derogation from full auctioning for 
electricity and heat production 

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 

Source: DG CLIMATE ACTION 

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

42 

 
 
 
 
 
 
 
 
 
                                                           
Table 1.3: Number of unused free allowances under the derogation from full auctioning for electricity 
and heat production which have been auctioned or are planned for auctioning in 2013-202076 

Member State 

2015 

2016 

2017 

2018 

2019 

2020 

Unused Article 10c allowances auctioned  

BG 

CY 

CZ 

EE 

LT 

PL 

RO 

HU 

5 444 169 

1 461 360 

920 823 

604 908 

1 386 372 

0 

0 

0 

0 

0 

0 

0 

90 694 

77 741 

66 740 

54 550 

188 682 

134 897 

1 767 499 

761 088 

0 

0 

80 295 

50 026 

259 924 

1 196 

0 

0 

456 725 

191 229 

161 522 

128 105 

7 491 

0 

55 800 000 

49 520 000 

2 104 468 

6 710 664 

3 540 974 

3 011 456 

0 

0 

0 

0 

0 

0 

0 

0 

Source: DG CLIMATE ACTION 

Appendix 2 

Figure 2.1: Number of bidders in general allowances auctions from 2013 to 30 June 2019 

Source: EEX 
.  Number of bidders  

76 No unused Article 10c allowances were auctioned in 2013 and 2014. 

43 

 
 
 
 
 
 
 
                                                           
Table 2.1: Revenues generated from auctioning by Member States in the period 2012-201877 

                                        Revenues from the auctioning of emission allowances 2012-2018 (in millions EUR) 

2012 

2013 

2014 

2015 

2016 

2017 

2018 

General 
(early 
auctions) 

11,05 

0,00 

22,14 

1,58 

0,00 

0,00 

Aviation 
(early 

auctions)  General   Aviation  General  Aviation  General  Aviation  General  Aviation  General  Aviation  General  Aviation 

0,00 

55,75 

0,00 

114,99 

0,00 

0,00 

0,00 

0,00 

52,63 

0,35 

0,00 

0,00 

0,00 

0,00 

0,00 

0,00 

0,00 

0,00 

52,17 

95,03 

36,19 

0,43 

0,00 

1,18 

76,24 

2,36 

58,81 

0,65 

78,74 

2,05 

138,96 

2,69 

107,14 

0,74 

143,52 

0,22 

120,91 

0,30 

0,00 

0,00 

86,40 

0,91 

1,42 

0,49 

85,08 

0,00 

20,09 

0,25 

130,15 

0,39 

0,16 

6,15 

26,97 

55,24 

0,47 

110,30 

1,20 

117,63 

0,33 

199,43 

0,69 

0,79 

0,27 

0,41 

0,18 

0,35 

208,20 

379,00 

367,34 

24,66  

70,96 

583,33  

2,16 

2,47 

0,83 

1,30 

0,55 

1,10 

166,18 

17,52 

791,25 

0,00 

749,97 

0,00 

1093,31 

16,87 

845,74 

4,65 

1141,74 

5,07 

2565,34 

16,31 

1,07 

0,00 

14,84 

68,53 

13,28 

43,46 

3,99 

0,00 

0,00 

0,00 

56,06 

18,07 

0,00 

0,00 

46,93 

7,41 

1,16 

0,04 

68,64 

21,13 

2,71 

0,15 

52,93 

23,57 

0,74 

0,04 

70,93 

39,31 

0,00 

147,64 

0,00 

129,97 

1,10 

190,17 

4,99 

146,68 

1,37 

196,57 

0,79 

0,05 

1,46 

187,32 

139,89 

518,96 

2,48 

0,14 

4,57 

0,00 

346,11 

0,00 

323,53 

6,56 

473,20 

16,32 

364,97 

4,48 

488,78 

4,77 

1291,07 

14,97 

0,00 

66,97 

0,00 

62,68 

0,81 

91,64 

2,13 

70,63 

0,58 

94,64 

0,00 

219,25 

0,00 

205,29 

10,05 

299,94 

12,18 

231,34 

3,35 

309,85 

0,00 

0,00 

34,59 

41,68 

0,00 

0,00 

56,21 

35,11 

0,29 

0,87 

82,28 

51,32 

0,99 

2,15 

63,43 

39,54 

0,27 

0,59 

84,94 

52,93 

0,62 

3,55 

0,29 

0,63 

249,84 

1,96 

818,40 

11,16 

224,48 

140,10 

0,91 

1,97 

76,50 

0,00 

385,98 

0,00 

361,25 

5,24 

528,00 

14,41 

407,23 

3,96 

545,44 

4,21 

1440,10 

13,22 

AT 

BE 

BG 

CY 

HR 

CZ 

DE 

DK 

EE 

EL 

ES 

FI 

FR 

HU 

IE 

IT 

77 Source: EEX 

44 

 
 
  
  
  
                                                           
LT 

LU 

LV 

MT 

NE 

PL 

PT 

RO 

SE 

SI 

SK 

UK 

3,29 

0,74 

2,13 

0,27 

25,61 

0,00 

10,65 

39,71 

7,07 

3,51 

12,19 

75,74 

0,00 

0,00 

0,00 

0,00 

19,98 

4,97 

10,79 

4,47 

0,00 

0,00 

0,00 

0,00 

17,28 

4,52 

10,08 

3,81 

0,06 

0,63 

0,14 

0,10 

28,13 

6,62 

14,76 

5,62 

0,29 

0,22 

0,53 

0,57 

20,76 

5,08 

11,36 

4,30 

0,08 

0,06 

0,15 

0,16 

31,43 

6,81 

15,24 

5,78 

0,00 

134,24 

0,00 

125,63 

5,47 

183,57 

3,68 

141,59 

1,01 

189,63 

0,09 

0,07 

0,15 

0,17 

1,07 

80,11 

18,09 

40,20 

15,19 

500,84 

0,00 

244,02 

0,00 

72,78 

0,00 

122,74 

0,00 

0,00 

0,00 

35,67 

17,74 

61,70 

0,00 

0,00 

0,00 

0,00 

0,00 

0,00 

78,01 

65,82 

97,57 

33,34 

16,59 

57,59 

0,00 

129,84 

2,98 

135,57 

0,58 

505,31 

0,69 

1209,98 

1,27 

96,32 

2,89 

74,29 

0,79 

99,50 

0,32 

193,62 

1,60 

193,56 

0,44 

260,29 

1,02 

0,05 

0,04 

48,79 

24,28 

84,31 

3,63 

0,14 

0,20 

37,61 

18,70 

64,99 

1,00 

0,04 

0,06 

50,45 

25,05 

87,01 

0,85 

0,47 

1,06 

0,04 

0,06 

262,96 

717,64 

132,98 

66,19 

229,74 

0,00 

409,63 

0,00 

387,42 

14,08 

567,72 

18,54 

418,96 

5,37 

604,02 

5,30 

1607,32 

0,25 

0,20 

0,49 

0,52 

3,37 

1,59 

2,65 

1,45 

3,34 

0,12 

0,18 

0,00 

TOTAL 

603,52 

17,53  3550,73 

0,00  3115,11 

53,53 

4815,97 

117,26  3761,57 

32,28 

5490,60 

34,14  14090,23 

90,27 

45 

 
 
Appendix 3 

Table 3.1: Summary of international credits exchange until end June 201978 

International 
credits 
exchanged by 
end June 2019 
CERs 

China 

India 

Uzbekistan 

Brazil 

Chile 

Korea 

Mexico 

Others 

TOTAL CERs 
and ERUs 

Source: EUTL 

million 

percentages 

International 
credits 
exchanged by 
end June 2019 
ERUs 

 261,42 

195,20  

17,27  

9,89  

5,43  

3,16 

2,93 

2,89  

24,65  

453,49  

57,65% 

74,67  

Ukraine 

Russia 

Poland 

Germany 

France 

Bulgaria 

Others 

6,61  

3,79  

2,08  

1,21  

1,12  

1,10  

9,43  

100% 

million 

percentages 

192,07 

147,69 

32,06 

2,82 

1,65 

1,24 

0,50 

6,11 

42,35% 

76,89% 

16,69% 

1,46% 

0,85% 

0,64% 

0,26% 

3,21% 

Table 3.2: Summary of international credits exchange until end June 2019 by type of installations  

CERs 
in million   

256,46 

4,96 

261,42 

ERUs 
in million  

191,25 

0,82 

192,07 

International credits 
exchanged by end June 
2019 by: 
Stationary installations 

Aviation operators  

TOTAL 

Source: EUTL 

Appendix 4 

Table 4.1: ETS supply and demand elements 

Element 

Banking total 
phase 2 

Supply or 
demand? 
Supply 

Publication 

Update and uncertainties 

Carbon market 
report 

No update is foreseen as phase 2 ended. Final figure.  

78 For Tables 3.1 and 3.2, UK data for 2019 is not included due to the safeguard measures adopted by the Commission 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 (see chapter 2.2). 

46 

 
 
 
 
 
 
 
 
 
                                                           
Early phase 3 
auctions  

Supply 

Allowances for 
NER 300 
Aviation auctions  Supply 

Supply 

Phase 3 auctions 

Supply 

DG Climate Action 
website, EEX and 
ICE websites 
EIB website 

DG Climate Action 
website, EEX and 
ICE websites 

DG Climate Action 
website, EEX and 
ICE websites 

Free allocation 
(NIMs) 

Supply 

EUTL, tables 

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 in 
subsequent years. 
These figures are updated throughout the year.  

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

Free allocation 
(NER) 
Free allocation 
(aviation) 

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

Emissions 
(aviation) 
Allowances 
cancelled 

Supply 

EUTL, tables 

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

EUTL, MS 
publication of 
allocation tables 
EUTL, status table 

EUTL,  compliance 
data 

Supply 

Supply 

Demand 

Demand 

Demand 

Compliance  data  made  public  on  1  May  shows 
emissions 
for 
surrendered 
installations  that  are 
in  compliance  (i.e.  those 
installations reporting for all years concerned).79 

allowances 

and 

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

Table 4.2: Timeline for data publication  

Timing 

Data 

1 January – 30 April year 
x 

Updates to free allocation to 
electricity and heat production 
(Article 10c) 

Scope 

Year x-1 

1 April year x 

Verified emissions 

Year x-1 

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

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

47 

 
 
 
 
 
 
 
 
 
 
                                                           
1 May year x 

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 

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 5.1 ETS verified non-CO2 emissions from installations by type of greenhouse gas 2013-2018 (in 
million tonnes)80 

2013 

2014 

2015 

2016 

2017 

2018 

PFCs 

0,40 

0,74 

0,58 

0,64 

0,47 

0,60 

N2O 

2,47 

5,49 

5,32 

4,62 

4,96 

4,11 

Source: EUTL 

Appendix 6 

Table 6.1: Rulings of the Court of Justice of the EU relevant to the functioning of the EU ETS in the 
period July 2018 to June 2019 

Case 
referenc
e 
Case C-
682/17 

Legislation 
Concerned 

Parties 

Context of the case 

Date 

Finding by the Court 

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

ExxonMobil 
Production 
Deutschland 
GmbH/ DE 

Shall an installation be 
considered an electricity 
generator if there is no other 
Annex I activity carried out 
there, on top of the generation 
of electricity, and if yes, is it 
entitled to free allocation? 

20.06.
2019 

The Court confirmed the 
literal interpretation of the 
definition of electricity 
generator in  Directive 
2003/87/EC. 

80 For some installations, emissions from N2O or PFCs might not have been reported separately in the Union Registry, with 
the total emissions reported in tonnes of CO2 equivalent instead. The data in the table reflects the breakdown of emissions by 
GHG as available in the Union Registry. Emissions  of N2O were included in the EU ETS as of phase  2 (from 2008) as a 
voluntary opt-in by some Member States, and together with PFCs on a mandatory basis– as of phase 3 (from 2013). 

48 

 
 
 
 
 
 
 
 
                                                           
Carvalho and 
Others/ 
Parliament 
and Council 

Case T-
330/18 

Directive 
(EU) 
2018/410, 
Regulation 
(EU) 
2018/842, 
Regulation 
(EU) 
2018/841 

Case C-
561/18 

Commission 
Regulation 
(EU) No 
601/2012 

Solvay 
Chemicals 
GmbH/ DE 

08.05.
2019 

The Court  dismissed the 
action as inadmissible in 
its entirety. 

06.02.
2019 

The Court declared the 
second subparagraph of 
Article 49(1) and point 
20(B) of Annex IV of 
Regulation No 601/2012 
invalid in so far as they 
systematically include the 
CO2  transferred to another 
installation for the 
production of precipitated 
calcium carbonate (PCC) 
in the emissions of the 
installation for production 
of soda ash, regardless of 
whether that CO2  is 
released into the 
atmosphere.  

37 private persons requested 
the annulment of Directive 
2018/410,  Regulation (EU) 
2018/842, and Regulation 
(EU) 2018/841, claiming that 
the planned greenhouse gas 
reductionsns are insufficient.  
The European Parliament and 
the Council of the EU 
requested non-admissibility. 
- Is Regulation (EU) 
601/2012 invalid and does it 
infringe the aims of Directive 
2003/87 by providing that 
CO2that is not transferred 
within the meaning of the 
first subparagraph of Article 
49(1) is to be considered 
emitted by the installation 
producing the CO2, regardless 
of whether it was released 
into the atmosphere? 
-  Is Regulation (EU) 
601/2012 invalid and does it 
infringe the aims of Directive 
2003/87 by providing that the 
CO2that is transferred from a 
soda ash production 
installation to another 
installation for the purpose of 
PCC production must 
systematically be included in 
that installation’s emissions? 

Appendix 7 

Table 7.1: State of play of EU ETS phase 4 implementation  

Measure 

Purpose 

Carbon Leakage List 
for 2021-2030 

Revision of the free 
allocation rules for 
2021-2030 

Adjustment to free 
allocation due to 
production changes 

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 
Defining the arrangements for the 
adjustment of the level of free allocation to 
installations on the basis of changing levels 
of operation of more than 15% upwards or 

Type of legislative 
act 

Commission 
Delegated Decision 

Commission 
Delegated 
Regulation 

Commission 
Implementing 
Regulation 

Foreseen adoption 

Adopted on 15 
February 2019 and 
published in the 
Official Journal on 8 
May 201981 
Adopted on 19 
December 2018 and 
published in the 
Official Journal on 27 
February 201982 

2019 

81https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L:2019:120:FULL&from=EN 
82https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32019R0331&from=EN 

49 

 
 
 
                                                           
Update of the 
benchmark values for 
free allocation for 
2021-2025 

downwards on average over a period of two 
years 
Determining updated benchmarks for 2021-
2025 on the basis of data submitted by 
Member States by 30 September 2019 for 
the years 2016 and 2017. 

Implementing act 

2020 

Establishment of the 
Innovation Fund 

Determining the rules on the operation of 
the Innovation Fund, including the selection 
procedure and criteria 

Commission 
Delegated 
Regulation 

Adopted on 26 
February 2019 and 
published in the 
Official Journal on 28 
May 201983 

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 

Regulation 
supplementing 
Directive 2003/87/EC 
as regards CORSIA 

EU ETS State Aid 

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 
Supplementing the EU ETS Directive as 
regards measures adopted by the 
International Civil Aviation Organisation for 
the monitoring, reporting and verification of 
aviation emissions for the purpose of 
implementing CORSIA 
Revising the EU ETS State Aid Guidelines 

Implementing act 

2020 

Commission 
Delegated 
Regulation 

Adopted on 12 March 
2019 and published in 
the Official Journal 
on 2 July 201984 

Commission 
Delegated 
Regulation 

Adopted on 30 
October 2018 and 
publsihed in the 
Official Journal on 4 
January 201985 

Delegated act 

2019 

Commission 
Implementing 
Regulation 

Commission 
Implementing 
Regulation  

Commission 
Delegated 
Regulation 

Adopted on 19 
December 2018 and 
published in the 
Offical Journal on 31 
December 201886 
Adopted on 19 
December 2018 and 
publsihed in the 
Official Journal on 31 
December 201887 

2019 

Communication 

2020 

83https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32019R0856&from=EN 
84 https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32019R1122&from=EN 
85 https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32019R0007 
86 https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32018R2066 
87 https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32018R2067&from=EN 

50 

 
 
                                                           
Guidelines 2021-2030 

for phase 4 to accommodate the new 
provisions introduced by the revised EU 
ETS Directive for indirect carbon cost 
compensation schemes 

from the 
Commission 

State of play  
Planned 
Ongoing 
Done 

Appendix 8 

Table 8.1: Member State contributions  to the Market Stability Reserve  in 201988 and 202089 

Member State/ EEA 
EFTA State 

MSR contributions in 2019 

MSR known contributions in 
202090 

Austria 

Belgium 

Bulgaria 

Croatia 

Cyprus 

Czech Republic 

Denmark 

Estonia 

Finland 

France 

Germany 

Greece 

Hungary 

Iceland 

Ireland 

Italy 

Latvia 

Liechtenstein 

Lithuania 

Luxembourg 

Malta 

5 935 748 

9 846 994 

8 292 720 

1 614 984 

932 844 

15 406 858 

5 340 750 

2 904 319 

7 130 025 

23 346 791 

85 389 770 

12 684 492 

5 115 708 

166 450 

3 991 393 

40 304 729 

865 501 

3 725 

1 792 324 

467 394 

354 798 

3 957 699 

6 565 549 

5 529 227 

1 076 801 

621 980 

10 272 626 

3 560 981 

1 936 474 

4 753 992 

15 566 629 

56 934 202 

8 457 470 

3 410 933 

110 982 

2 661 288 

26 873 449 

577 079 

2 484 

1 195 044 

311 638 

236 564 

88 For the period January to August 2019, the figures are based on the Communication from the Commission C(2018) 2801 
final of 15.5.2018, available at  https://ec.europa.eu/clima/sites/clima/files/ets/reform/docs/c_2018_2801_en.pdf   
89 For the periods September to December 2019 and January to August 2020, the figures are based on the Communication 
from the Commission C(2019) 3288 final, available at 
https://ec.europa.eu/clima/sites/clima/files/ets/reform/docs/c_2019_3288_en.pdf  
90 Part of the Member States contributions to the MSR in 2020 will be determined after the 2020 publication of the surplus 
indicator. 

51 

 
 
 
 
 
 
                                                           
Netherlands 

Norway 

Poland 

Portugal 

Romania 

Slovakia 

Slovenia 

Spain 

Sweden 

United Kingdom 

Total 

Appendix 9 

14 291 411 

3 314 570 

39 282 170 

6 478 775 

14 941 290 

4 752 513 

1 577 714 

32 660 234 

3 457 106 

44 480 623 

397 124 723 

9 528 894 

2 210 012 

26 191 650 

4 319 767 

9 962 205 

3 168 770 

1 051 951 

21 776 430 

2 305 049 

29 657 753 

264 785 572 

Table 9.1: NER300 unspent funds under the InnovFin EDP: supported projects 

Project title 
WAVE ROLLER 

WINDFLOAT 

Picture 

Description 
Wave Roller aims to demonstrate 
the feasibility of wave energy 
technology at commercial scale, 
bybridging  the gap between the 
demonstration installation and 
the commercial deployment of a 
near-shore Oscillating Wave 
Surge Converter (OWSC) that 
converts wave energy into 
electric power. The NER300 
contribution will amount to EUR 
10 million. 
The Windfloat project is an 
innovative offshore windfarm 
employing a floating semi-
submersible platform around 20 
km off the coast of Portugal. The 
project intends to advance the 
state-of-the-art of floating 
support structures by 
demonstrating the scalability of 
the WindFloat concept for 
hosting larger turbines. It will 
then foster the deployment of 
wind farms deep offshore. The 
NER300 contribution under 
InnovFin EDP will amount to 
EUR 60 million. WindFloat also 
benefits from a grant of almost 
EUR 30 million under the 
original NER300 programme. 

52 

 
 
 
 
 
 
GREENWAY EV CHARGING 
NETWORK 

The project will support  
accelerated deployment of 
electric vehicle infrastructure. 
Itdemonstrates the feasibility of 
the commercial-scale 
deployment of ultra-fast 
charging stations for electric 
vehicles and the pilot of an 
integrated battery energy storage 
system. Demonstration will be 
located in Slovakia, Poland, the 
Czech Republic and the Baltic 
countries. Financing under the 
InnovFin EDP amounts to EUR 
17 million, of which almost EUR 
3 million are backed by the NER 
300 unspent funds. 

53