REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the Functioning of the European carbon market in 2021 pursuant to Articles 10(5) and 21(2) of Directive 2003/87/EC (as amended by Directive 2009/29/EC and Directive (EU) 2018/410)
Date: 2022-12-14
Institutions: Directorate-General for Climate Action, European Commission
Subjects: EU Emissions Trading Scheme, EU emission allowance, air transport, carbon, energy efficiency, environmental monitoring, greenhouse gas, industrial pollution, reduction of gas emissions, tradeable emission permit

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 14.12.2022  COM(2022) 516 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the Functioning of the European carbon market in 2021 pursuant to Articles 10(5) and 21(2) of Directive 2003/87/EC (as amended by Directive 2009/29/EC and Directive (EU) 2018/410) {SWD(2022) 407 final}  
 
 
List of abbreviations 

AVR 

CEF DI 

CEMS 

CO2eq 

CORSIA 

EEA 

EEX 

EFTA 

EIB 

ESMA 

EU  

EU ETS 

EU27 

EUTL 

ICAO 

Accreditation and Verification Regulation  

Connecting Europe Facility Debt Instrument 

Continuous Emissions Measurement Systems 

Carbon dioxide equivalent 

Carbon Offsetting and Reduction Scheme for International Aviation 

European Economic Area 

European Energy Exchange 

European Free Trade Association 

European Investment Bank 

European Securities and Markets Authority 

European Union 

EU Emissions Trading System 

European Union Member States 

European Union Transaction Log 

International Civil Aviation Organisation 

InnovFin EDP 

InnovFin Energy Demonstration Projects 

IPCC 

MRR 

MSR 

N2O 

NER 

PFCs 

TNAC 

UK 

Intergovernmental Panel on Climate Change 

Monitoring and Reporting Regulation 

Market Stability Reserve 

Nitrous oxide 

New Entrants Reserve 

Perfluorocarbons 

Total number of allowances in circulation 

United Kingdom 

1 

 
 
 
 
 
 
Contents 

List of abbreviations ........................................................................................................................... 1 

1. 

Introduction ..................................................................................................................................... 3 

2.  ETS coverage .................................................................................................................................. 4 

3.  Carbon market framework .............................................................................................................. 6 

3.1.  Cap on emissions .................................................................................................................... 6 

3.2.  Auctioning of allowances........................................................................................................ 9 

3.3. 

Free allocation ....................................................................................................................... 10 

3.3.1. 

Derogation from full auctioning for electricity and heat production ............................ 12 

3.4.  Auction revenues .................................................................................................................. 13 

3.4.1. 

NER 300 ........................................................................................................................ 13 

3.4.2. 

Innovation Fund ............................................................................................................ 14 

3.4.3.  Modernisation Fund ...................................................................................................... 16 

3.4.4. 

Compensation of indirect carbon costs ......................................................................... 16 

3.5. 

Emission reductions in the EU ETS ...................................................................................... 18 

3.6.  Balancing supply and demand .............................................................................................. 21 

4.  Aviation......................................................................................................................................... 23 

5.  Market oversight ........................................................................................................................... 25 

5.1. 

Findings of the ESMA report ................................................................................................ 26 

5.1.1. 

ESMA policy recommendations ................................................................................... 27 

6.  Monitoring, reporting and verification of emissions ..................................................................... 28 

6.1.  Monitoring emissions ............................................................................................................ 28 

6.2.  Accreditation and verification ............................................................................................... 29 

6.3.  Competent authorities ........................................................................................................... 30 

6.4.  Compliance and enforcement ................................................................................................ 30 

7.  Link between the EU ETS and the Swiss ETS ............................................................................. 32 

8.  EU ETS in the context of the Energy Efficiency Directive .......................................................... 36 

9.  Conclusions and outlook ............................................................................................................... 37 

2 

 
 
 
 
 
1.  Introduction 

The EU Emissions Trading System (ETS) is a cornerstone of the EU’s climate policy. In line 
with the polluter pays principle, it puts a carbon price on emissions from electricity and heat 
generation,  energy-intensive  industry  and  aviation  within  Europe.  By  drawing  on  market 
forces, the EU ETS creates an incentive to reduce emissions where it costs least to do so. In 
parallel, it generates revenue to invest in climate action and energy transformation. 

Since its launch in 2005, the EU ETS has helped drive down emissions from electricity and 
heat  generation  and  industrial  production  by  34.6%1.  It  generated  over  EUR 100  billion  in 
auction  revenues  for  distribution  to  the  Member  States  in  2013-21.  Nevertheless,  further 
emission  reductions  are  needed  to  meet  the  higher  climate  ambition  enshrined  in  the 
European Climate Law2. To reach climate neutrality by mid-century, the EU has committed 
to  reducing  emissions  by  at  least  55%  by  2030  compared  to  1990  levels.  The  EU  ETS  is 
critical to achieve this. 

In July 2021, the European Commission presented a package of policy reforms to deliver the 
European Green Deal3, including a revision of the EU ETS4. The Commission proposed that 
sectors  covered  by  the  system  achieve  emission  reductions  of  61%  compared  to  20055.  To 
this end, the proposal tightens the cap on emissions and makes its annual reduction steeper. It 
also reforms the rules of granting free allowances to industry and phases out free allocation 
for  aviation.  At  the  same  time,  the  Commission  proposed  to  extend  the  EU  ETS  to  cover 
emissions from maritime transport and to establish a new system for reducing emissions from 
road  transport  and  buildings.  Altogether,  the  proposal  seeks  to  direct  more  resources  to  the 
green transition – by committing Member States to invest all auction revenues in climate and 
energy-related  projects  and  by  increasing  resources  of  the  Innovation  and  Modernisation 
Funds. 

Since  then,  the  European  Parliament  and  the  Council  have  considered  the  Commission’s 
proposal.  By  mid-2022,  both  adopted  positions  on  the  revision  of  the  EU  ETS,  putting 
forward multiple amendments. This has given way to inter-institutional negotiations between 
the Parliament, the Council and the Commission, starting in July 2022. 

Meanwhile,  the  EU  ETS  continues  to  function  as  currently  legislated.  In  2021,  the  system 
entered  its  fourth  phase  (2021-30).  With  this,  several  changes  in  the  system’s  framework 
have  taken  effect.  The  cap  on  emissions  decreases  each  year  at  a  higher  rate  of  2.2%.  The 
volume of allowances allocated for free to industry has been adjusted to reflect technological 

ETS  emissions  from  stationary  installations  in  2021,  without  the  UK,  only  electricity  generators  in 

1 
Northern Ireland, compared to an adjusted value of 2005 observing the same scope. 
2 
Regulation  (EU)  2021/1119  of  the  European  Parliament  and  of  the  Council  of  30 June  2021 
establishing the framework for achieving climate  neutrality and amending Regulations (EC) No 401/2009 and 
(EU) 2018/1999, OJ L 243, 9.7.2021, p. 1. 
3 
Delivering the European Green Deal, DG Climate Action, 14.7.2021. 
4 
COM/2021/551  final  -  Proposal  for  a  Directive  of  the  European  Parliament  and  of  the  Council 
amending Directive 2003/87/EC establishing a system for greenhouse gas emission allowance trading within the 
Union, Decision (EU) 2015/1814 concerning the establishment and operation of a  market stability reserve  for 
the Union greenhouse gas emission trading scheme and Regulation (EU) 2015/757, 14.7.2021. 
5 

Currently legislated at 43% below 2005 emission levels. 

3 

 
 
                                                           
progress  and  changes  in  production.  The  first  calls  for  projects  under  the  Innovation  Fund 
were completed and the first disbursement decisions for investments under the Modernisation 
Fund were approved. The system’s coverage was also adjusted in 2021 to reflect the United 
Kingdom’s (UK) departure from the EU. 

In  2021,  operations  of  installations  covered  by  the  EU  ETS  were  still  recovering  from  the 
effects of the COVID-19 pandemic. Due to the recovery drive, emissions increased slightly 
since  2020,  but  remained  below  the  pre-pandemic  levels.  This  was  reflected  in  a  rise  in 
demand for allowances in the EU ETS and a higher carbon price in 2021. 

Rising  carbon  prices  have  prompted  some  stakeholders  to  question  whether  there  has  been 
excessive speculation in the EU ETS. Some also questioned whether the higher prices were 
having  an  effect  on  energy  prices.  The  Commission  addressed  these  concerns  in  the 
Communication on tackling energy prices6.  It concluded that the effect of  higher  gas prices 
on  the  energy  price  was  nine  times  bigger  than  the  effect  of  higher  carbon  prices.  The 
Commission  also  asked  European  Securities  and  Markets  Authority  (ESMA)  to  analyse 
behaviour on the carbon market. The final ESMA report published in 2022 dismisses claims 
of excessive speculation. ESMA concluded that the EU carbon market was functioning well 
and that the carbon price signal was in line with market fundamentals. 

This report takes stock of the functioning of the EU ETS in 2021 and in the first half of 2022. 
It presents an updated overview of the system’s coverage and infrastructure and provides an 
insight into key elements of the system’s framework. The report is in line with Articles 10(5) 
and 21(2) of the EU ETS Directive7. It is based mostly on data from the EU Registry, the EU 
Transaction Log (EUTL), as well as reports submitted by Member States under Article 21 of 
the EU ETS Directive. 

2.  ETS coverage 

Since the start of phase 4 (2021-30), the EU ETS has covered 27 EU Member States and the 
European Free Trade and Association (EFTA) countries - Iceland, Liechtenstein, and Norway 
(EU ETS countries), as well as power plants in Northern Ireland8. As of 1 January 2020, the 
EU ETS is linked with the ETS of Switzerland. 

In  total,  the  EU  ETS  regulates  emissions  from  8 757  electricity  and  heat  plants  and 
manufacturing  installations,  as  well  as  371  aircraft  operators  flying  between  European 
Economic  Area  (EEA)  airports,  and  from  the  EEA  to  Switzerland  and  the  UK.  This 
represents around 36% of all EU emissions. 

As in previous years, most installations covered by the EU ETS emit less than 50 000 tonnes 

6 
COM/2021/660  final  -  Communication  from  the  Commission  to  the  European  Parliament,  the 
European  Council,  the  Council,  the  European  Economic  and  Social  Committee  and  the  Committee  of  the 
Regions, Tackling rising energy prices: a toolbox for action and support, 13.10.2021. 
7 
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. 
8 

Pursuant to the Protocol on Ireland/Northern Ireland of the EU-UK Withdrawal Agreement. 

4 

 
 
                                                           
carbon  dioxide  equivalent  (CO2eq)  per  year9  (70.5%).  Of  these,  4 725  are  classified  as 
installations  with  low  emissions10  (54%  of  the  total).  22%  of  all  installations  emit  between 
50 000 and 500 000 tonnes CO2eq per year11, and 7.5% of installations emit the highest level 
of  emissions,  over  500 000  CO2eq  per  year12.  ETS  countries  reported  that  199  installations 
closed in 2021, mostly due to full cessation of activities or to reduced capacity, bringing the 
installation below the threshold for coverage under the system13. 

Figure 1.1 in Appendix 1 to the staff working document accompanying this report shows the 
breakdown of installations by category of emissions in 2021. 

In some sectors, only installations above a certain size and production level are included in 
the  EU  ETS.  Countries  can  exclude  installations  with  low  emissions  from  the  system  if 
alternative measures to reduce emissions are put in place14. Since 2021, it is also possible to 
exclude installations from the EU ETS that emit less than 2 500 tonnes CO2eq15, as well as 
reserve or back-up units, which do not operate more than 300 hours per year16. 

In 2021, 14 countries opted to exclude installations from the system, accounting for a total of 
4.9  Mt  CO2eq.  This  represented  0.37%  of  emissions  from  installations  included  in  the  EU 
ETS. 

Six  Member  States17  have  continued  to  allow  stationary  installations  to  use  simplified 
monitoring plans in low-risk cases in 202118. For aviation, only Belgium reported using this 
provision for installations with low emissions. 

In  addition  to  CO2  from  power  generation,  industrial  production  and  aviation,  the  EU  ETS 
covers  nitrous  oxide  (N2O)  from  nitric,  adipic,  glyoxylic  acid  and  glyoxal  production,  and 
perfluorocarbons (PFCs) from aluminium production. In 2021, 22 countries reported permits 
for  ETS  activities  releasing  non-CO2  emissions.  Only  Norway  declared  carbon  capture  and 
storage activities. 

Table  1.1  in  Appendix  1  to  the  accompanying  staff  working  document  lists  countries 
reporting non-CO2 emissions from EU ETS activities in 2021. 

9 
Category A installations. 
10 
A subset within category A installations, with emissions below 25 000 tonnes CO2eq per year. 
11 
Category B installations. 
12 
Category C installations. 
13 
The threshold of 20 MW total rated thermal input. 
14 
Pursuant to Article 27 of the EU ETS Directive. 
15 
In each of the three years before notification to the Commission. Emissions from biomass are excluded. 
16 
Under Article 27a(3) of the EU ETS Directive. 
17 
These Member States were Denmark, Finland, Croatia, Hungary, Lithuania, and the Netherlands. 
18 
Pursuant  to  Article 13  of  the  Monitoring  and  Reporting  Regulation  [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.  The  Regulation  was  amended  in  2020  by 
Commission  Regulation  (EU)  2020/2085  and  in  2022  by  Commission  Regulation  (EU)  2022/388.  See 
consolidated version]. 

5 

 
 
                                                           
In aviation, most of the regulated operators in 2021 were commercial operators (71%, or 262 
operators)19. A total of 160 operators (43%) qualified as small emitters. 

3.  Carbon market framework 

3.1. Cap on emissions 

The  cap  in  the  EU  ETS  sets  the  maximum  absolute  quantity  of  emissions  that  regulated 
entities can emit. It corresponds to the number of allowances issued over a trading phase. The 
cap  decreases  annually  to  ensure  that  the  EU  meets  its  overarching  emission  reductions 
target. 

Separate caps are applied to emissions from stationary installations and aircraft operators. In 
2021, the cap on emissions from stationary installations was 1 571 583 007 allowances. For 
aviation, 28 306 545 allowances were issued in 2021. As of 2021, both caps decrease at a rate 
of 2.2% per year20. For the cap on emissions from stationary installations, this is equivalent to 
43 003 515 allowances. 

In  line  with  Article 12(3)  of  the  EU  ETS  Directive,  stationary  installations  can  also  use 
aviation allowances for compliance as of 1 January 2021. 

Table 1 shows  yearly figures of the  EU ETS  cap since 2013.  When comparing this data, it 
should be noted that as of 2021, the EU ETS no longer covers installations in the UK. In line 
with the Protocol on Ireland/Northern Ireland of the EU-UK Withdrawal Agreement21 and the 
Trade  and  Cooperation  Agreement  between  the  EU  and  the  UK22,  electricity  generators  in 
Northern  Ireland remain  in  the EU  ETS  with  the  corresponding  rights  and obligations.  The 
EU  ETS  also  continues  to  cover  emissions  from  flights  departing  to  the  UK.  The  caps  on 
emissions were changed to reflect this23. 

Table  1.  Annual  cap  on  emissions  from  stationary  installations  and  annual  number  of  aviation 
allowances put into circulation (2013-21). 

Year 

2013 
2014 
2015 
2016 
2017 

Annual cap (stationary installations) 

2 084 301 856 
2 046 037 610 
2 007 773 364 
1 969 509 118 
1 931 244 873 

Annual volume of aviation allowances 
put into circulation 
32 455 296 
41 866 834 
50 669 024 
38 879 316 
38 711 651 

An example of a commercial aircraft operator would be a  passenger airline providing  services to the 

Applied from the mid-point of the base period 2008-12. 
Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the 

19 
public. An example of a non-commercial aircraft operator would be a privately owned aircraft. 
20 
21 
European Union and the European Atomic Energy Community, OJ L 29, 31.1.2020, p. 7. 
22 
Trade  and  Cooperation  Agreement  between  the  European  Union  and  the  European  Atomic  Energy 
Community, of the one part, and the United Kingdom of Great Britain and Northern Ireland, of the other part, 
OJ L 149, 30.4.2021, p. 10. 
23 
allowances to be issued under the EU Emissions Trading System for 2021, OJ L 386, 18.11.2020, p. 26. 

Commission  Decision  (EU)  2020/1722  of  16 November  2020  on  the  Union-wide  quantity  of 

6 

 
 
                                                           
2018 
2019 
2020 
2021 

1 892 980 627 
1 854 716 381 
1 816 452 135 
1 571 583 007 

38 909 585 
38 830 950 
42 803 537 
28 306 545 

Figure  1  illustrates  the  changes  in  the  cap  throughout  all  EU  ETS  phases,  including  the 
projected reduction until 203024. 

24 

According to the currently legislated target to reduce emissions by 43% by 2030 compared to 2005. 

7 

 
 
 
 
                                                           
2005:
2.3 billion

2008-12 average:
2.2 billion

Cap reduction (2013-20): -1.74% per year

Cap reduction (2021-30): -2.2% per year

2013: 
2.1 billion

2020: 
1.8 billion 
(-21% compared to 2005)

2030: 
-43% 
compared to 2005

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2,5

2,0

1,5

1,0

0,5

0,0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Figure 1. Emissions cap set in the EU ETS, compared with verified emissions. Legend: bars (cap), light shade bars in 2014-16 (allowances backloaded in 
phase 3), light shade bars since 2019 (feeds of allowances to the Market Stability Reserve), dash line (verified emissions). 

8 

 
 
 
 
 
 
 
 
 
 
 
 
3.2. Auctioning of allowances 

Auctioning remains the primary method of distributing allowances in phase 4 of the EU ETS, 
accounting for 57% of the cap. The Auctioning Regulation25 sets rules to ensure that auctions 
take place in  an open, transparent,  harmonised and non-discriminatory way.  It  specifies the 
timing, administration and other aspects of auctioning emission allowances. 

In 2021, auctions continued to take place through the European Energy Exchange AG (EEX): 

  as  the  common  auction  platform  for  25  Member  States  participating  in  a  joint 

procurement procedure, 
for  Poland,  which  opted  out  from  the  joint  procurement  procedure  but  has  not  yet 
appointed its own auction platform, 
for  Iceland,  Liechtenstein,  and  Norway  after  the  EEA  Agreement  was  amended  in 
2019 to allow their participation in the Joint Procurement Agreement for the common 
auction platform, 
for the UK to auction allowances for electricity generators in Northern Ireland. 

 

 

 

The EEX also auctioned for Germany as the ‘opt-out’ auction platform. 

The  EEX  was  reappointed  as  the  common  auction  platform  as  from  2021,  without  major 
changes  to  the  participation  in  auctions.  In  total,  230  auctions  were  held  in  2021  and  109 
were  held  in  the  first  half  of  2022.  Table  2  provides  an  overview  of  the  yearly  volumes  of 
allowances auctioned by the EEX since phase 3. 

Table 2. Total volumes of allowances auctioned (2013-21). 

Year 

2013 

2014 

2015 

2016 

2017 

2018 

2019 

2020 

2021 

General allowances 

Aviation allowances 

808 146 500 

528 399 500 

632 725 500 

715 289 500 

951 195 500 

915 750 000 

588 540 000 

778 505 000 

582 952 500 

0 

9 278 000 

16 390 500 

5 997 500 

4 730 500 

5 601 500 

5 502 500 

7 505 000 

3 785 500 

No auctions were cancelled in 2021. In early 2022, however, two auctions were cancelled. On 
1  February,  the  auction  for  the  common  auction  platform  was  cancelled  due  to  a  technical 

25 
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. 

9 

 
 
                                                           
problem.  In  accordance  with  Article 9  of  the  Auctioning  Regulation,  the  corresponding 
volume  of allowances  was then distributed  over the subsequent  four auctions.  On 2 March, 
the  auction  for  Poland  was  cancelled  as  the  total  bid  volume  fell  short  of  the  volume  of 
auctioned allowances. The auction was cancelled in line with Article 7(5) of the Auctioning 
Regulation, and again the volume was distributed over the next four auctions. 

Figure 2 gives an overview of the auction clearing prices in the EU carbon market from 2013 
to September 2022. 

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100

90

80

70

60

50

40

30

20

10

0

Figure 2. Clearing prices in auctions of general allowances (1 January 2013 - 30 September 2022). 

Auction platforms regularly publish detailed results of each auction on their websites. Further 
information  on  the  performance  of  auctions,  including  the  participation,  cover  ratios  and 
prices, can be found in the ETS countries’ Auction Reports26. 

3.3. Free allocation 

Although  auctioning  is  the  primary  method  for  distributing  allowances  in  the  EU  ETS,  
a  significant  volume  of  allowances  is  allocated  for  free  to  address  the  risk  of  carbon 
leakage27. This is a transitional measure. 

A  dedicated  Carbon  Leakage  List  identifies  sectors  with  a  higher  risk  of  carbon  leakage, 
eligible to receive free allocation. The list for phase 428 identifies 63 sectors and sub-sectors 

Auction Reports, DG Climate Action, 30.6.2022. 
Carbon  leakage  may  occur  if  ETS-regulated  activities  are  moved  to  non-EU  countries  with  less 

26 
27 
ambitious climate policies, thus leading to an increase in overall greenhouse gas emissions. 
28 
Commission  Delegated  Decision  (EU)  2019/708  of  15 February  2019  supplementing  Directive 
2003/87/EC  of  the  European  Parliament  and  of  the  Council  concerning  the  determination  of  sectors  and 
subsectors deemed at risk of carbon leakage for the period 2021 to 2030, OJ L 120, 8.5.2019, p. 20. 

10 

 
 
 
                                                           
 
 
 
covering about 94% of industrial emissions in the EU ETS. 

Free  allocation  to  specific  sectors  is  based  on  performance  benchmarks.  The  benchmarks 
reflect  an  average  emissions  intensity  per  unit  of  product  of  the  10%  most  efficient 
installations in each sector. Benchmarks are reduced incrementally to strengthen the incentive 
to decarbonise and advance innovation. In 2021, the Commission updated the values of ETS 
benchmarks29. They apply in the first allocation period in phase 4, 2021-25. 

In  total,  31  out  of  54  benchmarks  have  been  reduced  at  the  maximum  rate  of  24%.  The 
remainder were reduced within a range of 3-24%30. This reflects the progress made by most 
industrial sectors in reducing the emissions intensity per unit of product in recent years. The 
Commission  published a factsheet  to  accompany the  decision, detailing the data processing 
and analysis underpinning the update of benchmarks31. 

As  of  phase  4,  the  volume  of  free  allocation  is  adjusted  based  on  revised  rules32,  when 
changes in industrial production occur. The threshold for adjustments is set at 15% increasing 
or decreasing production. Operators are required to submit yearly reports on production data 
to  national  competent  authorities.  Based  on  these  reports,  adjustments  may  be  made  to  the 
volume of free allocation issued. 

Considering the economic effects of the COVID-19 pandemic, this stringency has led to an 
increase  in  the  number  of  yearly  adjustments  to  the  free  allocation  volume.  About  3 700 
applications were submitted in 2021, three times more than the yearly average in phase 3. 

The initial  volume  of free allocation for 2021-25  had been  set  at  2 791 million  allowances, 
for  7 430  installations.  By  mid-2022,  the  Commission  adopted  five  decisions  to  adjust  the 
volume of free allocation33. As a result, the volume was reduced by 77.5 million allowances. 
In parallel, however, the Commission adopted two decisions34 correcting the initial volume of 
free allocation and adding 3.3 million allowances. This was necessary due to errors found in 
the data submitted by installations and to implement court rulings. 

Factsheet - Update of benchmark values for 2021-2025, phase 4 of the EU ETS, DG Climate Action, 

29 
Commission  Implementing  Regulation  (EU)  2021/447  of  12 March  2021  determining  revised 
benchmark  values  for  free  allocation  of  emission  allowances  for  the  period  from  2021  to  2025  pursuant  to 
Article 10a(2)  of  Directive  2003/87/EC  of  the  European  Parliament  and  of  the  Council,  OJ  L  87,  15.3.2021, 
p. 29. 
30 
The maximum yearly reduction rate of 1.6% applied for a period of 15 years, from 2007-08, when the 
original  data  for  benchmark  calculation  was  obtained,  to  2023,  midway  through  the  first  allocation  period  in 
phase 4. 
31 
12.10.2021. 
32 
Commission Implementing Regulation (EU) 2019/1842 of 31 October 2019 laying down rules for the 
application  of  Directive  2003/87/EC  of  the  European  Parliament  and  of  the  Council  as  regards  further 
arrangements for the adjustments to free allocation of emission allowances due to activity level changes,  OJ L 
282, 4.11.2019, p. 20. 
33 
Liechtenstein, and Norway. 
34 
Liechtenstein, and Norway. 

The  European  Free  Trade  Agreement  Surveillance  Authority  also  adopted  Decisions  for  Iceland, 

The  European  Free  Trade  Agreement  Surveillance  Authority  also  adopted  Decisions  for  Iceland, 

11 

 
 
                                                           
 
Adjustments to the level of free allocation are made from the New Entrants’ Reserve (NER). 
These adjustments also include changes in allocation due to installations opening or closing. 
The initial volume of the NER at the start of phase 4 amounted to 331.3 million allowances. 
This  included  unallocated  allowances  from  phase  3  and  200  million  allowances  from  the 
Market Stability Reserve. 

Table 3 summarises the annual levels of free allocation in the first period of phase 4 (2021-
25) – both initial and adjusted levels. 

Table 3. Free allocation in the first period of phase 4 (2021-25). 

Year 

2021 

2022 

2023 

2024 

2025 

Total 

Initial free 
allocation (EU-
27 + Iceland, 
Liechtenstein, 
and Norway 

Actual free 
allocation 

Adjusted and 
corrected free 
allocation 

559.6 

558.9 

558.2 

557.5 

556.8 

2 791.1 

545.0 

544.1 

543.3 

542.6 

541.9 

2 716.8 

-14.6 

-14.8 

-14.9 

-14.9 

-14.9 

-74.2 

3.3.1.  Derogation from full auctioning for electricity and heat production 

Article 10c  of  the  EU  ETS  Directive  derogates  from  the  general  rule  of  auctioning 
allowances. Eligible Member States35 may give allowances to the electricity and heat sector 
to support investment in modernisation and diversification. The allowances under Article 10c 
are  deducted  from  the  quantity  that  the  Member  State  would  otherwise  auction.  National 
schemes set up to implement the Article 10c derogation, however, need clearance under State 
aid rules and are subject to the requirements set out in the State aid guidelines. 

Transitional free allocation under Article 10c of the EU ETS Directive  remains available in 
phase  4,  but  with  stronger  provisions  on  transparency  and  selection  process.  Alternatively, 
eligible  Member  States  could  have  decided  to  auction  all  or  part  of  their  Article 10c 
allocation or to use it to fund investments under the Modernisation Fund. 

Only  Bulgaria,  Romania,  and  Hungary  continue  to  use  Article 10c  in  phase  4,  but  they  are 
still in the process of drawing up national frameworks to implement this provision. These will 
need to be cleared by the Commission under State aid rules. In the meantime, Bulgaria has 
requested, in line with Article 14f of the Auctioning Regulation, to auction portions of their 
Article 10c allowances set aside for 2021 and 2022. 

35  
Poland, Romania and Slovakia. 

The  eligible  Member  States  include  Bulgaria,  Croatia,  Czechia,  Estonia,  Hungary,  Latvia,  Lithuania, 

12 

 
 
                                                           
Other  Member  States36  eligible  to  use  the  Article 10c  derogation  chose  in  2020  to  either 
auction these allowances or transfer them to the Modernisation Fund. Table 2.5 in Appendix 
2 of the accompanying staff working document shows the total number of allowances in the 
Modernisation Fund per beneficiary Member State for phase 4. 

3.4. Auction revenues 

The auctioning of allowances generates substantial revenues for Member States to spend on 
climate  action,  energy  transformation  and  technological  innovation.  A  higher  carbon  price 
translates  into  higher  revenues.  A  portion  of  allowances  in  phase  4  is  auctioned  for  the 
purpose of provisioning the Innovation and Modernisation Funds. 

The EU ETS Directive requires that Member States should use at least 50% of their auction 
revenues37, and all revenues from aviation, for climate- and energy-related purposes. Member 
States report annually on how they spend their auction revenues. 

Total auction revenues in the 18 months since 2020 (January 2021 – June 2022) amounted to 
EUR 51.7 billion38. In 2021 alone, auctions generated revenues of over EUR 31 billion. This 
means that revenues have nearly doubled since 2020. Of 2021 revenues, EUR 25 billion went 
directly to Member States39. 

On average, Member States reported having spent 76% of auction revenues on climate- and 
energy-related projects  in 2021  (EUR 19.4 billion). This  is  in  line with  the 75% average in 
phase 3. Most revenues were spent on renewable energy (30%) and transport (20%) projects. 
In addition, Member States funded energy efficiency, domestic and international projects, as 
well as research and development. Some 25% was reported to have funded other emissions-
reducing measures. These include measures Member States are implementing to cushion the 
impacts of the energy crisis e.g. tax breaks and social support. A detailed analysis of Member 
States’ reporting on this spending can be found in the Climate Action Progress Report 202240. 

3.4.1.  NER 300 

The  NER  300  funded  by  the  EU  ETS  was  a  large-scale  funding  programme  for  innovative 
low-carbon  energy  demonstration  projects  set  up  for  phase  3.  The  aim  was  to  demonstrate 
environmentally  safe  carbon  capture  and  storage  and  innovative  renewable  energy 
technologies  on a commercial scale.  The programme  pooled resources  from  auctioning 300 
million  allowances  from  the  New  Entrants’  Reserve.  Funding  was  awarded  to  projects 
selected in two rounds of calls for proposals, in December 2012 and July 2014. The projects 
are still being implemented. 

These Member States include Cyprus, Czechia, Estonia, Malta, Latvia, Lithuania, and Poland. 
Including allowances distributed for the purposes of solidarity and growth. 
Revenues generated by Member States, the UK  in respect of Northern Ireland, Iceland, Liechtenstein 

36 
37 
38 
and Norway. 
39 
as well as revenues distributed to Iceland, Liechtenstein, and Norway. 
40 
COM(2022)  514  final  -  Report  from  the  Commission  to  the  European  Parliament,  the  Council,  the 
European  Economic  and  Social  Committee  and  the  Committee  of  the  Regions,  Accelerating  the  transition  to 
climate neutrality for Europe’s security and prosperity, 26.10.22.  

The remaining difference accounts for revenues pooled under the Innovation and Modernisation Funds, 

13 

 
 
                                                           
In  total,  38  renewable  energy  projects  and  one  carbon  capture  and  storage  project  in  20 
Member States were awarded support from the NER 300, amounting to EUR 2.1 billion. By 
30 September  2022,  eleven  projects  came  into  operation.  Three  projects  are  considered 
complete: the bioenergy project BEST in Italy, the onshore wind project Windpark Blaiken in 
Sweden and the bioenergy project Verbiostraw in Germany. The remaining projects are still 
monitored  under  the  programme:  the  onshore  wind  project  Windpark  Handalm  in  Austria, 
offshore wind projects Veja Mate and Nordsee One in Germany, the smart grid project Puglia 
Active Network in Italy, floating offshore wind projects Vertimed in France and Windfloat in 
Portugal,  the  concentrated  solar  power  project  Minos  in  Greece  and  the  bioenergy  project 
TORR in Estonia. 

Due to difficulties in securing co-financing (private- or public-sector) as well as challenging 
economic and policy conditions, 28 projects were unable to raise sufficient additional funding 
and  had  to  be  withdrawn  from  the  programme.  As  a  result,  over  EUR 1.6  billion  became 
available. 

Unspent funds from the NER 300 are being reallocated. Funds unspent in the first round of 
calls  for  proposals  (currently  EUR 724.8  million)  are  reinvested  under  existing  financial 
instruments  managed  by  the  European  Investment  Bank41.  Under  the  InnovFin  Energy 
Demonstration  Projects  (InnovFin  EDP),  projects  must  be  signed  off  by  the  end  of  2022. 
Under  both  the  InnovFin  Energy  financial  advisory  support  and  the  Connecting  Europe 
Facility Debt Instrument (CEF DI), projects must be signed off by the end of 2023. 

Table 2.4. in Annex 2 to the accompanying staff working document provides further details 
on the projects supported under the InnovFin EDP and CEF DI since June 2020.  

The  blending  mechanism  put  in  place  is  already  proving  effective.  For  example,  under  the 
InnovFin  Energy  financial  advisory  support,  ten  projects  have  already  been  completed  and 
more are being implemented. These are mainly renewable energy (ocean, concentrated solar 
and hydrogen) as well as carbon capture and use/storage projects. 

The  remaining  unspent  funds  from  NER  300  are  channelled  to  the  Innovation  Fund.  This 
includes  unspent  funds  from  the  second  round  of  calls  for  proposals  and  funds  returned  by 
Member States due to project failure. So far, EUR 770.2 million has been transferred to the 
Innovation Fund. 

3.4.2.  Innovation Fund 

The  Innovation  Fund  under  the  EU  ETS  aims  to  finance  the  commercial  demonstration  of 
innovative low-carbon technologies and industrial solutions to decarbonise Europe’s energy-
intensive  industries,  as  well  as  the  development  of  renewable  energy,  energy  storage,  and 
carbon capture use and storage. For the period 2020-30, the fund is estimated to pool about 

41 
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,  OJ  L  306, 
22.11.2017, p. 24. 

14 

 
 
                                                           
EUR 33.8 billion42 from auctioning 450 million allowances. This makes it one of the largest 
grant funding programmes in the world, funded 100% by the EU ETS. 

Since  2020,  the  Commission  together  with  the  European  Climate,  Infrastructure  and 
Environment  Executive  Agency  (CINEA)  has  launched  four  calls  for  proposals  under  the 
Innovation Fund. Two of these calls for proposals were completed in 2021. 

Under  the  first  call  for  large-scale  projects43,  seven  proposals  in  six  Member  States  were 
awarded grants44. In total, EUR 1 145 million in support was granted to projects in different 
ETS sectors, namely chemicals, steel, cement, refineries, and power and heat. Under the first 
call  for  small-scale  proposals45,  30  projects  received  grants  for  a  total  volume  of  EUR 109 
million. They will contribute to action on decarbonisation in 11 Member States46 plus Iceland 
and  Norway.  Altogether,  the  projects  aim  to  reduce  emissions  by  77.4  Mt  CO2eq  over  the 
first ten years of their operation. These reductions are expected to begin taking effect already 
in 2023 with the first projects coming into operation.  

In July 2022, 17 projects were pre-selected for grant agreement preparation under the second 
call for large-scale proposals. A total of EUR 1.8 billion will fund innovation in the cement, 
hydrogen, chemicals, manufacturing sectors and others, advancing action on decarbonisation 
in nine ETS countries47. On 31 August 2022, the second call for small-scale projects closed, 
with 66 proposals received and the evaluation still ongoing. 

In parallel, 25 unsuccessful projects from the first two calls (both large- and small-scale) have 
been  selected  for  project  development  assistance  under  the  Innovation  Fund.  This  support 
amounts to EUR 6.1 million and is provided by the European Investment Bank. 

On  3  November  2022,  the  third  call  for  large-scale  projects  was  launched48,  with  an 
unprecedented budget of EUR 3 billion. It will focus specifically on project fields linked to 
the  EU’s  REPowerEU  Plan49  –  hydrogen  and  electrification,  clean-tech  manufacturing  and 
mid-size pilots. 

The Commission separately reports in more detail on implementation of the Innovation Fund. 
The first Progress Report50 was adopted on 26 August 2022. 

The  projects  will  contribute  to  decarbonisation  efforts  of  seven  Member  States  (Bulgaria,  Finland, 

The total budget estimated based on the carbon price of EUR 75 per tonne. 
Overview of the first call for large-scale project proposals & next steps, DG Climate Action, 30.6.2022. 
The projects are located in Belgium, Finland, France, Italy, Spain and Sweden. 
Overview of the first call for small-scale project proposals, DG Climate Action, 30.6.2022. 
The  projects  will  contribute  to  decarbonisation  efforts  of  Austria,  Croatia,  France,  Germany,  Ireland, 

42 
43 
44 
45 
46 
Italy, Netherlands, Poland, Portugal, Spain, and Sweden. 
47 
France, Germany, the Netherlands, Poland, and Sweden), plus Iceland and Norway. 
48  
Third call for large-scale projects, DG Climate Action, 3.11.2022. 
49 
COM/2022/230  final  -  Communication  from  the  Commission  to  the  European  Parliament,  the 
European  Council,  the  Council,  the  European  Economic  and  Social  Committee,  and  the  Committee  of  the 
Regions, REPowerEU Plan, 18.5.2022. 
50 
COM(2022) 416 final - Report from the Commission to the European Parliament and the Council on 
the  implementation of the Innovation Fund, including the  review referred to in  Article 24 of Regulation (EU) 
No 1031/2010, 26.8.2022. 

15 

 
 
                                                           
3.4.3.  Modernisation Fund 

The Modernisation Fund under the EU ETS is one of the system’s solidarity mechanisms – it 
supports  decarbonisation  investments  in  ten  lower-income  Member  States51.  In  the  period 
2021-30,  it  is  expected  to  pool  some  EUR 48.2  billion52  from  auctioning  over  643  million 
allowances53. At least  70% of these  resources should support priority investments  that help 
the beneficiary Member States’ advance their transition to climate neutrality. 

The  fund  became  operational  in  January  2021  and  most  beneficiary  Member  States  have 
since begun implementing it domestically. A total of EUR 3.3 billion from the fund has been 
made  available  to  Croatia,  Czechia,  Estonia,  Hungary,  Lithuania,  Poland,  Romania  and 
Slovakia.  These  resources  cover  71  investments,  including  energy  efficiency  improvements 
across  different  sectors  (Lithuania,  Poland),  photovoltaic  installations  (Czechia,  Romania), 
energy storage (Hungary) and the modernisation of power grids (Slovakia). 

The first series of reports on implementation of the Modernisation Fund is already available. 
This includes the Annual Report of the Investment Committee54 and Member States’ national 
reporting55. 

3.4.4.  Compensation of indirect carbon costs 

Member States can grant State aid to compensate some energy-intensive industries for carbon 
costs arising from indirect  emissions, specifically  from high electricity  prices due to  power 
generators  passing  on  the  cost  of  buying  allowances  to  consumers.  To  harmonise 
implementation  of  indirect  carbon  cost  compensation  between  Member  States  and  to 
minimise  competition  distortions  on  the  internal  market,  the  Commission  adopted  the  EU 
ETS  State  aid  guidelines.  These  guidelines  first  applied  to  the  indirect  costs  incurred  from 
2013 to 202056. The guidelines were revised in 2020 to cover the period 2021-203057. 

In 2021, Member States paid out compensation for indirect costs incurred by installations in 
2020. These still fall under the previous State aid guidelines. Data on the compensation for 
indirect costs incurred in 2021 is not available yet. Most Member States that chose to start or 
continue compensating for indirect costs beyond 2021 have already notified their schemes to 
the  Commission  and  received  State  aid  clearance  under  the  revised  guidelines.  Next  year’s 

The  beneficiary  Member  States  include  Bulgaria,  Croatia,  Czechia,  Estonia,  Hungary,  Latvia, 

51 
Lithuania, Poland, Romania and Slovakia. 
52 
The total budget estimated based on the carbon price of EUR 75 per tonne. 
53 
This  number  includes  allowances  transferred  to  the  Modernisation  Fund  by  the  Member  States  from 
their  respective  pools  under  Articles  10(2b)  and  10c  of  the  EU  ETS  Directive  –  the  other  EU  ETS  solidarity 
mechanisms. The initial volume of the Modernisation Fund amounts to nearly 276 million allowances. 
54 
55 
30.6.2022. 
56 
trading scheme post 2012, OJ C 158, 5.6.2012, p. 4. 
57 
allowances trading scheme post 2021, OJ C 317, 25.9.2020, p. 5. 

Modernisation Fund – Investment Committee Annual Report 2021, DG Climate Action, 15.3.2022. 
Modernisation  Fund  –  Beneficiary  Member  States’  2021  annual  reports,  DG  Climate  Action, 

Guidelines  on  certain  State  aid  measures  in  the  context  of  the  greenhouse  gas  emission  allowances 

Guidelines  on  certain  State  aid  measures  in  the  context  of  the  system  for  greenhouse  gas  emission 

16 

 
 
                                                           
report  will  be  the  first  that  documents  indirect  cost  compensation  paid  out  under  the  new 
guidelines. 

As the carbon price increased, so did indirect costs. As a result, more Member States chose to 
compensate for indirect costs. In 2021, Czechia and Italy paid out compensation for the first 
time, bringing the total number of Member States with compensation schemes to 14. 

Within  three  months  of  the  end  of  each  year,  Member  States  with  an  indirect  cost 
compensation  scheme  in  place  are  required  to  publish  the  total  compensation  paid  out, 
including  a  breakdown  per  recipient  sector  and  subsector.  Table  4  summarises  the  data 
published by the Member States on the compensation paid in 2021 (for indirect costs incurred 
in 2020). Compensation amounts are also compared with 2020 auction revenues58. 

Table 4. Compensation paid out in 2021 for indirect costs incurred in 2020. 

Member 
State 

BE (FL) 

BE (WL) 

CZ 

DE 

EL 

ES 

FI 

FR 

IT 

LT 

LU 

NL 

PL 

RO 

SK 

Compensation paid out 
for indirect costs 
incurred in 2020  
[million EUR] 

Number of 
recipients 

Auction revenues 
in 2020  
[million EUR] 

Share of auction 
revenues spent on 
indirect cost 
compensation 

137.1 

20.0 

41.5 

833.0 

68.3 

179.0 

106.3 

391.0 

90.0 

1.0 

15.9 

172.2 

183.3 

131.8 

11.0 

108 

34 

30 

893 

50 

210 

59 

325 

187 

1 

3 

92 

70 

43 

10 

353.0 

718.1 

2 641.8 

501.2 

1 222.3 

218.2 

714.7 

1 274.6 

86.3 

16.8 

437.3 

3 155.4 

801.3 

241.9 

44.5% 

5.8% 

31.5% 

13.6% 

14.6% 

48.7% 

54.7% 

7.1% 

1.2% 

94.9% 

39.4% 

5.8% 

16.4% 

4.6% 

The total indirect cost compensation paid out by the 14 Member States in 2021 amounted to 
some EUR 2.38 billion. This is almost EUR 1 billion more than in 202059. This is mostly due 
to the increase in the carbon price used to calculate compensations. The carbon price used for 
2021 was EUR 25.20, up from EUR 16.15 used for 2019. Most schemes do not have a fixed 
budget but compensate up to a maximum dictated by the incurred indirect carbon cost and the 

58 
59 

Excluding revenues from auctioning aviation allowances. 
In 2020, Member States paid out compensation for indirect costs incurred in 2019. 

17 

 
 
                                                           
limits set by the State Aid Guidelines. Generally, Member States that do not have a fixed cap 
on disbursement, such as Lithuania or Slovakia, pay out less compensation. 

The indirect  cost  compensation increased also  in  relative terms.  The total  compensation for 
indirect costs incurred in 2020 constituted 19.2% of 2020 auction revenues collected  by the 
14  Member  States.  In  2021,  they  spent  on  average  27.3%  of  their  auction  revenues  to 
compensate for indirect carbon costs. 

Member  States  that  spend  more  than  25%  of  their  auction  revenues  on  indirect  cost 
compensation in any year also are required to publish a report explaining why they exceeded 
this threshold. In 2021, six Member States spent more than 25% of their auction revenues on 
indirect  cost  compensation:  Luxembourg,  Finland,  France,  Belgium,  the  Netherlands  and 
Germany. This was mainly due to the carbon price increase (and thus indirect costs incurred) 
being  relatively  higher  than  the  increase  in  auction  revenues,  with  the  Market  Stability 
Reserve  still  reducing  auction  volumes.  The  share  of  emissions  from  energy-intensive 
industries  in  some  of  the  14  Member  States  also  increased  compared  with  their  historical 
emissions that form the basis for calculating their auction shares. 

3.5. Emission reductions in the EU ETS 

In  2021,  emissions  from  stationary  installations  amounted  to  1 335  million  tonnes  CO2eq. 
This was 6.6% higher than in 2020, but still 5.6% lower than in 201960. 

To  date,  emission  reductions  from  stationary  installations  have  been  driven  mostly  by  the 
power sector (electricity and heat generation, including part of the industrial heat). In 2021, 
however,  the  power  sector  saw  8.4%  increase  in  emissions.  This  was  mainly  due  to  higher 
electricity  demand  in  the  context  of  the  economic  recovery  after  the  COVID-19  pandemic 
and an increased use of coal caused by a rise in fossil fuel prices. Nevertheless, overall power 
sector  emissions  in  2021  were  still  8.1%  below  2019  levels,  for  a  very  similar  level  of 
electricity demand in these two years. 

Emissions  from  industrial  installations  also  increased  in  2021  by  4.6%  compared  to  2020. 
High increases  were observed in  most sectors, including iron and steel  and chemicals. This 
was  triggered  by  the  economic  recovery  after  the  pandemic,  marked  by  a  5.3%  increase  in 
EU-27 GDP  between 2020 and 2021. Nonetheless, industrial  emissions in  2021 were 2.6% 
lower than in 2019 despite the total levels of industrial production in both years  being very 
similar61. 

Table 5 documents the trend in ETS emissions from stationary installations since 2013. 

In both cases, the comparison was made with the adjusted 2020 and 2019 verified emissions, excluding 

60 
the UK except for electricity generators in Northern Ireland. 
61  

Industrial production statistics, Eurostat, August 2022.  

18 

 
 
 
 
                                                           
Table 5. Verified emissions from stationary installations. 

Year 

2013 

2014 

2015 

2016 

2017 

2018 

2019 

2020 

202162 

Verified 
emissions 
from 
stationary 
installations 

Change 
year-on-
year 

Verified 
emissions 
from 
electricity 
and 
generation 

heat 

Change 
year-on-
year 

Verified 
emissions 
from 
industrial 
production 

Change 
year-on-
year 

1 908 

1 814 

1 803 

1 751 

1 755 

1 683 

1 530 

1 356 

1 335 

- 

-4.9% 

-0.6% 

-2.9% 

0.2% 

-4.1% 

-9.1% 

-11.4% 

6.6% 

1 191 

1 100 

1 091 

1 046 

1 036 

964 

822 

696 

707 

- 

-7.7% 

-0.8% 

-4.1% 

-1.0% 

-7.0% 

-14.7% 

-15.3% 

8.4% 

717 

714 

712 

705 

719 

719 

708 

659 

631 

- 

-0.4% 

-0.3% 

-1.0% 

2.0% 

0.1% 

-1.6% 

-6.9% 

4.6% 

Figure 3 demonstrates the trend in ETS emissions by fuel type in 2021 compared to phase 3 
of the EU ETS. 

The  main  energy  sources  in  the  EU  ETS  in  2021  included  hard  coal,  lignite  (and  sub-
bituminous  coal)  and  natural  gas.  In  previous  years,  the  share  of  natural  gas  has  been 
gradually increasing, substituting hard coal, and to a lesser extent, lignite. In 2021, however, 
the share of emissions from hard coal increased by 3.4% compared to 2020. In parallel, the 
shares of both lignite and natural gas decreased. This was linked to the rising prices of fossil 
fuels. 

62 
generators in Northern Ireland are included. 

As  of  2021,  the  EU ETS  no  longer  includes  emissions  from  the  UK,  only  emissions  from  electricity 

19 

 
 
                                                           
120%

100%

80%

60%

40%

20%

0%

8,2%

7,9%

4,0%
5,2%

8,8%
5,4%

4,4%
7,1%

8,9%
5,3%

4,0%
8,0%

9,3%

5,9%

4,0%
7,9%

9,5% 11,2% 13,3% 13,7% 15,8%
5,8%
6,4%
6,4%

6,7%

6,8%

4,2%
8,2%

4,3%
8,1%

4,5%
8,7%

3,9%
8,4%

4,4%
7,5%

23,3% 27,2% 27,1% 26,0% 26,3% 26,4% 24,1% 23,3% 23,0%

23,8% 22,3% 22,5% 26,1% 27,6% 27,8% 33,7% 34,8% 32,7%

28,6% 27,1% 26,5% 23,6% 20,9% 20,1% 16,2% 15,6% 19,0%

2013

2014

2015

2016

2017

2018

2019

2020

2021

Zero rated biomass

Other fossil fuels˟

LPG

Peat

Coke oven gas

Petroleum coke

Coke

Fuel oil

Blast furnace gas

Refinery gas

Lignite

Natural gas

Hard coal

Figure 3. Emissions by fuel type as shares of annual fossil fuel emissions. Fossil fuels together add up 
to 100%, biomass comes on top of that. Labels not shown if fuel never exceeds 3% of the total, * = not 
covered by the other specified fuels. 

In  total,  2  153  installations  were  reported  to  have  used  biomass  in  2021.  This  represents 
24.6% of all reporting installations in the EU ETS, up from 22.5% in 2020. Emissions differ 
per  fuel  type,  however,  emissions  for  which  allowances  had  to  be  surrendered  would  have 
been  15.8%  higher  if  the  emissions  from  zero-rated  biomass  were  counted  as  fossil 
emissions. 

From  1 January  202363,  new  sustainability  and  emissions  savings  criteria  under  the 
Renewable  Energy  Directive64  apply  to  emissions  from  zero-rated  biomass  in  the  EU  ETS. 
They include stricter criteria on biofuels and bioliquids and new criteria for solid and gaseous 
biomass. 

Biomass fuels that meet the applicable sustainability criteria or that are not covered by these 
criteria  can  be  considered  zero-rated.  This  means  that  their  CO2  emissions  do  not  count  as 
fossil  CO2.  Operators  do  not  need  to  surrender  ETS  allowances  for  these  zero-rated 
emissions. Therefore, in Figure 3, the zero-rated biomass emissions are shown on top of the 
fossil fuel emissions. 

Figure 4 demonstrates how zero-rated emissions from biomass are split between Category A, 
B,  and  C  installations  in  the  EU  ETS.  The  split  excludes  the  absorption  phase  and  the  net 
value of emissions. The zero-rated emissions from biomass increased clearly, from 142 Mt in 
2020 to 172 Mt in 2021. 

63 
Article 38(6)  of  the  Monitoring  and  Reporting  Regulation.  As  above,  Regulation  (EU)  2018/2066 
amended in 2020 by Regulation (EU) 2020/2085 and in 2022 by Regulation (EU) 2022/388. See  consolidated 
version. 
64 
promotion of the use of energy from renewable sources (recast), OJ L 328, 21.12.2018, p. 82. 

Directive (EU) 2018/2001 of the European Parliament and of the Council of 11 December 2018 on the 

20 

 
 
 
                                                           
Emissions  from  non-zero-rated  biomass  remained  minimal  at  around  1.5  Mt  CO2eq, 
accounting for just over 0.1% of total ETS emissions from stationary installations. Whilst this 
is  almost  the  same  share  as  in  2020,  it  is  expected  to  increase  due  to  the  requirements  for 
zero-rated biomass becoming stricter, particularly after 2023. Until 1 January 2023, national 
authorities  may  allow 
to  zero-rate  emissions  from  biomass  without 
demonstrating compliance with the Renewable Energy Directive II criteria for sustainability 
and emissions savings. 

installations 

)

2

O
C

t

M

(

s
n
o
i
s
s
i
m
e

s
s
a
m
o
i
B

250

200

150

100

50

0

120.0 Mt 125.6 Mt

122.5 Mt

123.5 Mt

127.6 Mt

26,98 

27,43 

28,85 

25,90 

26,61 

49,32 

46,01 

45,05 

47,03 

51,62 

143.2 Mt

150.3 Mt

30,46 

53,43 

32,70 

51,96 

172.4 Mt

141.9 Mt

24,60 

21,66 

48,48 

58,34 

60,88 

62,97 

64,75 

66,53 

65,43 

76,97 

84,13 

71,87 

89,42 

2 0 1 3

2 0 1 4

2 0 1 5

2 0 1 6

2 0 1 7

2 0 1 8

2 0 1 9

2 0 2 0

2 0 2 1

CatA

CatB

CatC

Total for current EU ETS countries

Figure  4.  Emissions  originating  from  zero-rated  biomass  in  2021  compared  to  phase  3  (2013-20). 
Emissions are presented in million tonnes CO2eq. 

3.6. Balancing supply and demand 

At the start of phase 3 in 2013, the EU ETS was characterised by a high structural imbalance 
between  the  supply  of  allowances  and  demand.  The  carbon  market  had  a  surplus  of  2.1 
billion  allowances.  The  Commission  has  taken  both  short-  and  long-term  action  to  remedy 
this  imbalance.  As  a  short-term  measure,  the  Commission  postponed  the  auctioning  of  900 
million allowances from 2014-16 to 2019-20. As a long-term solution, it created the Market 
Stability Reserve (MSR) in 2015. 

The MSR adjusts auction volumes according to pre-defined thresholds of the total number of 
allowances  in  circulation  (TNAC).  This  fosters  balance  and  resilience  in  the  EU  carbon 
market.  The  MSR  began  operating  in  2019,  withdrawing  allowances  from  circulation  by 
reducing Member States’ auction volumes every year since. The 900 million allowances for 
which auctioning had been initially postponed were also placed in the reserve. 

In 2021,  emissions increased compared to  2020, though remaining below the pre-pandemic 
2019  level.  This  resulted  in  a  surplus  of  1 449  million  allowances  –  less  than  in  2020,  but 
slightly more than in 2019. Figure 1 illustrates the surplus of allowances in the EU ETS since 
2013. 

21 

 
 
 
 
 
 
 
2,08

2,09

1,82

1,68

1,65

1,65

1,58

1,45

1,39

]
s
n
o
i
l
l
i
b
[

s
e
c
n
a
w
o
l
l

A

2,5

2,0

1,5

1,0

0,5

0,0

2013

2014

2015

2016

2017

2018

2019

2020

2021

Figure 5. Surplus of allowances in the EU ETS (2013-21). 

Since mid-May 2017, the Commission regularly publishes the TNAC for the preceding year. 
In  May  2022,  the  Commission  published  the  sixth  edition  of  the  TNAC65,  which  totalled 
1 449  214 182  allowances.  Once  again,  due  to  the  surplus  exceeding  the  pre-defined 
threshold, allowances were placed in the MSR, thus reducing auction volumes for 2022 and 
2023. 

With  this,  the  MSR  reduced  the  auction  volumes  by  nearly  350  million  allowances  from 
September  2022  to  August  2023.  Table  3.1  in  Appendix  3  of  the  staff  working  document 
accompanying this report outlines MSR contributions by ETS country in 2022. 

In  2021,  the  Commission  carried  out  the  first  review  of  the  MSR  as  part  of  the  broader 
initiative  to  deliver  on  the  European  Green  Deal66.  The  review  showed  that  the  MSR  has 
functioned well, fulfilling its purpose. It has helped reduce the surplus and provide a robust 
carbon  price  signal,  even  during  the  COVID-19  pandemic.  Since  2019,  over  1.4  billion 
allowances  have  been  put  into  the  reserve.  Each  year,  24%  of  the  previous  year’s  surplus 
allowances were placed in the reserve, as were 887 million allowances unallocated in 2013-
20. 

In  the  first  review,  the  Commission  proposed  that  the  MSR  should  continue  to  address  the 
imbalance  built  up  in  the  EU  carbon  market  as  well  as  to  respond  to  any  demand  shocks 
(such as the one caused by the COVID-19 pandemic). To this end, the Commission proposed 
maintaining the intake rate of 24% and adjusting the reserve’s operational parameters. 

65 
Corrigendum to Communication from the Commission - Publication of the total number of allowances 
in circulation in 2021 for the purposes of the Market Stability Reserve under the EU Emissions Trading System 
established by Directive 2003/87/EC and of the number of unallocated allowances during the period 2013-2020, 
OJ C 272, 15.7.2022, p. 25. 
66 
COM/2021/571  final  -  Proposal  for  a  Decision  of  the  European  Parliament  and  of  the  Council 
amending  Decision  (EU)  2015/1814  as  regards  the  volume  of  allowances  to  be  placed  in  the  market  stability 
reserve for the Union greenhouse gas emission trading scheme until 2030, 14.7.2022. 

22 

 
 
 
                                                           
 
4.  Aviation 

The  EU  ETS  regulates  emissions  from  the  aviation  sector  since  2012.  Legally,  the  system 
covers all outgoing flights and, unless exempt, all incoming flights to the European Economic 
Area (EEA). In 2013, however, the EU temporarily limited ETS obligations to flights within 
the  EEA  to  support  the  development  of  a  global  market-based  measure  to  reduce  aviation 
emissions  by  the  International  Civil  Aviation  Organisation  (ICAO)67.  This  decision  was 
subsequently twice extended until 2023. 

As  of  1 January  2020,  the  EU  ETS  also  covers  emissions  from  outgoing  flights  to 
Switzerland68.  The  Swiss  ETS  in  turn  applies  to  flights  departing  to  EEA  airports.  This 
ensures a level playing field on both directions of routes.  

As of 1 January 2021, the EU ETS continues to apply to  outgoing flights to the UK, whilst 
the UK ETS applies to flights departing to EEA airports.  This maintains the carbon pricing 
coverage of aviation emissions despite the UK’s departure from the EU. 

In 2021, 28.3 million aviation allowances were issued in line with the updated scope of the 
EU  ETS.  Free  allocation  amounted  to  slightly  over  24  million  allowances.  In  addition, 
aircraft  operators  administered  by  national  administrators  in  the  EEA  received  about  0.5 
million  Swiss  aviation  allowances  for  free  under  the  Swiss  ETS.  In  comparison, 
approximately  3.8  million  aviation  allowances  were  auctioned  in  2021.  As  of  2021,  the 
aviation cap is set to decrease at a rate of 2.2% per year. 

Aviation emissions had reached an all-time high in 2019, only to fall sharply in 2020 due to 
the COVID-19 pandemic and the related travel restrictions. In 2021, emissions from aircraft 
operators amounted to 27.9 million tonnes CO2eq (including around 0.3 million tonnes under 
the Swiss ETS). This is approximately 30% more than in 2020, but still 50% less than before 
the pandemic in 2019. It is important to note here that this comparison is made using adjusted 
values of 2020 and 2019 emissions to account for the changed aviation scope of the EU ETS 
as of 202169. This adjustment excludes flights incoming from the UK. 

Table  6  sets  out  volumes  of  allowances  allocated  for  free  and  auctioned  in  the  aviation 
sectors, along with the volume of verified emissions from aircraft operators. 

67 
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, OJ L 113, 25.4.2013, p. 1. 
68 
greenhouse gas emissions trading systems, OJ L 322, 7.12.2017, p. 3. 
69 
2019. 

Agreement  between  the  European  Union  and  the  Swiss  Confederation  on  the  linking  of  their 

Adjusted verified emissions, excluding flights incoming from the UK: 21.5 Mt in 2020 and 55.8 Mt in 

23 

 
 
 
 
                                                           
Table 6. Aircraft operators - verified emissions, free allocation and allowances auctioned. 

Year 

2013 

2014 

2015 

2016 

2017 

2018 

2019 

2020 

2021 

Verified 
emissions 
(million tonnes 
CO2eq) 

Change year-on-
year  

Free allocation 
(EU27 + Iceland. 
Liechtenstein. 
and Norway + 
UK + 
Switzerland)71,72 

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

Volumes of 
allowances 
auctioned76 

53.5 

54.8 

57.1 

61.5 

64.4 

67.5 

68.2 

25.2 

27.9 

- 

2.5% 

4.1% 

7.7% 

4.8% 

4.8% 

1% 

-63% 

30%70 

32.4 

32.4 

32.1 

32.0 

33.1 

31.3 

31.373 

32.574 

24.075 

0 

0 

0 

0 

1.1 

1.1 

1.0 

0.8 

0.3 

0 

9.3 

16.4 

6.0 

4.7 

5.6 

5.5 

9.2 

3.8 

The ICAO Assembly adopted a resolution on Carbon Offsetting and Reduction Scheme for 
International  Aviation  (CORSIA)  in  October  2016.  Its  main  objective  is  to  offset  CO2 
emissions  from  international  aviation  above  a  certain  baseline.  The  scheme  launched 

70 
Considering the changed aviation scope of the EU ETS (no longer covering arriving flights from UK). 
71 
Switzerland included in 2020 and 2021 data only. 
72 
These numbers do not take into account all closures of aircraft operators and free allowances from the 
special  reserve  for new  entrants  and  fast-growing  operators,  nor  returns  in  2012  due  to  the  scope  change. 
Sources: EUTL, DG Climate Action. 
73 
Taking into account the numbers withheld due to closures of aircraft operators, the real allocation for 
2019  would  be  4  million  below  the  figure  provided  (see  Footnote  8  in  Notice  C/2020/8643,  OJ  C  428, 
11.12.2020, p. 1). The allocation for the UK (4.31 million allowances of the total for 2019) suspended in 2019 
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, resumed in 2020. 
74 
the UK, in accordance with the Withdrawal Agreement. 
75 
Taking into account change of emission scope (no longer covering arriving flights from UK). 
76 
The volumes of aviation allowances auctioned over the period 2013-15 reflect the decision to ‘stop the 
clock’  and  limit  the  ETS  obligation  for  the  aviation  sector  to  flights  only  within  the  EEA  (Decision 
377/2013/EU). Compliance for the aviation sector was postponed for 2013 (Regulation 421/2014). For aviation 
emissions in 2013 and 2014, compliance took place between January and April 2015. 

This number takes into account departing flights from EEA to Switzerland, and between the EEA and 

-  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, OJ L 113, 25.4.2013, p. 1 

-  Regulation (EU) No 421/2014 of the European Parliament and of the Council of 16 April 2014,  OJ L 

129, 30.4.2014, p. 1. 

24 

 
 
                                                           
officially  in  2021  and  is  explicitly  voluntary  until  2026.  It  is  not  yet  clear  if  all  obliged 
countries will apply it thereafter – some have filed reservations regarding the scheme (e.g. 
China).  It  was  in  view  of  the  CORSIA  resolution  that  the  limitation  to  intra-European 
scope of the EU ETS for aviation had been extended until the end of 2023. 

Under CORSIA, participating states should oblige airlines based in those countries to offset 
their emissions above a baseline initially defined as the average of 2019 and 2020 levels by 
purchasing  and  cancelling  international  credits.  In  October  2021,  the  ICAO  Assembly 
decided to change the scheme’s baseline for the period 2024-35 to 85% of 2019 emissions.  

As  part  of  the  policy  package  to  deliver  the  European  Green  Deal,  the  Commission 
proposed  a  reform  of  the  EU  ETS  for  aviation77,78.  The  proposal  aims  to  implement 
CORSIA  into  EU  law  in  a  way  that  is  consistent  with  the  EU’s  economy-wide  2030 
climate  target  and  increasing  climate  action  over  time.  To  this  end,  the  Commission 
proposed to maintain the EU ETS framework and price signal for flights within the EEA, 
and to apply the CORSIA scheme, as appropriate, to extra-EEA flights. 

The  overall  impact  of  global  aviation  on  climate  is  considerably  higher  than  the  CO2 
component alone, which the EU ETS currently regulates. The total impacts of aviation are 
estimated to be 2-4 times that of CO2 emissions when the non-CO2 effects are considered79. 
Addressing these emissions is relevant as the Intergovernmental Panel on Climate Change 
(IPCC)  has  singled  out  international  aviation  (and  shipping),  in  its  Sixth  Assessment 
Report on mitigation of  climate change80,  as sectors with  climate goals  that fall short of 
what  would  be  required  to  curb  global  temperature  increase  in  line  with  the  Paris 
Agreement. 

5.  Market oversight 

The  EU  carbon  market  is  governed  by  a  robust  framework  of  market  oversight  rules.  Both 
spot and derivatives in emissions allowances are classified as financial instruments under the 
Directive on Markets in Financial Instruments81 (MiFID). This classification is also reflected 
in  secondary  legislation,  including  the  Auctioning  Regulation82,  which  governs  the  primary 

77  
COM/2021/552  final  -  Proposal  for  a  Directive  of  the  European  Parliament  and  of  the  Council 
amending  Directive  2003/87/EC  as  regards  aviation's  contribution  to  the  Union’s  economy-wide  emission 
reduction target and appropriately implementing a global market-based measure. 
78 
COM/2021/567  final  -  Proposal  for  a  Decision  of  the  European  Parliament  and  of  the  Council 
amending  Directive  2003/87/EC  as  regards  the  notification  of  offsetting  in  respect  of  a  global  market-based 
measure for aircraft operators based in the Union. 
79  
COM/2020/747  final  -  Report  from  the  Commission  to  the  European  Parliament  and  the  Council, 
Updated  analysis  of  the  non-CO2  climate  impacts  of  aviation  and  potential  policy  measures  pursuant  to  EU 
Emissions Trading System Directive Article 30(4), 23.11.2020 
80  
contribution to the Sixth Assessment Report. 
81 
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. 
82 
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 

IPCC  (2022),  Mitigation  of  Climate  Change  –  Summary  for  Policymakers,  Working  Group  III 

25 

 
 
                                                           
market  (auctions  of  allowances).  Altogether,  trading  on  the  EU  carbon  market  is  subject  to 
the same regulatory regime as EU financial markets. 

Supervision  of  the  EU  carbon  market  is  shared  between  the  financial  authorities  of  all  27 
Member  States83  coordinated  by  the  European  regulator,  European  Securities  and  Markets 
Authority (ESMA). They monitor market participants’ behaviour through extensive reporting 
and  transparency  requirements.  In  addition,  the  Market  Abuse  Regulation84  obliges  market 
participants to report suspicious orders and transactions instantly. In turn, national authorities 
have the power to respond with remedial action or penalties if they identify market abuse. 

Financial supervision rules safeguard the integrity and transparency of the EU carbon market. 
The  established  framework  has  worked  well.  Nevertheless,  with  the  price  of  carbon 
increasing in 2021, some stakeholders have made allegations of excessive price speculation. 
To look into these concerns, the Commission tasked ESMA with analysing trading behaviour 
on the EU carbon market85. 

Following  the  preliminary  assessment86,  ESMA  published  the  final  report  on  emissions 
allowances and associated derivatives in March 202287. It is one of the most comprehensive 
assessments  of  the  EU  carbon  market  since  its  start  in  2005,  using  data  collected  directly 
from  financial  market  supervisors.  It  also  proposes  policy  recommendations  to  improve 
market’s functioning. Chiefly, the report concludes that the carbon market functions properly 
and that the observed price movements are in line with market fundamentals. This conclusion 
was  also  confirmed  independently  by  the  European  Central  Bank,  which  published  its 
analysis in April 202288. 

5.1. Findings of the ESMA report 

The carbon price increased in the course of 2021 and the first half of 2022. The ESMA report 
confirms that this evolution and the associated volatility are in line with market fundamentals. 
Whilst many factors can influence the price of allowances, ESMA agrees with most analysts 
on the key factors behind the price increase in 2021/22. 

Namely, demand for allowances has increased, first as a result of the economic recovery after 
the  COVID-19  pandemic  and  then  due  to  the  shift  from  natural  gas  to  other  fossil  fuels, 
prompted by rising gas prices. Moreover, the market is already  anticipating the adoption of 

The list of national competent authorities responsible under the Market Abuse Regulation can be found 

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. 
83 
on ESMA’s webpage. 
84 
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,  OJ  L  173,  12.6.2014, 
p. 1. 
85 
86 
87 
88 
in EU emissions allowance prices, ECB Economic Bulletin, Issue 3/2022. 

As before, COM/2021/660 final. 
ESMA70-445-7, ESMA Preliminary report on emission allowances, 11.11.2021. 
ESMA70-445-38, ESMA Final report on emission allowances, 28.3.2022. 
Ampudia, M., Bua, G., Kapp, D. and Salakhova, D., The role of speculation during the recent increase 

26 

 
 
                                                                                                                                                                                     
policy  reforms  under  the  proposed  legislative  package  to  deliver  the  European  Green  Deal, 
which will result in a tighter supply of allowances in the future, among other effects. 

Also  in  the  short  term,  the  EU  carbon  market  has  reacted  to  sudden  shocks  such  as  the 
COVID-19 pandemic and the associated economic effects, as well as the war in Ukraine and 
the related energy crisis. 

The ESMA report finds no major anomalies in the functioning of the market from a financial 
supervisory  perspective.  Both  the  primary  market  and  the  secondary  markets  of  derivative 
contracts broadly function as intended. Most of the trading takes place on secondary markets 
through  derivative  contracts  (90%  of  volumes).  These  contracts  enable  compliance  entities 
and other non-financials (commercial entities) to hedge their price risk. 

The report does not find evidence either of excessive price speculation by financial entities to 
the  detriment  of  compliance  entities.  Operators  remain  the  predominant  category  of 
participants on both the primary and secondary markets. Whilst investment funds and other 
financial  entities  that  could  generally  be  associated  with  speculative  behaviour  are  present, 
their  share  has  only  increased  slightly  since  2018  and  remains  low  overall  (below  8%). 
National competent authorities have not reported any cases of market abuse or insider dealing 
either. 

The  ESMA  report  confirms  the  important  role  that  the  financial  sector  plays  in  the 
functioning  of  the  carbon  market  –  providing  liquidity  and  servicing  compliance  entities  in 
obtaining  emission  allowances.  ETS  operators  manage  their  compliance  obligations  mostly 
by purchasing derivative contracts, especially ‘futures’. These give them the right to a future 
delivery  of  allowances  at  a  pre-defined  price.  The  counterparties  in  those  trades  are 
predominantly  financial  entities  (investment  firms  and  banks).  Their  participation  in  the 
market  thus  gives  ETS  operators  more  options  to  manage  price  risks  and  free  additional 
capital for longer-term investments. 

Financial  entities  also  play  an  important  role  in  disseminating  allowances  to  other  market 
participants,  particularly  small  and  medium  ETS  operators,  which  trade  on  secondary 
markets.  Overall,  ESMA  observed  that  the  participation  in  secondary  markets  was  larger 
compared to auctions. ESMA also confirmed that the largest participants were active both in 
auctions  and  on  secondary  markets  selling  allowances  to  other  participants.  For  many  ETS 
operators, it may be more convenient and cost-effective to obtain allowances for compliance 
through such intermediaries, including financial entities. 

5.1.1.  ESMA policy recommendations 

The  ESMA  report  proposes  several  policy  recommendations  to  improve  monitoring  and 
increase  the  transparency  of  the  EU  carbon  market.  The  Commission  is  now  carefully 
considering these recommendations as well as the targeted actions and adjustments that may 
be required to implement them. 

In addition, the report presents two issues for policy makers to consider, without making any 
recommendations: the introduction of position limits and centralised market monitoring. As a 
follow-up, ESMA suggests a further in-depth assessment to avoid any adverse effects. 

27 

 
 
The Commission will continue to closely monitor the functioning of carbon markets, assess 
ESMA’s  recommendations  and  work  closely  with  national  authorities  to  ensure  market 
integrity. 

6.  Monitoring, reporting and verification of emissions 

In  phase  4  (2021-30),  the  established  framework  of  monitoring,  reporting,  verification  and 
accreditation  requirements  of  the  EU  ETS  continues  to  apply.  These  requirements  are 
harmonised in the Monitoring and Reporting Regulation (MRR)89 and the Accreditation and 
Verification Regulation (AVR)90. 

Every year, countries report on implementation of the EU ETS in line with Article 21 of the 
EU ETS  Directive. This data offers insights  into the monitoring, reporting, verification and 
accreditation framework underpinning the system’s efficient functioning. 

6.1. Monitoring emissions 

The system to monitor emissions in the EU ETS takes a building block approach. This gives 
operators a high degree of flexibility thus ensuring both cost-efficiency and the reliability of 
emissions  data.  Operators  may  use  several  monitoring  methods  (‘calculation-based’  or 
‘measurement-based’ and by exception the ‘fall-back approach’), including a combination of 
methods for individual parts of an installation. For aircraft operators, only calculation-based 
approaches are allowed, with fuel consumption being the central flight parameter. 

The  MRR  requires  installations  and  aircraft  operators  alike  to  have  a  monitoring  plan 
approved by the applicable national competent authority. This prevents them from making an 
arbitrary selection of monitoring methods and temporal variations. 

In  2021,  most  installations  used  the  calculation-based  methodology91  to  calculate  their 
emissions. Only 154 installations (1.8%) in 22 countries reported using continuous emissions 
measurement systems (CEMS), almost as many installations as in 2020. CEMS is used most 
frequently  in  Germany  and  Czechia.  In  30  installations,  the  measured  emissions  also 
contained  biogenic  CO2.  About  half  the  CEMS  installations  use  the  methodology  for  more 
than 95% of their emissions, the other half uses a combination of CEMS and  a calculation-
based methodology. 

Only  11  countries  reported  using  the  fall-back  approach;  this  was  used  for  31  installations 
covering approximately 2.5 million tonnes CO2eq (4 more installations than in 2020 but 0.4 
million  tonnes CO2eq fewer). One installation in the Netherlands  is  responsible for 52% of 

89 
Regulation (EU) 2022/388. See consolidated version. 

As above, Regulation (EU) 2018/2066 amended in 2020 by Regulation (EU) 2020/2085 and in 2022 by 

90 
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. The regulation was amended in 2020 by Commission Regulation (EU) 
2020/2084. See consolidated version. 

91 
The main reason for this is that the measurement-based methodology involves significant resources and 
know-how  for  the  continuous  measurement  of  the  concentration  of  relevant  greenhouse  gases,  which  many 
smaller operators lack. 

28 

 
 
                                                           
the overall emissions reported using the fall-back methodology. 

Most installations met the minimum tier defaults92 of the MRR in 2021. Only 98 category C 
installations (up from 80 in 2020) were reported to have deviated for at least one parameter 
from  the  requirement  to  apply  the  highest  tiers  for  major  source  streams.  Located  in  18 
different countries, they represented 13.6% of category C installations. These deviations are 
only allowed when the operator demonstrates that meeting the highest tier is technically not 
feasible  or  incurs  unreasonable  costs.  Once  these  conditions  no  longer  apply,  the  operator 
must improve the monitoring system accordingly. 

In  2021,  405  category  B  installations  in  23  countries  were  permitted  to  operate  with  some 
form  of  deviation  from  the  MRR  default  requirements.  This  is  21%  of  all  category  B 
installations, the same share as in 2020. 

6.2. Accreditation and verification 

Verifiers  of  emissions  monitoring  in  the  EU  ETS  must  be  accredited  by  a  National 
Accreditation Body to carry out assessments in compliance with the AVR. This ensures that 
verifiers  can  operate  with  mutual  recognition  across  all  EU  ETS  countries,  taking  full 
advantage of the internal market and ensuring sufficient service availability. 

In 2021, there were 106 accredited verifiers for stationary installations and 23 for aviation. In 
addition, 26 countries reported that at least one foreign verifier was active in their territory in 
2021,  and  six  countries  reported  having  only  foreign  verifiers.  This  shows  that  the  mutual 
recognition of verifiers among countries continues to work successfully. 

Verifiers’ compliance with AVR is found to be high. Only Norway reported two suspensions 
and  only  France  reported  one  withdrawal  of  a  verifier’s  accreditation.  This  compares  to  no 
suspensions and one withdrawal for 2020. Six countries reduced the scope of seven verifiers’ 
accreditation. In 2020, only Germany did so, for two verifiers. 

Six countries reported to have received complaints about verifiers in 2021 (one more than in 
2020).  The  overall  number  of  complaints  (28),  however,  was  only  57%  of  the  number  of 
complaints  in  2020.  Most  complaints  (93%)  had  already  been  resolved  at  the  time  of 
reporting (against 86% in 2020). Additionally, one country reported that 11 complaints from 
previous years had meanwhile been resolved. 

In 2021, eight countries reported to have identified 64 non-conformities on verifiers’ role in 
the  process  of  information  exchange  between  national  accreditation  bodies  and  competent 
authorities  (up  from  7  countries  in  2020).  Of  these,  72%  had  been  solved  by  the  time  of 
reporting. In addition, three countries reported that 24 non-conformities from previous years 
had meanwhile been addressed. 

An  overview  of  the  accreditation-  and  verification-related  aspects  is  given  in  Table  4.1  in 
Appendix 4 to the staff working document accompanying this report. 

92 
The MRR 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 to smaller sources. 

29 

 
 
                                                           
6.3. Competent authorities 

The  organisation  of  national  competent  authorities  in  charge  of  implementing  the  EU  ETS 
differs between  countries.  In some  countries,  it involves  several  local  authorities; in others, 
implementation  is  more  centralised.  The  countries  choose  these  approaches  based  on  cost- 
and time-effectiveness. 

A  total  of  69  central,  147  regional,  644  local  and  27  other  competent  authorities  were 
reported as involved in implementing the EU ETS in 2021. Countries reported using different 
tools to coordinate between authorities, such as a central competent authority responsible for 
MRV work (11 countries) or playing a coordinating role93 (10 countries), binding instructions 
and guidance by a central competent authority to local authorities (5 countries), joint training 
for  competent  authorities  (8  countries)  and  regular  working  groups  or  meetings  between 
authorities  (11  countries).  In  2021,  14  countries  did  not  have  any  such  tools  in  use.  These 
countries have a more centralised organisation and so need fewer coordination tools. 

A  more  detailed  overview  of  the  coordination  between  EU  ETS  countries  is  presented  in 
Table 4.2 in Appendix 4 to the staff working document accompanying this report. 

In  2021,  15  countries  did  not  charge  administrative  fees  to  installation  operators  for  the 
permitting  and  approval  of  monitoring  plans  (up  from  13  countries  in  2020).  Aircraft 
operators  in  18  countries  also  did  not  pay  any  fees  (16  countries  in  2020).  Charges  varied 
significantly  across  countries  and  types  of  services  -  from  EUR 5  to  EUR 7 729.20  for  a 
permit and approval of a monitoring plan for installations, and from EUR 2.13 to EUR 3 100 
for aircraft operators. 13 countries reported charging administrative fees for the approval of 
monitoring methodology plans or significant changes, also for varying amounts. 

Table 4.3 in Appendix 4 to the staff working document accompanying this report presents a 
detailed overview of administrative charges in EU ETS countries. 

6.4. Compliance and enforcement 

Compliance  with  the  EU  ETS  is  checked  in  annual  cycles.  For  every  year  of  operation, 
operators must submit an annual emission report by 31 March the following year. Once  the 
report is verified, operators must surrender the agreed number of allowances by 30 April the 
same  year.  For  each  tonne  of  CO2  emitted  for  which  no  allowance  was  surrendered  in  due 
time,  the  EU  ETS  Directive  imposes  a  penalty  of  EUR 10094.  This  is  on  top  of  the  cost  of 
surrendering  allowances  due.  Other  penalties  may  also  apply  to  infringements  in 
implementing the EU ETS based on national provisions set by each country. 

In the 2021 compliance cycle, the level of compliance with the EU ETS remained very high. 
Operators responsible for over 99% of emissions from stationary installations and aviation in 
most years met their legal obligations on time. The efficiency of the compliance system has 
improved with a broader uptake of electronic reporting. In 2021, 11 countries used automated 

93 
Where  regional/local  authorities  are  responsible  for  MRV  work,  the  central  competent  authority 
reviews the  relevant documents such as  monitoring plans in addition to these regional and local authorities to 
monitor the quality of MRV processes. 
94 

The penalty is indexed for inflation. 

30 

 
 
                                                           
IT systems  and electronic templates  for  the  monitoring plans, emission reports, verification 
reports  and/or  improvement  reports.  Eight  countries  also  use  automated  IT  systems  to 
manage  the  workflow  for  monitoring  methodology  plans,  annual  activity  level  reports  and 
other information exchanges on allocation data. 

Due  to  the  COVID-19  pandemic  and  related  restrictions  on  physical  contacts,  18  countries 
allowed  verifiers  to  carry  out  virtual  site  visits95.  For  460  installations  and  64  aircraft 
operators, virtual site visits were approved by the applicable competent authority. 

Competent  authorities  carry  out  different  compliance  checks  on  installations’  annual 
emissions reports. In 2021, all competent authorities checked the completeness of the reports 
from  stationary  installations,  and  most  did  so  for  reports  from  aircraft  operators.  The 
exceptions  are  the  competent  authorities  in  Hungary  and  Latvia  (with  3  and  2  aircraft 
operators,  respectively),  as  well  as  Liechtenstein,  Northern  Ireland,  and  Slovenia  because 
they do not administer any aircraft operators. 

Table 4.4 in Appendix 4 to the staff working document accompanying this report presents a 
detailed overview of the compliance checks performed in EU ETS countries. 

Competent  authorities  in  12  countries  made  conservative  estimates  for  55  installations 
(approximately  0.6%  of  installations  overall),  down  from  58  in  2020.  Such  estimates  are 
made  in  accordance  with  Article 70  of  the  MRR  if  annual  emissions  reports  were  not 
submitted in time, a negative verification opinion was issued, or an emissions report did not 
comply with the MRR. All emissions of 14 installations were estimated conservatively. For 
17 installations, a conservative estimation covered only part of emissions, and 24 installations 
were estimated to have generated no emissions. 

In total, 0.8 Mt emissions were estimated conservatively (down from 3.3 Mt in 2020) out of 5 
Mt  reported  by  the  55  installations  (down  from  18  Mt  in  2020).  Typically,  conservative 
estimates  were  made  because  emissions  reports  had  not  been  fully  in  line  with  MRR 
requirements or because they had been submitted after the deadline. 

Conservative estimates for aviation were reported by six countries (two fewer than in 2020) 
concerning 28 aircraft operators (five more than in 2020) and 0.09 Mt emissions (0.14 Mt in 
2020). 

Competent authorities’ checks remain important to supplement verifiers’ work. In addition to 
checking  the  emissions  reports,  16  countries  reported  that  they  had  carried  out  on-site 
inspections at installations. No countries96 reported on-site inspections for aviation, contrary 
to the 13 countries in 2020. This decrease, particularly for aviation, can be attributed to the 
impact  of  the  COVID-19  pandemic.  It  was  impossible  for  competent  authorities  to  visit 
installations or aircraft operators for much of the first half of 2021. 

95 
Article 34a  of  the  Accreditation  and  Verification  Regulation  allows  the  verifier  to  carry  out  a  virtual 
site visits if a force majeure situation prevents the verifier from going to the site. This is only allowed subject to 
competent authority’s approval and if certain conditions have been met. 
96 
operators. 

Three  countries  (Liechtenstein,  Northern  Ireland,  and  Slovenia)  do  not  administer  any  aircraft 

31 

 
 
                                                           
Table 4.5 in Appendix 4 to the staff working document accompanying this report presents an 
overview of compliance measures administered in EU ETS countries. 

In 2021, 29 installation operators in eight countries received penalties for excess emissions. 
For  aviation,  excess  emissions  penalties  were  reported  by  four  countries  for  nine  aircraft 
operators.  Eleven  countries97  reported  41  infringements  other  than  the  excess  emissions, 
having  issued  penalties,  formal  warnings,  or  formal  notices.  30  fines  were  reported  (either 
issued or to be issued e.g. due to ongoing legal proceedings), totalling EUR 17.9 million. This 
includes aviation, with five infringements in four countries, leading to three fines, for a total 
of EUR 36 000. 

Table 4.6 in Appendix 4 to the staff working document accompanying this report presents an 
overview of the excess emissions penalties administered in EU ETS countries. 

The most common infringements reported for 2021 were for operation without an emissions 
permit, failure to monitor emissions in accordance with the approved monitoring plan and the 
MRR  and  failure  to  submit  an  emissions  report  in  due  time.  Phase  4  of  the  ETS  brings  in 
additional infringements and related penalties: failure to notify cessation of the installation or 
failure  to  submit  the  documents  required  for  the  free  allocation  procedures,  such  as  the 
monitoring methodology plan, failure to fulfil the monitoring requirements with that plan or 
the submission of an annual activity level report. 

7.  Link between the EU ETS and the Swiss ETS 

As of 2020, the EU ETS and the Swiss ETS are linked. This means that allowances issued in 
one  system  can  be  surrendered  for  emissions  generated  in  either  of  the  two  systems.  With 
access  to  a larger market,  operators  can tap into cost-efficiency  gains  and more  options for 
emissions  abatement.  The  Linking  Agreement98  sets  out  the  conditions  and  requirements 
under  which  the  two  systems  are  linked.  It  also  establishes  a  mechanism  to  ensure  that  the 
linking conditions of Article 25 of the EU ETS Directive99 are respected.  

Including aviation in the Linking Agreement was a crucial requirement for the EU. Based on 
Article 6 of the Agreement, Switzerland applies the same approach to the rules on coverage, 
cap  and  allocation  as  the  EU  ETS.  Swiss  domestic  flights  and  flights  departing  to  EEA 
airports are covered by the Swiss ETS, whilst the flights departing to Switzerland fall under 
the EU ETS. This arrangement safeguards the environmental integrity of both systems. 

Aircraft  operators  that  run  flights  on  both  directions  between  the  EU  and  Switzerland  are 
subject to compliance obligations under both systems. To limit the associated administrative 
burden,  the  Linking  Agreement  establishes  a  ‘one-stop-shop’  solution.  This  means  that 
operators need to deal with only one competent authority on allocation, holding accounts and 
compliance. 

The  eleven  countries  included  Czechia,  Denmark,  Spain,  Finland,  France,  Greece,  Hungary, 

97 
Netherlands, Poland, Sweden and Romania. 
98 
greenhouse gas emissions trading systems, OJ L 322, 7.12.2017, p. 3. 
99 

As above, Directive 2003/87/EC. 

Agreement  between  the  European  Union  and  the  Swiss  Confederation  on  the  linking  of  their 

32 

 
 
                                                           
Table 7 and Table 8 compare key figures for both systems in 2021 – allowances auctioned, 
free allocation, and verified emissions, both for stationary installation and aircraft operators. 
They  show  that  compatibility  of  the  two  systems  is  not  a  matter  of  size  but  of  qualitative 
requirements, level playing field conditions and measures to safeguard market integrity. 

Table 7. Comparison of the EU ETS and Swiss ETS - stationary installations in 2021. 

System 

EU ETS 

Swiss ETS 

General allowances auctioned  

582 952 500 

Free allocation of general 
allowances 

Verified emissions from 
stationary installations 

544 947 793 

1 335 460 461 

175 000, 
leftovers from 2020 

4 436 126 

4 904 027 

33 

 
 
 
 
 
Table 8. Comparison of the EU ETS and Swiss ETS - aircraft operators in 2021. 

System  

Aviation allowances 
auctioned  

Free allocation of 
aviation allowances  

Verified emissions 
from aircraft 
operators 

EU ETS 

3 785 500 

Swiss ETS 

160 850 

EU aviation 
allowances  
for EU ETS 

Swiss aviation 
allowances  
for Swiss ETS 

Swiss aviation 
allowances  
for Swiss ETS 

EU aviation 
allowances  
for EU ETS 

24 060 563 

380 246 

496 960 

EU ETS 

Swiss ETS 

Swiss ETS 

397 327 

EU ETS 

27 699 555 

274 931 

328 191 

434 349 

To  make  operationalise  the  Linking  Agreement  and  promote  efficiency  gains,  a  direct  link 
was  created  between  the  registries  of  both  systems.  It  allows  regulated  entities  to  transfer 
allowances from an account in one system to an account in the other system. The transfers are 
planned, generally taking place twice a month. 

Table 9 and Table 10 consider the effects of linking in the EU ETS and Swiss ETS in 2021. 
The tables show to what extent regulated entities in both systems used allowances issued in 
the other system for compliance. 

34 

 
 
 
 
Table 9. Units used for compliance in the EU Registry. 

Stationary  
installations 

Aircraft  
operators 

Free allocation  
and auctioning 

Verified emissions 

Surrendered 
units 

EU ETS allowances 

Swiss ETS allowances 

General 

Aviation 

General 

Aviation 

1 128 900 293 

1 335 460 461 

1 332 192 792 

1 323 252 959 

8 480 001 

396 422 

63 410 

% of the total 

99.3% 

0.6% 

0.03% 

0.005% 

Free allocation 
(including Swiss 
ETS) and auctioning 

Verified emissions 
(including under  
the Swiss ETS) 

Surrendered 
units 

EU ETS allowances 

Swiss ETS allowances 

General 

Aviation 

General 

Aviation 

28 223 342 

27 944 486 

28 007 345 

7 677 636 

19 901 550 

487 

427 672 

% of the total 

27.4% 

71.1% 

0.002% 

1.5% 

Table 10. Units used for compliance in the Swiss Registry. 

Stationary  
installations 

Aircraft  
operators 
(administered 
by Switzerland) 

Free allocation  
and auctioning 

Verified emissions 

Surrendered 
units 

4 611 126 

4 904 027 

4 858 105 

% of the total 

Free allocation 
(including EU ETS) 
and auctioning 

Verified emissions 
(including under  
the EU ETS) 

Surrendered 
units 

1 055 137 

762 540 

762 540 

% of the total 

EU ETS allowances 

Swiss ETS allowances 

General 

Aviation 

General 

Aviation 

398 715 

8.2% 

0 

- 

4 433 068 

26 322 

91.3% 

0.5% 

EU ETS allowances 

Swiss ETS allowances 

General 

Aviation 

General 

Aviation 

302 

0.04% 

279 336 

36.6% 

0 

- 

482 902 

63.3% 

35 

 
 
Altogether,  regulated  entities  in  the  EU  ETS  (both  stationary  installations  and  aircraft 
operators) used 887 991 allowances issued under the Swiss ETS for compliance in 2021. This 
is nearly 246 000 allowances more than in 2020, signifying a more than 38%-increase in the 
use  of  the  flexibility  that  the  link  provides.  This  was  achieved  even  though  EU  aircraft 
operators had  used fewer aviation  allowances issued under the Swiss  ETS  in  relative terms 
(1.5% in 2021 compared to 2.3% in 2020). 

In line with regulatory provisions, EU stationary installations could use Swiss ETS aviation 
allowances for compliance for the first time in 2021100. The rising awareness and acceptance 
of the link between the EU ETS and the Swiss ETS is also well documented by the increased 
use of Swiss general allowances by stationary installations, from zero to some 396 422 units. 
In  relative  terms,  general  allowances  issued  under  the  Swiss  ETS  accounted  for  less  than 
0.03% of the total surrendered in the EU ETS in 2021. However, this accounted for a more 
telling  share  of  8.6%  of  all  Swiss  general  allowances  allocated  for  free  and  auctioned  that 
year. 

In the Swiss ETS, stationary installations used a similar share of EU ETS general allowances 
for compliance in 2021 (8.2%). Compared to 0.19% in 2020, this is a notable increase. Again, 
it  can  be  attributed  to  a  growing  awareness  of  the  flexibility  offered  by  the  linked  carbon 
markets. In 2021, stationary installations in the Swiss ETS could also use aviation allowances 
for compliance. However, they only used aviation allowances issued in the domestic system. 

Table  11  summarises  the  aggregate  volumes  of  allowances  (both  general  and  aviation) 
transferred  between  the  EU  ETS  and  the  Swiss  ETS  via  the  direct  link  since  2020.  The 
balance  shows  an  outflow  of  3 269  allowances  from  the  EU  ETS  to  the  Swiss  system.  It 
should, however, be noted that the figures may include re-transfers of the same allowances. 

Table 11. Allowances transferred between the EU ETS and the Swiss ETS in 2020-21. 

Year 

2020 

2021 

Total 

Transfers of 
allowances 
between the EU 
ETS and the Swiss 
ETS 

From the EU ETS 
to the Swiss ETS 

From the Swiss 
ETS to the EU ETS 

475 679 

1 051 360 

1 527 039 

0 

1 523 770 

1 523 770 

Balance 

3 269 

100 

Pursuant to Article 12(3) of the EU ETS Directive. 

36 

 
 
                                                           
8.  EU ETS in the context of the Energy Efficiency Directive101 

The EU ETS operates within the broader context of EU’s energy policy, including the Energy 
Efficiency  Directive102.  The  aim  of  this  Directive  is  to  achieve  energy  savings  by  laying 
down targets and obligations for Member States and for companies. The carbon price signal 
of the EU ETS may thus interact with policy measures and actions implemented to that end. 

Article  7  of  the  Energy  Efficiency  Directive  requires  Member  States  to  introduce  policy 
measures to achieve energy savings in line  with  their indicative national  targets103. Most of 
the  Member  States  reported  their  planned  measures  to  reach  the  Article  7  energy  saving 
targets for the obligation period 2021-30. With the recast of the Energy Efficiency Directive 
as part of the policy package to deliver the European Green Deal, the Commission proposed 
to  increase  the  overall  energy  efficiency  targets  as  well  as  the  annual  energy  savings 
obligation target. The negotiations on this proposal are continuing. 

In  addition,  Article 8  of  the  Energy  Efficiency  Directive  promotes  cost-effective  energy 
efficiency measures in large companies, including some installations covered by the EU ETS. 
They  are  required  to  conduct  an  energy  audit  every  four  years  or  use  a  certified  energy  or 
environment  management  system.  These  tools  help  identify  energy  losses,  estimate  the 
energy savings’ potential and cost-effective measures to reduce energy consumption. 

The carbon price signal of the EU ETS feeds into the appraisal of energy efficiency-related 
investments and measures in the regulated sectors. Member States also use auction revenues 
from  the  EU  ETS  to  fund  energy  efficiency  improvements.  In  2021,  18  Member  States104 
reported  using  this  revenue  to  fund  projects  related  to  energy  efficiency.  This  included 
investments  in  the  thermal  modernisation  of  buildings  (including  support  for  lower-income 
households),  energy  efficiency  advisory,  as  well  as  research  and  development,  with  the 
objective  to  reduce  energy  consumption.  Overall,  EUR 2.5  billion  of  ETS  revenue  in  2021 
was spent on funding energy efficiency-related investments. 

9.  Conclusions and outlook 

In 2021, demand for energy increased, spurred by the gradual recovery from the effects of the 
COVID-19 pandemic,  and the prices  of  fossil fuels on the European markets rose.  The EU 
ETS continued to function properly and deliver on the EU’s climate ambition. 

101 
Based on Article 24 of the Directive (EU) 2018/2002 of the European Parliament and of the Council of 
11 December 2018 amending Directive 2012/27/EU on energy efficiency (OJ L 328, 21.12.2018, p. 210), and 
on  Articles  29  and  35  of  the  Regulation  (EU)  2018/1999  of  the  European  Parliament  and  of  the  Council  of 
11 December  2018  on  the  Governance  of  the  Energy  Union  and  Climate  Action,  amending  Regulations  (EC) 
No 663/2009  and  (EC)  No 715/2009  of  the  European  Parliament  and  of  the  Council,  Directives  94/22/EC, 
98/70/EC, 2009/31/EC, 2009/73/EC, 2010/31/EU, 2012/27/EU and 2013/30/EU of the European Parliament and 
of  the  Council,  Council  Directives  2009/119/EC  and  (EU)  2015/652  and  repealing  Regulation  (EU) 
No 525/2013 of the European Parliament and of the Council (OJ L 328, 21.12.2018, p. 1). 
102 
amending Directive 2012/27/EU on energy efficiency. OJ L 328, 21.12.2018, p. 210. 
103 
104 
Germany, Greece, Hungary, Italy, Latvia, Lithuania, Poland, Romanian, Slovakia, and Slovenia. 

As before, Directive (EU) 2018/2002, Article 3. 
The 17 Member States included Belgium, Bulgaria, Croatia, Cyprus, Czechia, Estonia, Finland, France, 

Directive  (EU)  2018/2002  of  the  European  Parliament  and  of  the  Council  of  11 December  2018 

37 

 
 
                                                           
Although emissions in the EU ETS increased in 2021, they remained below the pre-pandemic 
levels seen in 2019. The increase was linked to the gradual economic recovery following the 
COVID-19 pandemic. Emissions from stationary installations increased by 6.6% compared to 
2020 but were still 5.6% lower than in 2019. Emissions from electricity and heat generation 
also increased, driven by the switch back from the use of natural gas to coal in response to the 
rise  in  fossil  fuel  prices.  In  2021,  emissions  from  aviation  were  approximately  30%  higher 
than in 2020, but still 50% lower than in 2019. 

Even  so,  the  share  of  fossil  emissions  from  hard  coal  increased  in  stationary  installations, 
whilst  the shares  of both lignite and natural  gas  fell  in  the wake of higher  prices of natural 
gas.  In response to  the  energy crisis,  the Commission  put  forward the REPowerEU plan.  It 
makes  the  case  for  accelerating  the  clean  energy  transition,  whilst  building  on  the  ongoing 
revisions  of  related  climate  and  energy  policies  under  the  package  to  deliver  the  European 
Green Deal. 

The increase in the carbon price prompted questions as to whether there has been excessive 
speculation  on  the  EU  carbon  market.  European  Securities  and  Markets  Authority  (ESMA) 
addressed these concerns in an extensive analysis of the market and its behaviour, concluding 
that the prevailing prices are in line with market fundamentals. 

At the same time, a higher carbon price in 2021 translated  into higher auction revenues  for 
Member States  – nearly  twice  the  2020 revenue.  In 2021, Member States spent  on  average 
EUR 19  billion  of  auction  revenues  on  climate-  and  energy-related  action.  Member  States 
have also used these resources to cushion the impacts of the energy crisis. In the mid- to long-
term,  these  resources  can support investment  in  the clean energy transition, thus  improving 
energy  efficiency  and  increasing  the  use  of  renewable  energy,  reducing  not  only  emissions 
but also Member State’s dependence on fossil fuels and their imports. 

In parallel, the revision of the EU ETS is advancing, with negotiations between the European 
Parliament and the Council now ongoing. By 2030, the system is expected to achieve more 
ambitious  emissions  reductions  in  line  with  the  EU  climate  targets  set  out  in  the  European 
Climate Law. 

38