EU ETS MSR will withdraw another 330 million allowances by 2021

According to the European Commission, the total number of CO₂ emission allowances in circulation on the European carbon market currently stands at nearly 1,385 million allowances. This level is nearly twice as high as the threshold of 833 million allowances set in the legislation. Consequently, more than 330 million allowances will be withdrawn from auction volumes from September 2020 to August 2021. The number of allowances to be put in the Market Stability Reserve (MSR) of the EU Emissions Trading System (ETS) is set at 24% of the total number of allowances in circulation for the years 2019 to 2023. In Mary 2019, the EU ETS market stability reserve decided to withdraw 397 million allowances between September 2019 and August 2020.

The EU Emissions Trading Scheme puts a cap on the CO₂ emitted by more than 11,000 EU installations in the power sector and energy-intensive industry through a market-based cap and trade system. As agreed in early 2018, the cap on the total emissions volume will be reduced by 2.2%/year from 2021 onwards (compared to 1.74%/year over the 2013-2020 period). The number of allowances that will be placed in the MSR will be doubled temporarily until the end of 2023. Besides, a new mechanism will limit the validity of allowances in the market stability reserve above a certain level starting from 2023. This will help the EU to achieve its commitment under the Paris agreement to decrease greenhouse gas emissions (GHG) by 40% by 2030.

GHG emissions covered by the EU Emissions Trading System (EU ETS) declined by 8.7% in 2019. GHG emissions from stationary installations fell by 9% to 1.527 GtCO₂eq, despite a growing EU economy (+1.5% of GDP). GHG emissions contracted by 15% in the power sector, in line with the substitution of coal-fired power generation with renewable and gas-fired generation, and they dipped by 2% in industry, including in energy-intensive branches such as iron and steel, cement, refineries and chemicals. Meanwhile, GHG emissions from aviation rose by 1% to to 68.14 GtCO₂eq; the aviation sector benefited from 31.3 million free allowances, covering 46% of their emissions, while 54% had to be acquired from auctions or other sectors.