What will shape the debate on ETS reform?

On 17 July, the European Commission presented its EU Emissions Trading System (ETS) revision proposal. Interpreting its implications for the policy’s future requires first taking stock of the ETS so far. Bruegel’s new ETS Tracker aims to inform such analysis. 

The tracker, which will be updated regularly, draws from public sources on plant-level emissions and primary market auction reports, aggregating data on emissions compliance, free allocation of carbon allowances, auction revenues and allowance prices. The data presented in the tracker’s first version already tells two stories.

First, while installations covered by the scheme have nearly halved their overall emissions since 2005, the aggregate figure masks substantial sectoral variations. Most decarbonisation gains came from power generation and industrial installations running their own energy generators. Heavier industry, constrained by harder-to-abate processes and supported by free permits, is decarbonising more slowly. This two-speed transition is a challenge that the ETS will need to address.

Second, since 2013, permit auctioning has turned the ETS into a source of public revenue, nearly 80% of which flows directly to national budgets. However, that revenue is unevenly shared: the five largest beneficiary countries – which are also the EU’s largest historical emitters – receive nearly two thirds of the national revenue share. This makes the distribution of those revenues as important as their use, and may influence the political debate on ETS reform, especially regarding increased scrutiny and traceability of revenue.

These are just two examples of the issues that will shape the ETS debate in the months ahead. What others will the data reveal?  

The Why Axis is a weekly newsletter distributed by Bruegel, bringing you the latest research on European economic policy. 

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