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Is the EU ETS getting it right?

(EurActiv, 19 Apr 2021) The EU ETS is our main climate policy tool that allows for emission reductions and it has been a solid pillar of EU climate policy. One of the things we are constantly told is that you will be rewarded for emission reductions in the EU ETS. The less you emit, the more you will benefit. This is a message that we have also been spreading to companies that participate in the EU ETS. It is an obvious truth. But is it?

Michał Kurtyka is the Polish Minister of Climate and Environment.

The numbers don’t add up

We have noticed that something is not quite right. We have reduced emissions in the EU ETS, but we have been in constant deficit of allowances. Always. Maybe we were not doing enough and everyone around was reducing their emissions faster than us? Therefore, we have taken a look at historical data in the EU ETS from the beginning in 2005 till now. We have taken into account the full scope of existing EU ETS allowances, namely the total number of allowances to be auctioned by particular a Member State together with the total number of allowances received for free by installations in this Member State and its allocation from the Modernisation Fund (MF). By comparing the combined number of all those allowances in a given year to the level of reported emissions in EU ETS in the same year generated by the Member State one can easily define the level of surplus or deficit of allowances that particular Member State is experiencing in the EU ETS.

What we have found lies in contradiction to the most fundamental statement – you will be rewarded for emission reductions. While analysing EU wide EEA data, we found there to be no substantial correlation between emission reductions and the number of allocated allowances. Member States with very small reductions had an allowance surplus and some Member States with large reductions had a deficit (see chart below for the 2013-2019 correlation for Member States). Why is that?

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EurActiv, 19 Apr 2021: Is the EU ETS getting it right?