A New Hope RECOMMENDATIONS FOR THE EU EMISSIONS TRADING SYSTEM REVIEW

Carbon Market Watch argues that the EU ETS has failed to significantly reduce industrial emissions since 2012 due to free pollution permits and exemptions. To achieve climate neutrality by 2040, the briefing recommends increasing the Linear Reduction Factor (LRF), strengthening the Market Stability Reserve (MSR), ending free allowance allocations for industry and aviation, and earmarking 100% of auctioning revenues for climate action and innovation.

• Industrial emissions in Europe have stagnated, with carbon pollution from heavy industry showing almost no decrease between 2012 and 2018. While a slight decrease of 2.5-3% occurred in 2019 and a steeper reduction of 9.7% was estimated for 2020, the latter is attributed primarily to the Covid-19 pandemic economic downturn.
• To reach a 70% emissions reduction in ETS sectors by 2030, the Linear Reduction Factor (LRF) should be increased to 5.8% as of 2023. Alternatively, if a one-off reduction of the cap by 450 million allowances is implemented in 2023, the LRF should be increased to 3.1%.
• The Market Stability Reserve (MSR) requires strengthening to handle current and future surpluses, such as those from coal plant closures. Recommendations include increasing the intake rate to 36% from 2024, adopting declining thresholds, and automatically cancelling allowances held in the reserve for more than three to five years.
• Free allocation of allowances has hindered decarbonisation; over 200 billion euros in free permits have been issued since 2008. Currently, more than 95% of industrial emissions and approximately 50% of aviation emissions are covered by free allowances. The document advocates for full auctioning of all allowances starting January 1, 2023.
• The Carbon Border Adjustment Mechanism (CBAM) is proposed as a replacement for current carbon leakage measures, allowing the EU to abolish free allocations without causing substantial leakage risks.
• The EU should mandate that 100% of ETS auctioning revenues be used for climate action, renewable and energy-efficient technologies, clean industrial innovation, just transition, and international climate finance, noting that average EU climate spending from these revenues dropped from 90% in 2016 to 67% in 2018.
• Public funding for zero-carbon industrial innovation is insufficient; the value of free allowances (estimated at nearly 200 billion euros between 2021 and 2030) is more than 15 times the value of the ETS Innovation Fund (approximately 13 billion euros).

APA

Carbon Market Watch (2021). A New Hope RECOMMENDATIONS FOR THE EU EMISSIONS TRADING SYSTEM REVIEW. https://carbonmarketwatch.org/wp-content/uploads/2021/04/A-New-Hope_recommendations-for-the-EU-ETS-review-2.pdf

Chicago

Carbon Market Watch. A New Hope RECOMMENDATIONS FOR THE EU EMISSIONS TRADING SYSTEM REVIEW. 2021. https://carbonmarketwatch.org/wp-content/uploads/2021/04/A-New-Hope_recommendations-for-the-EU-ETS-review-2.pdf.

Wikipedia

{{cite report |author=Carbon Market Watch |title=A New Hope RECOMMENDATIONS FOR THE EU EMISSIONS TRADING SYSTEM REVIEW |date=April 2021 |url=https://carbonmarketwatch.org/wp-content/uploads/2021/04/A-New-Hope_recommendations-for-the-EU-ETS-review-2.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{carbonmarketwatch2021new, author = {{Carbon Market Watch}}, title = {{A New Hope RECOMMENDATIONS FOR THE EU EMISSIONS TRADING SYSTEM REVIEW}}, institution = {Carbon Market Watch}, year = {2021}, month = apr, url = {https://carbonmarketwatch.org/wp-content/uploads/2021/04/A-New-Hope_recommendations-for-the-EU-ETS-review-2.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }