Beyond the EU ETS: Carbon Market Watch Policy Briefing

The briefing contends that the EU ETS phase 4 (2021-2030) fails to drive sufficient decarbonisation due to low carbon prices and excessive free allowances. It recommends that Member States implement national carbon floor prices, unilaterally cancel allowances following coal plant closures to avoid the 'waterbed effect', and redirect auctioning revenues toward a just transition. For the industrial sector, it advocates replacing free allocations with a carbon border tax and increasing the Linear Reduction Factor (LRF) to align with a 2040 or 2050 decarbonisation timeline.

• The EU ETS phase 4 Linear Reduction Factor (LRF) of 2.2% is insufficient for the Paris Agreement goals, as it would only lead to a decarbonised power and energy system by 2058. To achieve full industrial decarbonisation by 2050, an LRF of 2.8% is required, and 4.2% for decarbonisation by 2040.
• Current EU ETS price projections of approximately 20€/ton for 2021-2030 are far below the levels needed to meet Paris goals. The document suggests that national or regional carbon floor prices of €65/tCO2 by 2020 and €85/tCO2 by 2030 are necessary to phase out coal and encourage clean investments.
• The UK's use of a carbon floor price—adding £18/tCO2 to the allowance price—has contributed to the UK being responsible for 60% of EU-wide emissions reductions in the power sector and hosting eight of the ten installations with the steepest year-on-year reductions.
• To prevent the 'waterbed effect'—where closing a plant increases emissions elsewhere via allowance transfers—Member States should unilaterally cancel allowances in line with coal plant closures. This is supported by phase 4 rules allowing states to reduce auctioning volumes based on idle allowances from closures.
• The Article 10c provision, which allows some governments to give free allowances to power companies instead of auctioning them, has previously been used to subsidise fossil fuels by funding new or retrofitted coal plants. During phase 4, 868 million allowances (valued at €17.4 billion) will be distributed via this provision.
• Industrial emissions reductions have stagnated, falling by only 0.2% in 2016 and 1% since 2012. The document argues that free allocation of allowances—estimated to provide over €136 billion in subsidies from 2021-2030—distorts markets and should be replaced by a carbon border tax for sectors at high risk of carbon leakage.
• EU ETS auctioning revenues, expected to reach €160 billion over phase 4, should be prioritised for a just transition, specifically to tackle energy poverty, retrain workers, and support coal-dependent communities.

APA

Carbon Market Watch (2017). Beyond the EU ETS: Carbon Market Watch Policy Briefing. https://carbonmarketwatch.org/wp-content/uploads/2017/12/CMW-BEYOND-THE-EU-ETS-STRENGTHENING-EUROPE’S-CARBON-MARKET-THROUGH-NATIONAL-ACTION.pdf

Chicago

Carbon Market Watch. Beyond the EU ETS: Carbon Market Watch Policy Briefing. 2017. https://carbonmarketwatch.org/wp-content/uploads/2017/12/CMW-BEYOND-THE-EU-ETS-STRENGTHENING-EUROPE’S-CARBON-MARKET-THROUGH-NATIONAL-ACTION.pdf.

Wikipedia

{{cite report |author=Carbon Market Watch |title=Beyond the EU ETS: Carbon Market Watch Policy Briefing |date=December 2017 |url=https://carbonmarketwatch.org/wp-content/uploads/2017/12/CMW-BEYOND-THE-EU-ETS-STRENGTHENING-EUROPE’S-CARBON-MARKET-THROUGH-NATIONAL-ACTION.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{carbonmarketwatch2017beyond, author = {{Carbon Market Watch}}, title = {{Beyond the EU ETS: Carbon Market Watch Policy Briefing}}, institution = {Carbon Market Watch}, year = {2017}, month = dec, url = {https://carbonmarketwatch.org/wp-content/uploads/2017/12/CMW-BEYOND-THE-EU-ETS-STRENGTHENING-EUROPE’S-CARBON-MARKET-THROUGH-NATIONAL-ACTION.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }