Priorities for the upcoming EU Emissions Trading System revision

The report argues that while the EU ETS has halved emissions in key sectors, it remains structurally oversupplied and hampered by free allocation subsidies. It advocates for the total elimination of free allowances, the expansion of the system to cover all international aviation and shipping, and the rejection of carbon offsets and removals. The document emphasizes that the Market Stability Reserve (MSR) must be preserved to maintain a strong carbon price signal and that revenues should be redirected from fossil fuel subsidies toward a 'people first' transition.

• The EU ETS is currently structurally oversupplied and not aligned with the 1.5°C goal of the Paris Agreement; in 2024, 82% of emissions from ETS installations were still from burning fossil fuels.
• Free allocation of allowances has acted as a massive subsidy for pollution, with over 2.6 billion allowances valued at €170 billion handed out since 2021. This mechanism has allowed some companies to profit significantly, with total industry profits from the carbon market reaching up to 50 billion euros between 2008-2019.
• The Market Stability Reserve (MSR) has successfully invalidated 3.4 billion allowances to date. Weakening the MSR now could increase greenhouse gas emissions by up to 900 million extra tonnes of CO2 after 2030.
• The report strongly opposes the reintroduction of international credits or offsets, noting that during phase 3 (2013-2020), over 1.6 billion international credits entered the system and undermined its effectiveness for a decade.
• Carbon dioxide removals (CDR) should not be integrated directly into the ETS because of a significant price gap; for example, in early 2026, the EUA price was €75 while DACCS costs were estimated at €500-1000 per tonne.
• Aviation coverage is currently insufficient, pricing only about 15% of the sector's true climate impact. Expanding the scope to all flights departing and arriving from the EEA could generate an additional €19 billion annually by 2030.
• The shipping sector remains under-priced; smaller vessels (400-5000 gross tonnage) are currently exempt, leaving 17.8 megatonnes of CO2 per year unpriced.
• The 'zero-rating' of biomass is criticized for driving deforestation and creating a perverse incentive to swap fossil fuels for biomass, which in 2024 contributed 153MtCO2e beyond the cap.
• The 'indirect cost compensation' (ICC) mechanism is described as a waste of revenues, with over €5.5 billion spent in 2024 to subsidize companies for using fossil-based electricity.
• The ETS2 for road transport and buildings has been weakened by a one-year delay to 2028, resulting in approximately €50 billion in lost auctioning revenues for 2027.

APA

Carbon Market Watch (n.d.). Priorities for the upcoming EU Emissions Trading System revision. https://carbonmarketwatch.org/wp-content/uploads/2026/05/CMW_DontMessWithTheETS_2026_Report_v003_digital_final-FINAL.pdf

Chicago

Carbon Market Watch. Priorities for the upcoming EU Emissions Trading System revision. n.d. https://carbonmarketwatch.org/wp-content/uploads/2026/05/CMW_DontMessWithTheETS_2026_Report_v003_digital_final-FINAL.pdf.

Wikipedia

{{cite report |author=Carbon Market Watch |title=Priorities for the upcoming EU Emissions Trading System revision |url=https://carbonmarketwatch.org/wp-content/uploads/2026/05/CMW_DontMessWithTheETS_2026_Report_v003_digital_final-FINAL.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{carbonmarketwatchndpriorities, author = {{Carbon Market Watch}}, title = {{Priorities for the upcoming EU Emissions Trading System revision}}, institution = {Carbon Market Watch}, url = {https://carbonmarketwatch.org/wp-content/uploads/2026/05/CMW_DontMessWithTheETS_2026_Report_v003_digital_final-FINAL.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }