Four magic potions to turn the EU ETS into an effective climate mitigation tool

The policy brief identifies the EU ETS as currently ineffective due to a massive oversupply of pollution permits and a carbon price too low to incentivize low-carbon investment. It proposes four primary interventions: cancelling at least 2 billion surplus allowances in the Market Stability Reserve by 2020, increasing the linear reduction factor to at least 2.6% to align with 2050 decarbonisation goals, implementing a one-billion allowance ceiling on the Market Stability Reserve to account for technological progress, and shortening trading periods to five years to increase responsiveness to market and scientific changes.

• The EU ETS is currently failing as a mitigation tool because a large oversupply of permits has driven the carbon price to levels too low to internalize societal costs or promote low-carbon technology investments, with prices dropping from €30 in 2008 to €5 in 2014.
• By 2020, the oversupply of pollution permits is projected to reach 2.6 billion, which could potentially cancel out the environmental benefits of the EU ETS revision for the 2021-2030 period.
• To prevent surplus permits from undermining future targets, the author recommends emptying the Market Stability Reserve in 2020 by removing at least 2 billion surplus allowances and ensuring the new entrants reserve is filled only with phase 4 cap allowances.
• The proposed linear reduction factor of 2.2% is considered insufficient for cost-effective decarbonisation by 2050; a factor of at least 2.6% is recommended to align with the upper range of the EU's long-term target of 80-95% emission reductions.
• Because the EU ETS lacks a mechanism to adjust for the rapid decline in costs of low-carbon technologies, the author proposes a ceiling of one billion allowances for the Market Stability Reserve to automatically increase ambition as new technologies enter the market.
• The current trend toward longer trading periods (increasing from eight to ten years) reduces the ability of regulators to adapt to market developments; the document recommends five-year trading periods to synchronize with the UN Paris climate agreement.

APA

Carbon Market Watch (2015). Four magic potions to turn the EU ETS into an effective climate mitigation tool. https://carbonmarketwatch.org/wp-content/uploads/2015/09/FOUR-MAGIC-POTIONS-TO-TURN-THE-EU-ETS-INTO-AN-EFFECTIVE-CLIMATE-MITIGATION-TOOL_web_final.pdf

Chicago

Carbon Market Watch. Four magic potions to turn the EU ETS into an effective climate mitigation tool. 2015. https://carbonmarketwatch.org/wp-content/uploads/2015/09/FOUR-MAGIC-POTIONS-TO-TURN-THE-EU-ETS-INTO-AN-EFFECTIVE-CLIMATE-MITIGATION-TOOL_web_final.pdf.

Wikipedia

{{cite report |author=Carbon Market Watch |title=Four magic potions to turn the EU ETS into an effective climate mitigation tool |date=September 2015 |url=https://carbonmarketwatch.org/wp-content/uploads/2015/09/FOUR-MAGIC-POTIONS-TO-TURN-THE-EU-ETS-INTO-AN-EFFECTIVE-CLIMATE-MITIGATION-TOOL_web_final.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{carbonmarketwatch2015four, author = {{Carbon Market Watch}}, title = {{Four magic potions to turn the EU ETS into an effective climate mitigation tool}}, institution = {Carbon Market Watch}, year = {2015}, month = sep, url = {https://carbonmarketwatch.org/wp-content/uploads/2015/09/FOUR-MAGIC-POTIONS-TO-TURN-THE-EU-ETS-INTO-AN-EFFECTIVE-CLIMATE-MITIGATION-TOOL_web_final.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }