Does the EU Emissions Trading Scheme (EU ETS) really work?

According to the latest data presented by the European Commission, the EU ETS has reduced emissions by 50 percent (in the sectors covered) since 2005. For the current fourth phase of the EU ETS, i.e. for 2021-2030, the European Union has set a target of reducing greenhouse gas emissions by 62 percent compared to 2005 levels. The data presented show that everything is on track to achieve the target.

How does the EU Emissions Trading Scheme work?

As of January 1, 2005, operators of all covered activities must surrender a sufficient number of allowances each year to cover the previous year’s greenhouse gas emissions (at a rate of one allowance per ton of carbon dioxide or an equivalent amount of other potent greenhouse gases).

The total number of allowances issued each year in the EU is being gradually reduced – by 1.74 percent in 2013 and 2020, and by 2.2 percent in 2021-2023. It will be reduced by 4.3 percent per year between 2024 and 2027, and by 4.4 percent thereafter.

The free allowance system has been revised to address carbon leakage by focusing on sectors with a high risk of relocation outside the EU. Accordingly:

• Free allowances will be phased out according to reduction rates;
• a_CO2-aware border price adjustment mechanism(CBAM), a carbon pricing system that applies to energy-intensive products imported into the EU, has been established – the allocation of free ETS allowances will be phased out (by 2034).

EU emissions trading scheme – latest data

The latest data reported by EU member states by the March 31, 2025 deadline show a 5 percent reduction in emissions in 2024 compared to 2023 levels from notifying stationary installations and aircraft operators. As a result, ETS emissions are now about 50 percent below 2005 levels. The observed trend confirms the effectiveness and efficiency of the EU trading scheme as an important policy instrument for decarbonizing the European economy.

The significant decrease in emissions under the EU ETS is the result of efforts in the power sector, with emissions from electricity generation reduced by 12 percent compared to 2023 levels. The decrease is attributable to an 8 percent increase in renewable electricity and a 5 percent decrease in nuclear power, as well as an 8 percent decrease in gas and a 15 percent decrease in coal. Solar and hydroelectric power were the main drivers of increased renewable electricity production. Wind-generated energy remained stable despite less favorable weather conditions at certain times of the year. Total electricity generation also remained stable, at levels similar to 2023 results.

On average, emissions from energy-intensive industries have remained stable. However, there are differences between sectors. Emissions from fertilizer production, for example, increased by 7 percent, while in the cement sector they fell by 5 percent.

Aviation emissions covered by the EU ETS have increased by about 15 percent compared to 2023, in part due to the expansion of geographic coverage (the reincorporation of foreign flights to and from ports in the outermost regions).

Maritime transport in the EU emissions trading scheme

As of Jan. 1, 2024, the EU Emissions Trading Scheme has extended its impact to the maritime transport sector, which means shipowners must monitor emissions and purchase EUA (European Union Allowance) units.

Under current regulations, shipping companies report verified emissions under the EU ETS starting in 2025. The current reporting period is still ongoing, shipowners have until September 30, 2025 to report. Since 2024, they have had a one-year transition period in which they were required to buy 40 percent of the emission rights actually exercised, 70 percent this year, and 100 percent the following year. In 2026, each ship’s emission reporting system will also have to be expanded to include CH₄ and N₂O.

Reporting is based on the monitoring, reporting and verification of maritime transport emissions effective from 2018. As of April 1, 2025, shipping companies have reported about 72 million t of_CO2 within the EU ETS scope in the IT tool for maritime reporting (THETIS-MRV). Of these, about 40 million t of_CO2 has already been reflected in the EU ETS register.