1. Excess EUAs in circulation

Allowances “in circulation” are surplus EUAs previously distributed to market participants (either sold at auctions or given for free) but never used for compliance. They are just sitting in the registries of market participants.

This figure is similar to the Total Number of Allowances in Circulation (TNAC) published yearly by the European Commission to calculate the number of withdrawals into the Market Stability Reserve, except for an aviation-related adjustment made by the EC, which we do not replicate in this surplus figure.

2. Emission reduction compared to 2005

It is the emission reduction of the scope of installations currently covered by the EU ETS (countries, sectors and types of installations) compared to the emission level of the same scope of installations in 2005. For example, Brexit did not change the emission reductions calculated here.

3. Surplus EUA remaining in 2030

This is the total surplus EUAs, either already in circulation or locked away but still available under certain conditions. This latter category includes:

• The Market Stability Reserve (MSR), which releases EUAs when the number in circulation falls low
• The New Entrants Reserve (NER), which releases EUAs when 2-year industry activity levels are high
• Unallocated EUAs under Article 10a(5), which are released when 5-year activity levels are high

You can select and combine different scenarios on the menu on the left by clicking the buttons. The selected parameters are highlighted in blue. Details of each scenario are given further down.

Please refer to our explanatory videos:

• How to read the EU ETS Simulator?
• What are the different scenarios?
• Most relevant conclusions

Energy production

• Current trend: This assumes constant electricity generation and the same speed of deployment of renewable electricity as on average over the period 2020-23
• MIX catchup: This scenario catches up linearly with the level of electricity generation and renewable electricity capacity that will be required in 2030 according to the Fit-for-55 MIX scenario.

Hydrogen production

• ‘No’: scenario in which no “green” hydrogen is produced, (“green” hydrogen means produced from water electrolysis, regardless of the type of electricity used)
• ‘Renewable Energy Directive (RED)’: “green” hydrogen production reaches 5 million tonnes in the EU by 2030, mostly used in industrial applications
• ‘REPowerEU’: scenario where EU “green” hydrogen production reaches 10 million tonnes by 2030, used in other sectors than industry

Free allocation benchmarks

The benchmarks applicable in 2026-30 will be updated by the European Commission according to the emission intensity of the 10% best performing plants measured over 2022-23. In the “low” scenario, their emission intensity follows the trend observed over 2007-17 until 2023 which leads to lower benchmark values for 2026-30, whereas in the “high” scenario, the emission intensity of the 10% best performing plants in 2022-23 is the same as in 2016-17, which means higher benchmark values.

Default activity growth

For most industrial sectors, short term activity growth (up until 2025) follows the forecasts published by mainstream organisations (Eurofer for iron & steel, Cembureau for cement, Eurocontrol for aviation, etc.), whereas longer term growth is set to either 1% or 2% (as selected by the user). For steel and cement, for which a trade deficit has increased since 2019 but will be covered by the CBAM from 2026, an extra production increase is projected to reverse the deficit back to its 2019 level. For a number of sectors representing about 25% of industry emissions, activity growth follows GDP forecasts from the International Monetary Fund, regardless of the selected scenario.

EUA Price

This parameter mostly impacts the revenues breakdown in the bottom bar chart. However, it also impacts the supply/demand balance, as the RePowerEU uses the MSR to raise €20bn and the number of EUAs involved depends on their price. The price used is the average market price over 2021-23, and the price selected for the rest of the decade.

Emissions from the power sector: They are derived from the Commission’s MIX scenario, to which an amount is added or subtracted corresponding to the difference between non-renewables generation needed in the chosen scenario (taking into account hydrogen demand) and in the Commission’s MIX scenario. For the non-renewable difference, the emission intensity used corresponds to that of the MIX scenario in 2020, 2025 and 2030 and interpolated linearly between these years.

Emissions from aviation and industry: They are calculated by multiplying production with emissions intensity, where emissions intensity decreases by a default rate between 0.5% and 1% depending on the “free allocation benchmark” scenario chosen. However, for some sectors such as cement, steel, fertilisers, hydrogen and refineries, specific technologies are taken into account. For all of those except cement, fuel substitution with hydrogen (depending on the selected hydrogen scenario) counts negatively towards their emission intensity. For steel, it is expected that 21.7m DRI production capacity will be built by 2030 (source: Energypost), powered by either natural gas or hydrogen (also depending on the scenario). DRI feeds into electric arc furnaces with 50% scrap, except for ThyssenKrupp’s project plant which only uses 20% scrap. For cement, a slight decrease in clinker content is expected as a result of the Free Allocation Regulation from 2026. For aviation, an extra 2.75% reduction spread out over the 2024-30 period is applied as per the Sustainable Aviation Fuel mandate.

For historical values (until 2023), we use data from the European Union Transaction Log. Estimations outside industrial sectors are based on well-established scenarios provided by e.g. the European Commission, Eurocontrol or Eurostat. As we continuously adjust our model based on most up-to-date data, the data displayed on the simulator may change over time. 

Yes – the underlying model can also provide analysis of aspects like free allocation, revenues of the Modernisation Fund and Innovation Fund, use of flexibility mechanisms, etc. If there’s a particular set of data you’d like to be made available or particular parameters you would like to try out, please let us know by sending an email to contact@sandbag.be.

Following the Commission’s Fit For 55 proposal, we published an updated version of the model on July 16, 2021, which we further adjusted on July 29, 2021, and August 2, 2021. We implemented several changes: new reduction target, LRF and cap; inclusion of maritime transport; increased Modernisation and Innovation Funds; adjustments to the MSR (new rules for the cancellation of allowances, inclusion of emissions from aviation in the calculation of the TNAC); inclusion of ESR/ETS flexibilities; changes in benchmarks’ calculation rules for the period 2026-2030. We adjusted the emissions scenarios for the Power sector to make it meet the MIX scenario’s target, and Industry sector with updated BAU data and using production scenarios from our Hydrogen report. We also added a component to reflect changes in free allocation from 2026-2030 (see question on our model’s assumptions). 

In September 30 2021, we added the Baseline scenario to the simulator (cf. question what are the two emissions scenarios) and made some adjustments to our forecasts based on latest data. 

In February 2022, we included scenarios that reflect the different reform proposals of the ETS and CBAM (see question on the ETS/CBAM scenarios) and added extra information in the simulator on the ETS revenues. 

In May 2022, we updated the simulator with 2021 emissions and a new option to show the impact of using the MSR to finance the RePowerEU plan on the supply-demand balance of the EU ETS. We also adjusted our baseline scenarios for the aviation sector and the steel sector. 

In July 2022, we updated the simulator to show the different proposals on the table for the trilogues’ negotiations between the Commission, the European Parliament and the Council. 

In February 2023, we updated the simulator to reflect the agreement on the ETS reform and CBAM. This includes reflecting the final figures on LRF and cap; inclusion of maritime transport; increased Modernisation and Innovation Funds; adjustments to the MSR (new rules for the cancellation of allowances, inclusion of emissions from aviation in the calculation of the TNAC); and changes in benchmarks’ calculation rules for the period 2026-2030. 

In March 2023, we adjusted to our emissions forecasts based on the latest data. 

In April 2023, we included a new scenario focusing on the Free Allocation system that affects the steel sector and a scenario on the production of hydrogen. 

In June 2023, we updated actual 2022 emissions data and updated activity level for free allocation. Also, the baseline scenario changed to a low power emissions scenario to ensure a clearer conveyance. 

In June 2024, we updated 2023 emissions data. We removed several scenarios that were not relevant anymore, as the ETS reform was finally adopted. We added new scenarios that are more relevant to the policy outlook.

Please read our supply/demand analysis.