EU Emissions Trading System (ETS)
We conduct research on the EU Emissions Trading System (ETS) to make it efficient and effective at reducing emissions.
What is the EU ETS?
The EU ETS is the European Union’s flagship climate policy, designed to reduce greenhouse gas (GHG) emissions cost-effectively.
By creating a market of emission permits, it incentivises individual installations in sectors like power generation and heavy industry to cut emissions.
It was extended to the shipping sector in 2024 and is connected to an ETS covering aviation.
How does it work?
- Cap-and-trade system: A legal cap limits total emissions in sectors like power generation and heavy industry. This cap decreases annually to drive decarbonisation.
- Allowances and trading: Allowances are tradable, creating a carbon market. Companies must surrender one allowance per tonne of greenhouse gas (CO2, N20, PFC) emitted.
- Carbon price: Limiting allowance supply drives a market-based price, allowing factories to decarbonise cost-effectively.
Ongoing challenges
- Until 2018, an oversupply of allowances kept carbon prices very low, providing no incentive to cut emissions.
- Today, prices are higher but free emission allowances and state aid compensation for indirect carbon costs, continue to create unfair competition between polluting and less-polluting processes and products.
Our work
Our tools
We develop in-house tools to help policymakers and stakeholders understand and improve the EU ETS.
EU ETS Dashboard
Explore sector-specific emissions data within the EU Emissions Trading System at various levels of granularity.
EU ETS Simulator
Analyse the impact of policy adjustments on the EU ETS.
Carbon price viewer
Check and analyse the evolution of EU carbon price over time.
Evidence-based advocacy
We deliver data-driven and evidence-based policy recommendations though, direct feedback to institutions, reports and policy briefs.
Our messages
Keeping up with ambitions
The ETS cap is set to reach near zero by 2039 – an achievable goal, partly due to the large surplus of allowances already in the system. There is no need to weaken this ambition by lifting the cap or letting offsets in.
Phasing out free allocation quickly
Free allocation should be phased-out quickly, and accompanied by an efficient implementation of the Carbon Border Adjustment Mechanism (CBAM) to prevent carbon leakage. More about the CBAM.
Reforming free allocation
While it IS still on, free allocation should better level the playing field for – at least – some cleaner alternatives such as steel recycling.
Reforming compensation for indirect carbon costs
This State aid should support businesses for using intermittent renewable electricity rather than stable grid electricity.
Reforming the Innovation Fund
Public money from the Innovation Fund should be better spent. Grants should prioritise early-stage innovation, while mature technologies should only receive performance-based subsidies.
Our achievements
February 2024: Reform of the Free Allocation Regulation ensures fair competition for alternative cement and steel technologies
The Free Allocation Regulation was reformed to allow some alternative cement binders and direct reduced iron to compete more fairly with clinker and hot metal.
We had identified this problem years ago and made this reform one of our key campaigns in 2023 by:
- Submitting a proposal to the European Commission’s Climate Change Expert Group on the Free Allocation Regulation,
- Interacted with key MEPs,
- Gathered a coalition of NGOs and business associations to ask for a change in the system. Click here to learn more.
October 2023: Entry into force of the Carbon Border Adjustment Mechanism (CBAM)
Already in 2019, we explored the solution of a border adjustment mechanism as an alternative to free allocation in our report “The A-B-C to BCAs”. Click here to learn more.
We were one of the 3 NGOs selected to be members of the European Commission’s Carbon Boarder Adjustment Mechanism (CBAM) Expert Group and actively engaged in improving its design.
June 2023: Innovation Fund subsidies for hydrogen technologies are conditional to performance
The European Hydrogen Bank made Innovation Fund subsidies for mature hydrogen technologies conditional on performance.
We had identified flaws in the Fund’s handling of risk, and had proposed a change of approach in our 2022 report: Spend smarter: a bit of advice on climate innovation financing.
March 2021: The European Parliament votes for rebasing the EU ETS cap
The European Parliament’s initiative report on the Carbon Border Adjustment Mechanism underlines that the EU ETS reform should include “a rebasing of the cap”.
We were the first to coin the term and introduced the concept of rebasing in our 2016 report Getting in touch with reality.
We have then relentlessly promoted this idea to policymakers.
Get involved and support us towards this effort!
While these developments mark important progress, we need more profound changes for the EU ETS to effectively drive decarbonisation at the scale and pace required.
WHAT WE DO
TOOLS
PUBLICATIONS
NEWSLETTER
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Sandbag is a not-for-profit (ASBL) organisation registered in Belgium under the number 0707.935.890.
EU transparency register no. 277895137794-73.
VAT: BE0707935890.