Sandbag’s EU ETS simulator (Fit For 55 Model)
Questions & Answers
How can I use this simulator?
You can select different parameters on the left menu by clicking on the buttons. The selected parameters are highlighted in blue. You can choose between two “Emissions scenarios” options, five “ETS / CBAM” options, two “Cap rebasing” options, and two “MSR design” options
What is the “maximum emissions pathway”?
The bold red line shows an emissions pathway that would be permitted by the scheme as amended by your selected parameters. This pathway was calculated by applying a fixed growth rate to industry emissions from 2021 onwards, using up the EUA surplus by 2030. Emissions from electricity generation are assumed to follow the ‘MIX’ scenario set out in the EU’s Impact Assessment and emissions from the maritime sector are assumed to follow the ‘MEXTRA50/MIX’ scenario. The maximum emissions pathway is not a forecast of emissions but is intended to illustrate how the selected parameters can alter the scheme’s real constraint. This shows that, while the target is important, other structural factors of the EU ETS will have a big impact on how strictly the target must be adhered to.
What does the “Excess EUAs in circulation” represent?
What are the two 2030 reduction targets?
What does “cap rebasing” mean?
What are the Market Stability Reserve design options?
Which combination of parameters is the most desirable?
What are the model’s assumptions?
- The EU ETS’s scope includes power, industry, intra-EU aviation emissions, and maritime emissions from 2023 onwards (intra-EU voyages and half of the emissions from extra-EU voyages and emissions occurring at berth in an EU port). Shipping companies will need to buy allowances covering 100% of their emissions from 2026, after a transitional regime in 2023-2025.
- Emissions from power generation are assumed to follow the ‘MIX’ scenario of the latest EC’s Impact Assessment, which focuses “on both carbon price signal extension to road transport and buildings and strong intensification of energy and transport policies”.
- Domestic aviation is assumed to follow Eurocontrol’s Scenario 2, combined with 1% annual growth in carbon efficiency until 2025; then follows the same trend as industry.
- The demand for hydrogen in three sectors (refining, methanol and ammonia) are assumed to decrease in line with emission targets for cars and new farming policies, as per our Hydrogen report. All other industry emissions are assumed to claw back their 2019 levels after the 2020 Covid-19 trough in 2021, plus a constant annual progression rate applied until the end of the scheme.
- Emissions from maritime transport are assumed to follow the ‘MAR1/MEXTRA50’ scenario of the latest EC’s Impact Assessment.
- The split between free allocation and auctions is based on the ETS’ regime currently in place for Phase 4. Each year, the number of free allowances is based on the previous two years’ production figures multiplied by benchmarks. During 2021-25, we assume that the emission intensity decreases yearly by a constant factor. Not having access to the carbon intensity figures held by the European Commission, we derived it from Eurostat’s industrial production index, combined with historical EU ETS industry emissions growth over 2013-19.
- In 2026-2030, emission intensity reduces more quickly thanks to the reform of the benchmarks, which for example makes green and low-carbon hydrogen eligible to free allocation. This leads to a higher use rate of free allocation.
- We also assume that there are no ‘frictions’ between production and allocation variations, despite the scheme’s allocation being based on thresholds (15% up or down) rather than fully dynamic.