The EU's Carbon Market is Shifting the Green Tide! The 2025 Carbon Market Report is out, and it's painting a picture of significant progress in the fight against climate change, especially through the EU Emissions Trading System (EU ETS). This report, part of the broader State of the Energy Union Report, offers a snapshot of the EU ETS's performance in 2024 and key developments in the first half of 2025. Let's dive in!
Powering Down Emissions: The report highlights a continuing downward trend in emissions from the power sector and industry. Emissions from power and industrial installations are now approximately 50% lower than they were in 2005. The EU ETS is on track to meet its ambitious 2030 target of reducing emissions by 62%.
In 2024, the power sector saw a nearly 11% decrease in emissions compared to 2023. This is largely thanks to the increasing use of renewable energy sources, like wind and solar, and the ongoing shift from coal to gas in power generation. The share of emissions from hard coal combustion hit a historic low in 2024.
Industry's Role: While industrial emissions saw a slight decrease, overall industrial production remained stable, with some sectors, such as steel, fertilizers, and chemicals, experiencing a modest recovery in output.
Aviation and Maritime: Expanding the Scope: The EU ETS also covers intra-European aviation emissions and flights departing for Switzerland and the UK. These emissions increased by around 15% in 2024 compared to 2023. This increase is partly due to the growth of the aviation sector and the inclusion of tourist flights to the EU's outermost regions. To further reduce aviation emissions, the free allocation of emission allowances to aircraft operators is gradually being phased out. The EU is also incentivizing the use of sustainable aviation fuels (SAF) through additional allowance allocation. Furthermore, the EU has become the first jurisdiction to monitor and report non-CO2 aviation effects.
And this is the part most people miss... 2024 marked the first year that CO2 emissions from maritime transport were included in the EU ETS. The system now covers 50% of emissions from voyages departing or arriving outside the European Economic Area (EEA), and all emissions between two EEA ports and when ships are at an EEA port. Compliance was high, with shipping companies surrendering allowances for over 99% of their requirements by the September deadline. In 2025, shipping companies surrendered allowances for 40% of their 2024 emissions. Shipping companies may surrender 5% fewer allowances than their verified emissions from ice-class ships.
Funding the Future: The EU ETS continues to be a major source of funding for the clean transition, raising €38.8 billion in 2024. This revenue primarily goes to Member States to combat climate change, advance the clean transition, and invest in clean and innovative energy technologies. Funds are also allocated to the Innovation Fund, the Modernisation Fund, and the Resilience and Recovery Facility for the REPowerEU plan. To date, the total revenue raised by the EU ETS exceeds €250 billion.
Where the Money Goes: Member States have largely used their 2024 ETS revenues to support projects in energy supply – renewables, grids and storage, energy efficiency, heating and cooling in buildings, and public transport and mobility. Examples include support for offshore wind and biogas upgrades in Denmark, deep retrofit projects in residential buildings in Lithuania, the expansion of public transport in Portugal, and investments in rail transport and cycle paths in Slovenia.
Looking Ahead: Adjustments to the ETS: The Carbon Market Report also outlines adjustments to the ETS cap coming into effect in 2026, including a rebasing (a one-off reduction), expansion to include methane and nitrous oxide from maritime transport, and reductions based on an updated list of small emitters being excluded from the EU ETS.
But here's where it gets controversial... The inclusion of maritime transport and the adjustments to the ETS cap could spark debates about the fairness and effectiveness of these measures. What do you think about the EU ETS's progress and future plans? Share your thoughts in the comments below!
