Adjusting the EU ETS, significantly more emissions, barely lower energy costs
The European Commission has proposed adjustments to the EU emissions trading system (EU ETS). Until 2050, these adjustments can lead to 33% more CO₂ emissions in the energy-intensive industry, electricity production, shipping, and aviation, report the Bureau for Economic Policy Analysis (CPB) and PBL Netherlands Environmental Assessment Agency. On the other hand, the expected decline in the price of emission allowances is limited, while the market price stability decreases.
CPB and PBL researched the consequences of two proposed adjustments: an easing of the emissions cap and a reform of the market stability reserve (MSR). Part of these adjustments involves scrapping the so-called invalidation mechanism that permanently removes surplus emission allowances from the market. The analysis looks at the impacts on emissions, emission prices, and market stability through 2050.
Significantly more emissions
As a result of the additional emission allowances because of the adjustments, businesses will invest less in emissions reduction. Therefore, according to our analysis, the proposed adjustments will lead to a total of 33% more emissions within the EU ETS, which corresponds to 2.9 Gt additional CO₂ through 2050. Nearly 80% of these extra emissions follow directly from the increase in the emissions cap (from zero in 2039 to zero in 2047 if the proposed linear decline is carried through), and the integration of international credits (after 2036) and permanent carbon removals (between 2031 and 2040). Additionally, there are still emission allowances in circulation which would otherwise have been removed from the market due to invalidation. Getting rid of the invalidation rule hardly contributes to this.
Limited decrease in costs for industry
Because of the larger supply in the future, this study finds a 14% reduction in the price of emission allowances . For businesses that use natural gas as an energy source, this decline in the allowance price corresponds to a decrease in the price of natural gas of approximately €2 per MWh. That is ca. 3% of the current (high) natural gas price. This hardly compensates businesses for the rise in the natural gas price of recent years.
Less stable emissions market
The proposed adjustments will also make the price of emission allowances less stable, since surplus allowances will no longer be invalidated. As a result of the changes, businesses will hold smaller stocks of emission allowances in the short term. This will deplete the reserve in the MSR sooner, reducing the MSR’s ability to soften price fluctuations.
Building on previous research from March
This new research aligns with earlier research by CPB and PBL from March 19, 2026. For more on this, see the CPB Discussion Paper ‘Industry energy support and its interaction with EU ETS’ and the VoxEU article ‘Improving competitiveness or meeting climate targets: The Draghi dilemma’.
