The EU Emissions Trading System
Launched on 1 January 2005, the EU ETS is the world's first major international cap-and-trade market. It covers about 10,000 power stations and factories in the 27 EU states plus Iceland, Liechtenstein and Norway, along with aviation inside Europe and, since 2024, shipping.
Emissions in covered sectors (2005 = 100)
Source: European Commission and EEA. 2023 saw the largest one-year fall (about 17% for stationary installations). Verified 2025 data show a further 1.3% drop.
- 2005–07
Phase I. Pilot. Allowances were over-allocated because no verified data existed, and the price fell to almost zero by 2007.
- 2008–12
Phase II. Aligned with Kyoto. The 2008–09 recession left a large surplus.
- 2013–20
Phase III. Single EU-wide cap, auctioning as the default; Market Stability Reserve from 2019.
- 2021–30
Phase IV. Faster cap decline under "Fit for 55"; shipping added; Carbon Border Adjustment Mechanism (CBAM) on imports.
- Accurate baseline data are essential. A cap set above real emissions creates no scarcity and no price.
- Most of the cut came from replacing coal power with renewables. In 2024 renewable generation rose 8% and coal generation fell 15%.
- A predictable, falling cap gives industry the confidence to invest in low-carbon technology.