LinkedIn·Tuesday, 11 August 2026·15d ago

🚨 Our new technical brief analyses the EU ETS review! The Commission’s proposed changes to the EU ETS would drive emissions down by 75%,…

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🚨 Our new technical brief analyses the EU ETS review! The Commission’s proposed changes to the EU ETS would drive emissions down by 75%, not 85%. The current surplus of allowances covers 1.7 times the reported emissions for sectors covered by the EU ETS for 2025. Based on our updated EU ETS Simulator, our new brief models the impact of the Commission’s proposed changes on the carbon market’s supply/demand balance under a scenario of 85% EU-wide emissions reduction, as per the Commission’s stated target. 1️⃣ The proposed cap would lead to a surplus of 736m allowances in 2040. This represents 2.7 times the emissions expected for 2040 (273 million tCO2) in that scenario. 2️⃣Increasing the number of allowances available from 2031 to 2040 to 260m allowances to purchase domestic carbon removals would increase that surplus to 996m allowances in 2040, which is 3.6 times the emissions expected for that year. 3️⃣New MSR rules would increase the surplus further to 1,100 million allowances, i.e. 4.0 times 2040 emissions. 4️⃣By applying the Commission’s 1 April proposal of no longer invalidating allowances in the MSR in excess of 400 million, the surplus would jump to 1,540 million allowances, i.e. 5.6 times 2040 emissions under an 85% reduction scenario. Such a high ratio would likely drive down allowance prices and fail to drive emissions down to this target. In contrast, under an emissions pathway of only -75% reduction (443 million tCO2 by 2040), the surplus would cover 1.7 times the emissions expected for 2040, which is the same ratio as today. Therefore, this emissions pathway would be the more likely outcome. 🔗Link to the brief and our ETS Simulator in the comments.

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