EU ETS – Reform needs in the light of national policies

The European Union Emissions Trading System (EU ETS) is the world’s largest emissions trading system, measured in tonnes of carbon covered. Since the launch, the system has gone through several changes, and the EU will propose further reforms in 2021. In this publication, authors Milan Elkerbout and Lars Zetterberg detail the different mechanisms of the EU ETS and discuss the remaining challenges.

The EU ETS works by putting a limit on the total emissions in the sectors covered and by distributing a corresponding number of emissions permits. By putting a cap on emissions and allowing companies to trade with them, a carbon price is created. This creates incentives for the sectors covered to switch to more environmental friendly energy sources.

However, there are still some unresolved issues and the EU ETS will need further reform. Specifically, there are questions regarding the risk of carbon leakage and how national policies can interact with the trading scheme. In “EU ETS – reform needs in the light of national policies” the authors discuss these risks using three examples of companion policies in EU countries.

About the authors

Milan Elkerbout is a Research Fellow at CEPS. During 2019 and the first half of 2020, he was a visiting Mistra Fellow at IVL in Stockholm, as part of the Mistra Carbon Exit research programme working on the EU ETS and other EU climate policy issues.

Lars Zetterberg, PhD, is a senior researcher at IVL Swedish Environmental Research Institute. Zetterberg has performed several missions for the Swedish government analysing the EU ETS and international carbon markets in order to improve its function and efficiency.

Foreword by Ruben Henriksson, Climate Programme, Fores.