Annual ETS Review

The following reports and briefings have been produced thanks to the support of our core funders: The European Climate Foundation, the Goldsmith Foundation and the Esmee Fairbairn Foundation.

A full list of our published reports can be found here.

October 2014
Report: Slaying the Dragon: Vanquish the surplus and rescue the ETS

In our 6th annual report, Slaying the Dragon, we highlight the effect of recent changes to the ETS rules. There have been big improvements from an environmental perspective – including harmonised cap setting, the introduction of carbon-efficiency benchmarks and the banning of certain classes of offsets.

Our report finds that changes introduced to date, though welcome, are not sufficient to address the ETS’s significant problems, the most obvious of which is the build up of a massive excess of allowances that is suppressing prices and dissuading companies from investing in clean technology.

With a new team in Brussels there is great potential to get the ETS back on track. Vanquishing the surplus should be the first item on the to-do-list, but positively addressing competitiveness fears, by ensuring ETS rules stimulate green growth in Europe, must also be a part of that process.

June 2013
Report: Drifting Toward Disaster: The EU ETS adrift in Europe's climate efforts

Drifting Toward Disaster is Sandbag's 5th Annual Environmental Outlook for the EU, reviewing how the scheme has performed across the whole of its second trading phase. The report finds that the Emissions Trading Scheme stands to deliver less than zero net emissions reductions over 2008-2020, and is cancelling out abatement from other policies in the climate package to count against its future climate pledges. It encourages policymakers to agree a backloading decision as a stepping stone to structural reforms which increase the ambition of Europe's 2020 targets and its forthcoming pledges in the international climate negotiations.

Read Damien's summary for Point Carbon here

June 2012
Report: Losing the lead? Europe's flagging carbon market

Losing the lead is Sandbag’s 4th annual report on the Environmental Outlook for the EU ETS – following on from ETS S.O.S. (2009), Cap or Trap? (2010) and Buckle Up! (2011). This report again uses latest emissions data to examine how the ETS is performing on the ground and makes recommendations for urgent reforms. In particular, it highlights that existing proposals to reform the scheme inadequately account for the change in demand for allowances since the caps were last set (2.2Gt), and the effects of industrial overallocation on the cap (0.9Gt). This report also updates our list of Carbon Fatcat companies accruing the largest surpluses of free allowances within the scheme.

July 2011
Report: Buckle Up! Tighten the cap and avoid the carbon crash

Three years into Europe's Emissions Trading System second trading period - how is it performing? This report provides a comprehensive assessment of the environmental outlook of the ETS, covering permit allocations, oversupply, companies use of offsets and projected effectiveness of the cap through to 2020.

It finds that the huge overallocation to industry in Phase 2 has left a double legacy undermining the effectiveness of the scheme to 2020 and beyond: a carryover of permits banked into Phase 3 and an inflated baseline which affects the starting position of the declining carbon cap beginning in 2013. The result: a likely oversupply that grows to an eye-watering 1.9 billion tonnes through to 2020, equivalent of a year's worth of carbon permits in the scheme.

Sandbag recommends a number of measure to save the ETS from redundancy: that the European Commission propose set-aside of 1.7 billion permits before 2013, as well as opening up the Directive by 2015 to adjust the cap.

September 2010
Report: Cap or trap - How the EU ETS risks locking-in carbon emissions

This report critically evaluates the perfomance and prospects of the EU ETS as it currently stands. It explores how Phase 2 caps have been weakend by recession, and how slack from Phase 2 - in the form of unused offset credits - is likely to defer abatement within the EU for much of Phase 3. In addition we explore how large, undeserved surpluses have accrued to specific sectors and companies within the EU ETS.

Our companies analysis can also be viewed as the Carbon Fatcats 2009 pullout displayed below.

The report includes a note of correction from October 2010.

July 2009
Report: EU ETS S.O.S: Why the flagship emissions trading policy needs rescuing

The EU Emissions Trading System (ETS) is a central plank of the EU's policy framework towards tackling climate change. Covering 50% of Europe's emissions it creates approximately 2 billion tradeable permits a year. The scheme has the capacity to be a very powerful tool in cutting carbon emissions in the EU but it is currently a blunt tool, not delivering to its full potential. This report identifies two major flaws with the Emissions Trading Scheme as it stands and discusses the impact of these in relation to EU ambition on tackling climate change.