Trends in the Emissions Trading System in the EU and in Greece

EXECUTIVE SUMMARY:

The EU Emissions Trading System (EU-ETS) is the flagship of the European Union (EU) climate policy. It was established in 2005 and is the first and largest carbon market in the world. It includes all EU countries, Iceland, Liechtenstein and Norway and currently covers around 40% of EU greenhouse gas (GHG) emissions from about 11,000 installations in the electricity and heat production, energy intensive industry and aviation sectors.

The main goal of the EU-ETS is to reduce GHG emissions in the sectors it covers in a cost-effective manner. Since being introduced in 2005, the EU-ETS has evolved to serve the EU’s climate targets. In order to be aligned with the new EU-27 climate target to reduce GHG emissions by at least 55% by 2030 compared to 1990 levels, the EU-ETS directive is to be revised under the “fit for 55” legislative package. The European Commission’s initial proposal is expected to be presented on July 14, 2021.

Understanding the course of developments to date serves as a good guide for the design of the right climate policy into the future; hence, this report analyses the effect that the EU-ETS has had on GHG emissions reductions per sector for all EU countries (EU-27), as well as for Greece.

The study was based on the latest official data for EU-ETS GHG Emissions (2020) from the European Commission. It aims to examine the effectiveness of this economic instrument in meeting the EU’s emissions reduction targets, but also to capture trends in the electricity and heat generation, energy intensive industry and aviation sectors in general.

Overall, from 2005 to 2020, EU-ETS emissions in the EU decreased by 42.3%, a considerable reduction to which the high CO2 prices contributed, especially in the last two years, due to the EU-ETS. The reduction achieved in the ETS sectors by 2020, is practically equal to the target previously set for 2030 (43% compared to 2005 levels), highlighting, on the one hand, the low ambition shown by the EU a few years ago and, on the other, the potential that the EU-ETS offers in order to achieve the EU climate targets.

Analyzing the emissions by sector, it is clear that the overall decrease occurred mainly due to the decline in emissions in the electricity and heat generation sector (-42.7%, 2005-2020). On the contrary, the energy-intensive industry emissions remained at relatively stable levels with an exception of the year 2020, during which industry emissions shrank by 9.5%. Of course, this trend can be related to the pandemic and for this reason the emissions are expected to recover. Similarly to the industry, a significant decrease was observed in the aviation sector (65.6% between 2019-2020) due to the pandemic. However, aviation has a very small share of the total ETS emissions.

During the same period, Greece, reduced its total EU-ETS GHG emissions by 56.3% (from 73.7 million tons to 32.2. million tons in 2020), achieving the 3rd best performance in the EU. Similar to the rest of the EU, the reduction in total ETS emissions in Greece was achieved primarily due to the decline in the emissions of the electricity and heat generation sector and mainly during the 3rd phase of the EU-ETS (-60.3%, between 2013-2020). More specifically, emissions reduction in this sector is mainly due to the drastic reduction of lignite activity, especially since 2018, with the large increase in operating costs of the lignite plants due to the EU-ETS carbon price playing a significant role.

Part of the electricity production from lignite was replaced by fossil gas, thus causing a significant increase in emissions from fossil gas in Greece (+44% compared to 2013) and the appearance of fossil gas power plants in the list with the 10 biggest emitters in Greece during the 3rd EU ETS phase (2013-2020).

Similarly to the rest of the EU, industrial emissions in Greece remained relatively stable during the 3rd EU-ETS phase. On the contrary, during the first two phases of the EU-ETS (2005-2012), a significant decrease was observed in Greece as a result of the shrinkage of industrial activity in the country, mainly due to the financial crisis.

Taking into account both the existing Greek National Energy and Climate Plan (NECP) (-74% reduction in emissions in 2030 compared to 2005), the revised EU targets (-55% reduction in emissions in 2030 compared to 1990) and especially the long-term goal of climate neutrality by 2050, we can conclude that despite the significant progress made between 2005 and 2020 in reducing GHG emissions in the EU-ETS sectors in Greece, significant improvements are needed. The effort needs to be intensified and expanded to areas other than power generation such as the energy-intensive industry. In addition, new investments must utilize green/sustainable technologies and not different types of fossil fuels, such as fossil gas, which will increase emissions.