Working Paper no. 151

EU ETS emissions under the cancellation mechanism

Effects of national measures

From 2023 onwards, allowances held in the market stability reserve above the number of allowances auctioned the previous year will be cancelled. In this paper, we analyse what consequences additional national emission reductions in the EU ETS sector will have on total emissions given this new cancellation mechanism.

By Björn Carlén, Anna Dahlqvist, Svante Mandell and Pelle Marklund

We show that additional national abatement measures now have the potential to reduce total EU ETS emissions. However, for this to happen, the emission reductions must take place early – before 2023 in our base case. To provide an understanding of this complex system, we present a series of extensions to show how the results are affected by, for example, future emission levels, technological development, optimising agents and speculative trading in allowances.