Preliminary data published last week by the European Commission revealed that verified emissions from operators covered by the EU ETS fell by 15,5% in 2023 compared to levels recorded in the previous year. “ETS emissions are now around 47% below 2005 levels and well on track to achieve the 2030 target of -62%,” the Commission said.

This is “the most significant annual emissions reduction since the ETS was launched in 2005,” according to the executive, and higher than the consensus estimate of market participants. According to a pool of 11 analysts interviewed by Montel News in March, verified emissions were estimated to drop by 14% with the fall “ranging from 11% at the lower end (LSEG) to a plunge of 17% at the upper end (Morgan Stanley).”

Emissions from the power sector decreased the most by 24% amid higher renewables sources due to more favorable weather conditions leading to increased wind and solar generation which coincided with a rebound in both hydropower and French nuclear production.

In the industry sectors, emissions declined by 7% compared to the previous year because of “a combination of reduced output and efficiency gains which are mainly visible in cement, iron and steel” as stated by the Commission.

Furthermore, preliminary data shows that aviation was the only sector to see its emissions rise as the industry continued to recover from the collapse during the pandemic. Compared to 2022, the rise in 2023 was by around 10%.

However, the higher decline in annual emissions will mean more EUAs in circulation which in turn means that the Market Stability Reserve (MSR) will withdraw more allowances by reducing the number sold at auctions. The total number of allowances in circulation (TNAC) which plays an important role in the functioning of the MSR will be published on 1 June 2024, instead of May amid the new compliance calendar.