Supply and demand in the ETS 2

Abstract

The study looks at the functioning of the new emission trading system for road transport, buildings, and small installations (ETS 2) in the EU. It explains the rules governing the supply of allowances including the functioning of the market stability reserve (MSR) and the price containment mechanisms. Furthermore, it assesses the balance of supply and demand as well as auctioning revenues under different assumptions for the development of CO2 emissions and CO2 price. Finally, the interaction between the ETS 2 and national targets under the Effort Sharing Regulation (ESR) and the relationship with the German national ETS is assessed and an outlook for the period until 2040 is provided.