Whilst in the midst of an intense energy and economic crisis due to the explosion of fossil fuel prices and the threat of a fossil gas supply disruption from Russia, many European countries, including Greece, have increased coal mining and are considering lifetime extensions of coal power plants. At the same time, the European Union (EU) needs to accelerate the achievement of its climate goals, thus shielding Member States from the damaging effects of the much more intense climate crisis, which is already present threatening to worsen in the coming years.
In this context, and as Russia’s war in Ukraine continues, the European Emissions Trading System (EU ETS) Directive, the “cornerstone” of EU’s climate policy, is under revision. It is noteworthy that despite the current situation, the European Parliament (EP) decided to increase the climate ambition of the sectors covered in the EU ETS and strengthen the Market Stability Reserve mechanism, elements that are bound to maintain or even increase carbon price in the coming years. Moreover, the Members of the European Parliament (MEP) are calling for an acceleration of the phase-out of the free emission allowances to industry and a tightening of benchmarks with the objective of incentivising industries to change their production processes in order to reduce their carbon footprint, which has remained high since the start of the EU ETS in 2005 until today. Equally important is the EP’s position for the exclusion of fossil fuel investments (including fossil gas) from the Modernization Fund as well as the mandatory use of all MS revenues from the EU ETS for climate action. As the positions of the Council of EU ministers, expressed by the “general approach”, which was agreed upon at the end of June, move to a different direction on the above critical issues, the trilogue negotiations between the Council, the European Parliament and the Commission are highly anticipated.
In view of a critical autumn for energy and climate policy in the EU and Greece, and with the aim of assessing the effects of the various options considered at the national level as well as on the revision of the EU ETS Directive, we analyze the trends of the Greek and EU greenhouse gas (GHG) emissions of the sectors included in the EU ETS. Using official data we compare the latest 2021 emissions with those at the start of the EU ETS (2005) and the beginning of its third phase (2013).
The EU ETS is a carbon pricing system, operating based on the “cap and trade” principle. This means that a gradually decreasing limit is set on the emissions that are allowed to be emitted by all participating installations. Each year, these installations are obliged to surrender emission allowances equal to their actual emissions, which can be acquired mainly through trading in auctions, where the price is set based on the supply and demand rules. This way, a carbon price is established and the “polluter pays” principle, is, at least in theory, applied.
In the first two phases of the EU ETS (2005-2012) and until the middle of its third phase, the operation of the EU ETS did not achieve the anticipated emissions reductions, as carbon prices remained at very low levels for various reasons. However, as a result of the latest reform (2015-2018), from 2018 onwards, carbon prices began to rise, reducing the emissions of the installations covered by the EU ETS and especially emissions from coal power plants. Thus, in conjunction with the development of renewables during the same period, the EU ETS contributed to the significant drop of GHG in the EU.
- How did the emissions from installations covered by the EU ETS in 2021, evolve after 2020, when the lowest emissions in ETS sectors of the recent years were observed?
- What was Greece’s performance and how does it compare with the performance of the rest of the EU member states?
- Which sectors contributed more and which less to the GHG emission reduction in the past and what is the current situation?
In the following we will address the above questions using the official data from the European Environment Agency and Union Registry for the emissions of the sectors that are covered by the EU ETS.
Overall, the EU has managed to reduce significantly CO2 emissions in the sectors covered by the EU-ETS. Specifically, in 2020, EU achieved 40% reduction compared to 2005 emissions, while due to the small increase of the emissions in 2021, the corresponding reduction compared to 2005 was smaller (-35%). Overall, the decrease achieved by 2020 is very close to the previous 2030 target for the EU ETS of 43% reduction compared to 2005 levels, but still quite far from the new EU ETS target that is expected to be between 61% and 63% reduction in 2030 compared to 2005.
The main sector responsible for the reduction of emissions achieved so far was the combustion sector, which covers mainly electricity and heat production. As can be seen in Graph 1, the combustion sector in 2021 emitted 27,9% less than it did in 2013, while the corresponding reduction in the energy intensive industry was only 6.5%. However, even though the emissions reduction in the combustion sector was significant, the trend of 2021 was opposite to that of the last years. The EU-wide economic recovery after the pandemic in 2020, led to a 7% increase in emissions compared to 2020, for the first time since 2017.
Examining the performance of the member states separately, it becomes evident that there are high performers which have managed, to reduce their CO2 emissions by more than 50% compared to 2005, but also climate laggards. Portugal ranks first, with a 57% CO2 emissions reduction compared to 2005, while Denmark (-55%), Romania (-54.5) and Greece (-53.9%) follow very closely. On the other side of the EU spectrum lie worst climate performers and in particular Ireland which in the 16 years of the operation of EU ETS managed reduce its emissions by just 9.5%, followed by Poland (-13.3%) and Cyprus (-14.9%).
Even though overall emissions in the EU ETS increased in 2021 compared to the previous year, there were 7 EU member states that managed to reduce their overall emissions even during this year where the economy was recovering. The highest reductions were achieved by Portugal (-13.6%), which completely closed its coal plants, Slovenia (-6.8%) and Hungary (-6.5%). On the contrary, Estonia (+22.1%) and Bulgaria (+21.1%) were the member states with the largest increases in CO2 emissions in the EU ETS sectors compared to 2020. Greece was also one of the countries that increased its emissions in 2021, but to a lesser extent (+5.5%) compared to the EU-27 average (+7%).
In Greece, as in the rest of Europe, the significant emission reduction achieved in the EU ETS emissions since the beginning of the third phase (2013), is attributed to progress in the combustion sector where emissions dropped by 54% in 2021 compared to 2013, a much higher reduction than the corresponding EU average (-27,9%). In contrast, emissions from industrial installations, during the same period, decreased by only 3%, a percentage smaller than the corresponding reduction observed in the EU-27 (-7%).
Despite the fact that emissions from energy intensive industries in Greece decreased in 2020 compared to 2019, this trend was reversed in 2021, when emissions from the sector reached almost 2019 levels (-1.5% in 2021 compared to 2019 and +9% compared to 2020). Similarly, emissions from aviation increased in 2021, after the huge drop recorded in 2020 due to the pandemic. However, contrary to industry where emissions in 2021 almost reached 2019 levels, the emissions from aviation in 2021 remained much less than the corresponding emissions of 2019 (-41%).
In Greece, the overwhelming share of the combustion sector emissions comes from electricity generation. Since the beginning of the EU ETS in 2005, lignite plants have the lion’s share in the sector’s emissions. Due to the drastic reduction of lignite’s share in Greece’s electricity mix, these emissions have decreased dramatically. Thus in 2021, CO2 emissions from lignite in Greece decreased by 77% compared to 2013 and, unlike many European countries, they also decreased compared to 2020 by 9%. In contrast, fossil gas emissions had been steadily increasing in recent years. In particular, in 2021, they increased by 67% compared to 2013, while only in the last year they increased by 16%. As a result, for the first time since the launch of the EU ETS, CO2 emissions from fossil gas plants surpassed those produced by lignite plants. Emissions from oil-fired plants in the non-interconnected islands remained relatively stable since the beginning of the 3rd EU ETS phase, showing a slight decline in the last 2 years (-12%). This drop can be attributed to the combination of the pandemic-induced decrease in tourism and the interconnection during this period of some isolated island systems with Greece’s mainland electricity grid.
Contrary to the electricity production, industrial emissions in Greece did not show considerable fluctuations and remained at high levels since the beginning of the 3rd EU ETS phase. The largest share of the sector’s emissions comes from cement production and refineries. More specifically, in 2021, emissions from cement production represented 40% of the total emissions from the energy intensive industry, while in relation to the beginning of the 3rd phase of the EU ETS the corresponding emissions dropped by 15%. The opposite trend was observed in emissions from refineries, which increased by 9% compared to 2013 and retained the lion’s share (48%) of the energy intensive industry emissions in 2021.
The emissions from the top-10 polluters in Greece have changed considerably over the years. While in 2013 lignite plants were the top six polluters, this has gradually changed especially since 2019 due to the corresponding drop in lignite production. Thus, lignite plants progressively gave their place in the top 10 to fossil gas plants. However, the Agios Dimitrios thermal power plant (TPP) is still the power plant that emitted the most CO2 in Greece in 2021. The 2021 “top 10” includes two more lignite plants (Megalopolis 4 TPP, Kardia TPP) albeit in lower positions than in 2013, three fossil gas plants (Lavrio TPP, Megalopolis 5 TPP, Aluminium – Mytilineos), three refineries (Motor oil- Korinthos, ELPE – Elefsina, ELPE – Aspropyrgos) and one cement production unit (TITAN -Boeotia).
More specifically, 2021 was the first year that TPP Amyntaio (lignite) did not operate at all due to its retirement, while the majority of lignite plants reduced their GHG emissions with the exception of TPP Agios Dimitrios and Megalopolis 4, which both increased their emissions compared to 2020 by 17% and 80% respectively.
In addition to the two fossil gas plants that entered the “top 10” list in 2020 (Lavrio TPP and Aluminium – Mytilineos), the gas plant Megalopolis 5 was new entry of 2021, due to its emissions increase by 50% compared to 2020.
In the energy intensive industrial sectors, the biggest emitters in 2021 were the same as in 2013. The difference is that in 2021 they moved up to higher positions in the top 10 list, with the two refineries (Motor oil – Korinthos and ELPE – Elefsina) occupying the second and third places, having increased their emissions by 9% and 19%, respectively in 2021 compared to 2013.
Summary and Conclusions
EU ETS emissions in the EU were raised in 2021 for the first time in several years (the last year-on-year increase was in 2017), due to the post pandemic economic recovery and increased use of coal because of the high gas prices. However, the reduction in GHG emissions compared to the start of the EU ETS operation (-35%) remains close to the previous 2030 EU ETS target of a 43% reduction in 2030 compared to 2005. Given the negligible reduction of the emissions from energy intensive industries, the outcome highlights EU’s very low climate ambition so far, which was proven to be below the reduction potential of the EU ETS sectors.
In order to avoid a structural return of coal in several member states, it is necessary for the three EU institutions to agree on increasing climate ambition in the EU ETS for 2030.Setting an emission reduction target of at least 63% in 2030 relevant to 2005 levels and strengthening the parameters of the Market Stability Reserve in order to maintain carbon prices at high levels, avoiding a substantial backslide in EU climate policy.
Contrary to other MS that historically had high dependence on solid fossil fuels (such as Poland and Bulgaria), Greece reduced its GHG emissions in the EU ETS significantly (-54% in 2021 compared to 2005), even achieving the fourth highest performance in the EU-27, very close to the first, Portugal (-57%). This performance, was achieved due to the rapid reduction in lignite production in recent years (-77% in 2021 compared to 2013). It would have been much higher if emissions from fossil gas plants did not skyrocket in the same period (+67%), and if energy intensive industry managed to reduce its carbon footprint by more than a negligible 3%. It is therefore becoming clear, that in order for Greece to maintain its place among the top climate performers in EU ETS sectors, it is necessary to continue on the current path of a lignite phase-out, but with a parallel displacement of fossil gas in the electricity production by renewables.
In addition, both at the national and European levels, it is absolutely necessary to reduce the emissions of the energy intensive industry. Without the contribution of this sector, it is practically impossible to achieve EU’s overall 2030 climate goal of reducing the net GHG emissions by at least 55% compared to 1990 levels. For this reason, it is imperative to accelerate the phase-out of free emission allowances offered to the industry in massive quantities so far, by 2032 at the latest, and to further strengthen the benchmarks that determine the distribution of the free emission allowances among the industries, with the aim of incentivizing the industry’s “green” transformation. It is for the purpose of financially supporting EU’s energy intensive industries to reduce their carbon footprint through appropriate modification of their processes, that the EU-27 has augmented the EU ETS-linked Innovation Fund. The latter may even be renamed to Climate Investment Fund, to emphasize the significance political groups in the EP are attributing on reducing the industrial carbon footprint instead of promoting innovation.