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The EU Emissions Trading System

A three-part guide to Europe’s carbon market — cap-and-trade explained from scratch, the four trading phases that shaped today’s prices, and where the system stands in 2026 ahead of ETS2.

By Climate Decode • Updated

3 Articles • World’s Largest Carbon Market
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Start Here•Market Snapshot•More in the Series•About Climate Decode•TerraNova

Start Here

Foundational • Part 1

The EU ETS Primer

A working guide to how Europe’s carbon market works — the cap, the auctions, the compliance cycle, the MSR, and what actually moves the EUA price.

By Climate Decode • • 11 min read

Read the Primer →

What You'll Learn

▶ What the EU ETS is and why it works

▶ Who and what is covered (~40% of EU GHG)

▶ How the cap is set and shrinks each year

▶ Auctions vs free allocation (and CBAM)

▶ The annual compliance cycle and penalties

▶ The Market Stability Reserve, ETS2 and price drivers

The Market in Three Numbers

The EU ETS is the world’s largest carbon market — tightening fast as the LRF cuts supply year after year.

~1.19bn

2026 cap (power + industry + shipping)

4.3%

LRF cutting supply, 2024–2027

~€74/t

EUA price, May 2026

Sources: European Commission · EEX · Climate Decode market monitor (May 2026).

More in the Series

The history that built today’s prices, and the state of play in 2026.

Part 2 • History

How the EU Carbon Market Has Worked Till Now

From the over-supplied 2005 pilot to the Fit for 55 era — four trading phases, the price crashes and recoveries, the MSR launch, and TNAC decoded.

What's Covered

•  Phase 1 (2005–07): price crashed from €30 to near zero

•  Phase 3 backloading + MSR launch (Jan 2019) as the turning point

•  TNAC trajectory: from ~2bn peak (2013) to ~1.02bn (2025) under the gentler band

By Climate Decode • May 2026 • 12 min read

Read Article →
Part 3 • The Market Today

The EU ETS in 2026: Auctions, the Cap and the LRF

Where allowances come from, where they trade, how fast the cap is tightening, and how ETS2 reshapes the carbon-price footprint from 2028.

What's Covered

•  2026 cap ~1.19bn + 4.3% LRF cutting supply on a 62%-by-2030 track

•  EEX primary auctions + the December EUA futures contract on ICE Endex

•  ETS2 for buildings/transport: launches 2028, early auctions Jan 2027

By Climate Decode • May 2026 • 13 min read

Read Article →

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Climate Decode

Climate Decode is the enterprise workspace for carbon markets. We produce structured, finance-grade intelligence across 16 compliance and voluntary carbon markets — helping obligated parties, project developers and corporate buyers navigate carbon pricing with confidence.

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TerraNova

Climate Decode’s compliance carbon platform. Tracks live EUA prices, models 2030 CBAM exposure across product categories, and turns the EU ETS rulebook into a finance-grade view of your carbon bill year by year.

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