Germany is, for the first time, cancelling emission allowances from the European emissions trading system in order to secure the positive climate impact of the regulated phase-out of coal power. Overall, allowances totalling 514,000 tonnes of CO2 will be taken off the market. This decision follows the shutting down of the Neurath A and Frechen power plant units in 2022, as required by the Coal Phase-Out Act. Around 890,000 tonnes of CO2 were avoided as a result in 2023.
A significant share of the allowances made available as a result of the coal phase-out were automatically taken off the market through the market stability reserve (MSR). The MSR controls the auction volumes in European emissions trading. To ensure that the remaining share is also withdrawn, Germany is supplementing this mechanism with a national cancellation. The publication of the total number of allowances currently in the European emissions trading system – an indicator for market surpluses – by the European Commission at the end of May 2025 provides the key basis for determining the national cancellation volume of 514,000 allowances. These will be cancelled from September until the end of the year in the form of a reduction in Germany's regular auction volumes.
The phase-out of coal power will lead to further reductions in climate-damaging emissions in subsequent years. These will also be regularly backed up by national cancellations in line with the legal requirements, unless cancellation has already taken place through the MSR. The goal of this measure is to prevent the so-called water bed effect: without additional cancellations, the allowances that become available could be used elsewhere in the European Union and in other countries that are part of the trading system (Iceland, Norway, Liechtenstein) to emit more CO2. This would make it impossible to fully harness the emission reduction potential enabled by the coal phase-out. Cancellation guarantees that the positive climate impact of the coal phase-out is secured through emissions trading for the long term.
The next steps: Germany's provisional auction volume for 2025 totals 96,764,500 allowances. In July, the European Energy Exchange – as Germany’s auction platform on behalf of the German Emissions Trading Authority at the German Environment Agency – is expected to publish the updated auction calendar for the period September to December. In addition to the regular reductions in auction volumes through the MSR, the national cancellation volume will then also be deducted from the provisional German auction volumes.