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Abatement Costs for the EU ETS: Pathways to Deep Decarbonization

Abatement Costs for the EU ETS: Pathways to Deep Decarbonization

Key takeaways

Deep Decarbonization by 2040 – The EU ETS MACC highlights a significant shift toward deep emission reductions across multiple sectors between 2030 and 2040.
Power Sector Leads Abatement – Expected to contribute 496.29 MtCO₂/year from 2040 onward, primarily through renewable energy transitions.
Renewables & Storage Scaling – Onshore Wind (99 MtCO₂/year by 2030) and Offshore Wind (137 MtCO₂/year by 2040) emerge as key abatement solutions, with BESS abatement increasing 2.58x by 2040.
Aviation and ammonia production show the highest rise in abatement, with aviation abatement potential increasing 8x and ammonia CCS growing 7.5x% by 2040.
Hydrogen’s Delayed Impact: Hydrogen adoption is projected to be limited by 2030 but commercially viable by 2040, particularly in steel and aluminum refining.
CCS Expansion Across Industries: CCS is projected to triple its impact in cement (42 MtCO₂/year by 2040) and achieve 64.75 MtCO₂/year in oil refining.
EUA Market Shift – Tightening EU ETS targets and increased renewables and industrial decarbonization could lower EUA demand post-2030, stabilizing or reducing prices. Expanding financial incentives is key to scaling CCS, hydrogen, and SMRs.
Sectoral Impact & Competitiveness – CCS expansion highlights the need for CO₂ transport infrastructure, while high-cost sectors may rely on CBAM for competitiveness. Falling CO₂ abatement costs could accelerate clean tech adoption and reduce free allowance dependence.

The Marginal Abatement Cost Curve (MACC) for the EU ETS illustrates a diverse range of emission reduction options across multiple sectors, reflecting possibilities for deep decarbonization till 2030 and 2040. Expectedly, the power sector is a central driver of emissions reductions.

The collective impact of the evaluated interventions could reduce emissions by 423 MtCO₂ per year by 2030, and by 822 MtCO₂ per year by 2040. This assessment is based on cCarbon’s most recent update to its MACC database.

To learn more about how this feeds into our forecast, join us for our webinar “Great Expectations: What to Watch in Carbon Markets in 2025” on Feb 13th.

Figure 1: Marginal Abatement Cost Curve for the EU ETS in 2030; Source: cCarbon Research, MACC constructed using Pandas, Matplotlib, and Seaborn libraries in Python programming

Figure 2: Marginal Abatement Cost Curve for the EU ETS in 2040; Source: cCarbon Research, MACC constructed using Pandas, Matplotlib, and Seaborn libraries in Python programming

Sectoral Contributions to Emissions Abatement

cCarbon’s MACC database captures information on levelized cost of abatement of key interventions in a sector, their commercial readiness as well as the potential for deployment. Across the sectors analyzed, the power sector alone could contribute upto 496 MtCO₂/year in abatement from 2040 onward, primarily driven by offshore wind, battery storage to maximize renewables and CCS on Natural Gas power plants. Abatement options in industries such as iron and steel, cement, and mineral oil refining also hold potential for decarbonization.

When comparing the MACC for 2030 and 2040, emissions reduction potential is anticipated to rise across multiple industries, with aviation and ammonia production witnessing the most pronounced shifts. The aviation sector, driven by increased blending of Sustainable Aviation Fuel (SAF) with conventional jet fuel, is projected to experience an 8x rise in abatement potential by 2040. Similarly, the use of CCS in ammonia synthesis is expected to result in a 7.5x increase in abatement potential over the same period.

Renewable Energy as the Dominant Force in the Power Sector

Expectedly, the power sector is the largest contributor to emissions abatement potential, with onshore wind energy having the most potential by 2030 (potential of 99 MtCO₂/year).

By 2040, offshore wind is expected to surpass onshore wind, becoming the leading decarbonization intervention with potential of upto 260 GW, contributing 137 MtCO₂/year in abatement, supported by cost reductions from €315/tCO₂ in 2030 to €221/tCO₂ in 2040. Together, onshore wind and solar PV are projected to achieve over 199 MtCO₂/year in abatement by 2040, with onshore wind alone contributing over 112 MtCO₂/year.

European Union (EU) member states have set ambitious offshore wind targets, aiming for a total installed capacity of 86–89 GW by 2030, and a substantial increase to 259–261 GW by 2040.

In 2040, Battery Energy Storage Systems – Utility (BESS) technology is expected to record 2.58x increase in the abatement potential from 2030 levels. The Levelized Cost of CO₂ Abatement (LCCA) for BESS is projected to decline by 60% between 2030 and 2040.

Small Modular Reactors (SMRs), although not expected to be commercially viable before 2030, SMRs could play a pivotal role by 2040, contributing to an estimated 1.02 MtCO₂/year in abatement.

Hydrogen’s Role in Industrial Decarbonization

While hydrogen is not expected to be a key decarbonization solution by 2030, it could become commercially viable by 2040, particularly in aluminum refining. Hydrogen boilers could reach full commercial deployment (Technology Readiness Level – TRL 9) by 2040, with hydrogen furnaces advancing to TRL 8, signaling their approach to large-scale adoption. Despite these technological advancements, hydrogen-based refining is still expected to contribute relatively little to overall emissions reductions compared to other solutions in the industry.

Within the Iron and Steel, Electric Arc Furnace (EAF) using scrap steel, a mature and cost-effective solution, could abate 63.80 MtCO₂/year by 2030 which could further rise by 34% by 2040. DRI-EAF technologies, though moderately costlier in 2030, offer long-term scalability, with projected abatement potential of 59 MtCO₂/year, linked to integration with green hydrogen.

The LCCA for steelmaking technologies is expected to become increasingly negative by 2040, making them not only emission-cutting but also cost-effective. EAF using scrap steel is anticipated to slightly outperform DRI-EAF, highlighting the importance of utilizing existing scrap metal as an immediate decarbonization pathway.

Decarbonization in Cement and Refining Sectors & potential of Carbon Capture and Storage (CCS)

Cement

By 2030, the cement sector could leverage alternative fuels and decarbonated raw materials, both of which are cost-efficient and technologically mature. These interventions, with LCCA below $100/tCO₂, are projected to scale rapidly due to economic incentives and rising carbon prices.

Carbon Capture and Storage (CCS) is set to play a major role in emissions reductions within the sector, with expected abatement of 14 MtCO₂ per year by 2030 and 42 MtCO₂ per year by 2040 (a threefold increase).

Countries such as Norway are already leading in CCS deployment, with the Longship project capturing and storing 0.8 MtCO₂ per year. Additional CCS facilities are expected to be operational in Bulgaria by 2028 and Croatia by 2029, with the technology reaching TRL 8 by 2030 and TRL 9 by 2040.

Refining of Mineral Oil & CCS

Refining of Mineral Oil sector is also expected to grow of 3.6x in abatement potential between 2030 and 2040.

CCS is also projected to emerge as the leading abatement mechanism in the Refining of Mineral oil sector by 2040, with a potential of 64.75 MtCO₂/year at ~€41/tCO₂. Large-scale deployment is unlikely before 2030, but the technology is expected to achieve full commercial viability across multiple refining operations by 2040.

Low-grade heat utilization in oil refining is expected to improve LCCA by 40% by 2040, making it more financially attractive, though its direct impact on emissions reductions remains limited. Process efficiency improvements are expected to cut emissions by 22 MtCO₂/year by 2040, with costs remaining negative at ~€-144/tCO₂, highlighting their cost-effectiveness.

Aluminum Sector Decarbonization

The aluminum sector is expected to achieve emissions reductions at moderate-to-high costs, driven by the adoption of Mechanical Vapor Recompression (MVR) and electric boilers, collectively projected to abate 21 MtCO₂/year by 2030. Inert Anode Smelting and MVR, projected to drive 39.44 MtCO₂/year in abatement by 2040.

Table 1: Abatement Costs for Various Interventions Across EU ETS Sectors; Source: cCarbon Research

The EU ETS is set to tighten emissions reduction targets after 2030, leveraging the growing potential for abatement across multiple sectors. Increased deployment of renewables and industrial decarbonization technologies could reduce EUA demand post-2030, leading to potential price stabilization or downward pressure on EUA prices. The power sector will continue to be the primary contributor, with renewables and energy storage playing a crucial role in decarbonization.

The analysis highlights cost reductions in renewables, CCS, and hydrogen, reinforcing the need for expanded financial incentives such as innovation funds, subsidies, or tax credits. Meanwhile, technologies like Small Modular Reactors (SMRs) and green hydrogen will require sustained regulatory support to achieve full-scale adoption by 2040. The expansion of CCS across industries like steel, refining, and cement highlights the pressing need for cross-border CO₂ transport and storage infrastructure. High-cost decarbonization sectors—such as aluminum, cement, and refining—may struggle with competitiveness, placing greater importance on the Carbon Border Adjustment Mechanism (CBAM) to ensure a level playing field.

Increased deployment of renewables and industrial decarbonization technologies could also be seen reducing EUA demand post-2030, leading to potential price stabilization or downward pressure on EUA prices. Our analysis highlights cost reductions in renewables, CCS, and hydrogen, reinforcing the need for expanded financial incentives such as innovation funds, subsidies, or tax credits.

The declining Levelized Cost of CO₂ Abatement (LCCA) in multiple sectors may encourage faster scaling of clean technologies, reducing reliance on free allowances. These trends also reinforce EU ETS alignment with the 2050 net-zero target, supporting gradual reductions in EUA allocations and increasing reliance on sustainable technologies.

The EU ETS Marginal Abatement Cost Curve (MACC) outlines the sectors to track as well as the scale-up of different interventions, linked to EUA price-points. To learn more about the MACC, and cCarbon’s EU ETS (or other market) modeling, please reach out to us at InSights@cKinetics.com