Germany to cancel emissions allowances as coal plants are phased out

Germany has cancelled more than 500 000 European Union allowances (EUAs) as it phases out its coal-fired power plants, the German Environment Agency (UBA) said. Cancelling the released allowances will ensure that other countries cannot use them to emit additional CO₂.

Germany will cancel EU Emissions Trading System (EU ETS) allowances from primary government auctions for the first time. The volume cancelled corresponds to a total of 514 000 tonnes of CO₂.

The cancellations follow the closure of the Neurath A and Frechen power plants in 2022, in line with the country’s plan to phase out coal-fired electricity generation. The plan aims to end coal-fired electricity generation entirely by 2038.

The closure of these power plants prevented approximately 890 000 tonnes of CO₂ emissions in the following year. Germany’s phase-out of coal will lead to further emissions reductions in the coming years. It will also result in the regular cancellation of emissions allowances in line with legal requirements.

A significant share of the allowances released as a result of Germany’s coal phase-out has already been automatically withdrawn from the market through the so-called Market Stability Reserve (MSR). Germany is supplementing this mechanism with a national cancellation to ensure that the remaining allowances are also effectively withdrawn.

With the European Commission’s publication of the total number of allowances currently in circulation in the EU ETS at the end of May 2025, the basis is now available for setting the national cancellation volume at 514 000 allowances. The cancellation will take place from September to the end of the year and will be carried out by reducing Germany’s regular auction volumes.

The step of cancelling allowances was recommended in 2018 by the so-called German Coal Commission. Cancelling allowances from the national auction plan is intended to prevent generation from shifting to other parts of Europe and to ensure that emissions of CO₂ produced within the EU ETS are genuinely reduced.

The above is permitted by the Directive establishing the EU ETS:

“Where electricity generation capacity is closed in their territory due to additional national measures, Member States may cancel allowances from the total quantity of allowances they are to auction, up to an amount corresponding to the average verified emissions of the installation concerned over the five years preceding its closure,” the directive states in Article 12(4).