The European Union wants to become the first climate-neutral continent by 2050 and emit at least 55 percent less CO2 on the way there by 2030 than in 1990. A key mechanism here is the so-called Emissions Trading System (ETS), a market for CO2 emissions. In lengthy negotiations, the EU Parliament and representatives of the EU country governments have agreed on a reform for this system.
Peter Liese, from the conservative EPP and chief negotiator in the EU Parliament, called the agreement on Twitter “the biggest climate law ever negotiated in the EU.”
The sectors covered by the ETS, including oil refineries, coal and steel power plants, the cement, glass, paper and parts of the chemical industry, account for up to 40 percent of total emissions in Europe. Around 10,000 companies from these sectors have had to compensate for their CO2 emissions since 2005 according to the “polluter pays” principle.
In 2024, certificates equivalent to 90 million tons of CO2 will be removed from the system. From 2024, 4.3 percent will be taken off the market every year. From 2028 it will be 4.4 percent, and the CO2 price will also increase. As early as 2022, the CO2 price in the EU had climbed to over 85 euros per ton in some cases. It has thus doubled in two years.
In the future, the carbon price for the industries affected by the ETS will be around 100 euros per tonne, according to French MEP Pascal Canfin, chairman of the European Parliament’s environment committee. By 2030, emissions from the ETS sectors are to be reduced by 62 percent instead of the previous 43 percent.
“The targets have been significantly increased compared to the previous level. That’s one of the key points,” said Thorfinn Stainforth of the Institute for European Environmental Policy (IEEP) think tank, which specializes in sustainable policy studies.
In mid-December, the EU had already decided on the CO2 border adjustment (CBAM). This is intended to prevent the shifting of CO2 emissions to countries outside the EU. After a test phase, a climate tariff is to be levied on imported goods, including steel, cement and aluminum.
Another important agreement is the faster departure from so-called “free approvals” in the ETS system. So far, such free approvals have existed for a number of industries in order to avoid disadvantages compared to international competitors due to high CO2 prices. Almost half of the certificates have so far been issued as free certificates, including to heavy industry, which is particularly harmful to the climate.
This means that no carbon price was paid at all for almost 90 percent of the industrial emissions that fall under the ETS. That should now change drastically. By 2030, only half as many free certificates may be issued, and by 2034 they will be completely eliminated.
Last year around 32 billion euros were generated through emissions trading across the EU. Unlike in the past, all income from the ETS is to be used for climate-related measures in the future.
“In Germany this is essentially already the case. But Poland spent 50 percent on completely different purposes, Italy even 70 percent. That will now be over. Emissions trading is an environmental protection tool,” said German MEP Peter Liese.
The ETS is “actually an instrument to give a signal for the polluter pays principle, and that will help. But mainly it is a revenue-generating tool to help companies decarbonize,” Sofie Defour, shipping and road transport expert at the Brussels-based think tank Transport and Environment, told DW.
From 2024, shipping will also be asked to pay for its emissions step by step for the first time. The higher costs for ship operators are intended to provide an incentive to quickly switch to more sustainable alternatives, but Defour says this will have little impact on consumer prices of goods imported by sea.
“We found that the extra charge for a TV would only be about 3 cents and for a pair of Nike shoes it would be about 8 cents. So much fits on one ship that the price difference for a single product is not significant.”
Large parts of air traffic will still not be part of CO2 pricing. Transport and Environment estimates that by 2030 the European aviation industry will only have to pay for 22 percent of its emissions.
Gas, petrol and diesel, which are used for transport or heating, are expected to become significantly more expensive from 2027. And in a new carbon emissions market (ETS2), emissions from buildings and the transport sector also have a price.
A maximum CO2 price of 45 euros is targeted in ETS2. What this means for consumer prices is currently difficult to predict. It is currently assumed that diesel and petrol will cost between 11 and 12 cents more per liter at the pump. In Germany alone, 2.3 million households would be at above-average risk of high heating costs.
This is a sensitive issue now, in the middle of the energy crisis, with extremely high electricity and gas prices. Should energy prices remain so high in the long term, the introduction of ETS2 will be postponed by one year to 2028.
In Eastern European countries in particular, many people continue to rely heavily on fossil fuels. Their incomes are lower, so a high CO2 price will hit them even harder than people with higher average incomes in Germany or France, for example.
That’s why there are plans to set up a Europe-wide climate social fund worth 86 billion euros. The money is intended to subsidize national social climate plans in order to cushion the negative effects of higher gas and petrol prices. For example, climate-friendly renovations, thermal insulation for houses, the expansion of local public transport and social measures for low-income sections of the population can be financed.
Michael Bloss, MEP for the Greens in Parliament, has approved the new CO2 price, but would have liked a more lavish social fund. “Citizens in the EU must expect higher CO2 prices. The climate social fund created for this purpose is not sufficient to compensate for this burden. The EU’s climate protection has an anti-social side.”
Particularly important: the income from the new EU climate package must be invested in climate-related measures.
According to Defour, no climate targets can be achieved with a CO2 price alone. The 27 EU member states must now sharpen and advance their national climate plans: “The ETS is just an instrument that helps you.”
Autor: Tim Schauenberg
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The original of this article “The EU is reforming emissions trading: what is changing?” comes from Deutsche Welle.