Reform deal needed to save ETS 2, key to EU climate goals – think tank
Clean Energy Wire
The EU must address resistance to its new emissions trading system (ETS 2) and find a strategic compromise to ensure the scheme’s introduction, as the union lacks the right alternatives to reduce emissions in transport and heating, said think tank Energy and Climate Policy and Innovation Council (EPICO).
“Europe has no credible alternative to ETS 2 for achieving its climate protection goals,” said EPICO executive director Bernd Weber. “Its introduction is the litmus test for whether market-based climate action in the EU is still politically viable.”
The EU has decided to expand its emissions trading system, one of its key climate policy instruments, to push CO2 reduction in the transport and building sectors. The new ETS 2 is set to take full effect in 2027, but there is political pressure in many countries to weaken, postpone, or prevent the system’s introduction.
Germany is a comparatively rich country and already has a national carbon price for transport and buildings, so the effects of shifting to the new EU ETS 2 will be limited. However, poorer countries, especially in eastern Europe, could face steep increases in the price for petrol, fossil gas or heating oil – which would hit low-income households especially hard, as these often lack the resources to switch to climate-friendly alternatives.
EPICO proposed several policy options that could be part of a compromise to save the ETS 2, including a reform of the Market Stability Reserve (MSR) – a system that is meant to prevent price hikes or crashes by injecting or withdrawing emissions allowances. Its operation should be extended beyond 2030, and it should release more allowances faster in the early years.
In addition, EPICO proposed to use new debt to pay out future ETS revenues early to fund investments in clean technologies and infrastructure. “This can increase acceptance and reduce future costs,” it said. The think tank rejected a staggered introduction of the ETS 2 by region, or excepting certain EU member states from the system.
Germany and several other EU countries have already proposed some changes to the system. A government spokesperson told Clean Energy Wire that the necessary reforms would not require changes to the ETS directive itself, but rather amend rules on auctions and the Market Stability Reserve.
