These are operations at the heart of European climate policy that have been taking place in the European Parliament for months. In between, one could get the impression that the patient could no longer be saved. Rising energy prices and the war in Ukraine have complicated negotiations on the central law of the European “Green Deal”, presented by the Commission in July 2021: the reform of CO2 emissions trading. It must be tightened and expanded if the EU wants to achieve its climate goals. But now, lo and behold: It could work, a compromise is emerging.
“The compromise will help to save our planet,” says MEP Peter Liese from the CDU, who is in charge of guiding the law through parliament. At the same time, people would be protected from job losses and excessive energy prices. Michael Bloss from the Greens, Liese’s opponent, says he is “proud” of what has been achieved: “a major reform” that could decisively advance climate protection. But the reform still has to survive two important votes before it can enter into negotiations with the 27 member states.
No tool has proven as effective in getting Europe’s industry on track, and none could be extended to other countries as easily as the EU Emissions Trading Scheme (ETS). “And we are now definitely before his biggest reform,” says Domien Vangenechten, trade expert at the environmental think tank E3G.
Those who do not invest should feel the disadvantages
In 2005, the EU introduced the trading system. In theory, it should work like this: Europe allows its industry a maximum amount of climate-damaging CO2 emissions. It issues certificates for this total amount. If a company wants to produce and emit more, it has to buy additional certificates. But because they are not available in unlimited quantities, there is a price for them. As is always the case with scarce goods, whoever pays the most wins out in the end – while others may come up with the idea of emitting less CO2, for example through more modern systems, which they finance by selling the certificates that are released. in practice, however, there were too many allowances for more than a decade, and the price remained rock-bottom. Only after several steps were the certificates scarce enough. Now it costs around 80 eurosto emit a ton of carbon dioxide. So it’s worth giving up. In industry and power plants, emissions have fallen by 43 percent since 2005.
And they should keep going down. The reform intends to further reduce the number of certificates. That should drive prices up. However, a lot of money should go back to the economy: companies can have climate-friendly investments promoted from a huge innovation fund. In general, the system is designed to promote climate-friendly companies. If you don’t want to invest, you face disadvantages.
The EU also wants to make emissions trading the heart of a new border tax. Anyone who imports products to Europe should pay a price for their climate footprint. This should be based on the certificate price for CO2. “This completely changes the way emissions trading works,” says E3G man Vangenechten. Because the unequal conditions in world trade have accompanied the system from the beginning. So that European companies do not produce more expensively and ultimately migrate, they have received most emission rights free of charge. If the new border tax came, everyone would have to pay. Otherwise the levy would be a disadvantage for the importers, and the World Trade Organization WTO would come into play. The question of when the system change should be completed is still controversial.
Driving would be more expensive
The second emissions trading system (ETS 2), which is to be placed alongside the first, is even more difficult. He would hit the Europeans directly. Based on the example of factories and power plants, there should also be an upper limit for heating and fuel. Here, too, there would be certificates, they too would have a price and would make heating and driving more expensive. “In the long term, we could use such a system to control the exit from oil and gas,” says Brigitte Knopf, head of the Berlin climate research institute MCC. “And not with many national systems, but a uniform European.”
But if the emissions cost the same everywhere in Europe, the Europeans will be hit differently. Rich Danes can afford it more easily than poor Bulgarians. And so CDU man Liese had to accept a painful compromise: Only commercial housing and commercial traffic should initially be included in the new emissions trading, private individuals at the earliest in 2029, if at all. Because many in Parliament shy away from scaring people right now with the news: Energy is getting even more expensive!
The Commission’s draft law provides for people on low incomes to be compensated for increased energy prices from a social fund that is fed by the revenues from the ETS 2. For the EU, this would go far beyond climate policy. In fact, she would take in money that she would then redistribute. It would be the start of a European social policy. The debate about emissions trading doesn’t make it any easier, says Knopf.
The reform will be voted on next Tuesday in the environment committee and at the beginning of June in the plenum. A point of contention is still how much the reform should reduce CO2 emissions by 2030. Greens, Social Democrats, Liberals and Left want to go beyond the target set by the Commission. They also want to ensure that no free certificates are issued to industry as early as 2030, when the border tax for importers comes into force at the same time. In Liese’s EPP group there is resistance to this, they want to treat the industry more gently. So the whole reform can still burst.
In any case, there is always criticism of emissions trading. “We should suspend carbon trading,” he told Slovak Economy Minister Richard Sulik recently. “Because it drives up energy prices.” This position is not uncommon, especially in Eastern Europe. But it is wrong, says Domien Vangenechten, precisely because of the exploding energy prices. “To get out of this disaster,” he says, “we need more effort, not less.”