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19th May 2022

EU agency warns ETS emission-cuts are off track

  • Emissions-trading system releases in Belgium, Estonia, Iceland, Ireland, Malta and Poland are expected to increase between 2020 and 2030
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Current projections indicate that emissions-reductions in member states covered by the EU's cap-and-trade carbon market are insufficient to meet the bloc's new climate targets for 2030 and 2050, the European Environment Agency (EEA) warned on Wednesday (12 January).

The EU's emissions-trading system (ETS), which began operating in 2005, limits emissions in the power sector, manufacturing industry, and airlines operating in Europe.

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Within this limit, companies can sell and buy emissions allowances for every emitted tonne of CO2 - establishing a carbon-pricing mechanism that acts as an economic incentive to reduce pollution.

Last summer, the European Commission unveiled a package of proposals to reduce greenhouse gas emissions by 55 percent by 2030, including a reform of the EU's carbon market.

The increased ambition of the ETS represents an overall emission-reduction target of 61 percent by 2030, compared to 2005.

But projections reported by EU countries only show a 41-48 percent reduction in ETS emissions within the next eight years - despite reductions caused by the economic downturn from Covid-19.

"In the short term, member states must take action to avoid a rebound in emissions linked to the pandemic," reads the briefing from the EU agency.

"[But] these should be backed with medium- and long-term measures to achieve the new and more ambitious target for 2030," it adds.

Green groups, however, argue that the main problem for emissions reduction in the sectors covered by the EU carbon market is that its design is not sustainable in the long term.

"A strong reform of the ETS is needed to push for a real decarbonisation in the industrial sector. The ETS emissions-reduction target of 61 percent as proposed by the commission falls far short of what is required to hold global temperature increase below dangerous levels," Camille Maury from WWF Europe told EUobserver.

"This reform will involve removing greater numbers of allowances from the market to push the carbon price up. Next to that, making sure energy-intensive industry stop receiving free permits to pollute is key to trigger the innovation needed to achieve the 2030 climate target," she added.

Free permits are designed to help industry players to remain competitive against rivals based in non-EU third countries - dubbed 'carbon leakage'.

But a 2020 report of the European Court of Auditors shed doubts about their efficiency to reduce greenhouse gas emissions, revealing instead that free allowances tend to slow down the modernisation of energy-intensive industries.

Emissions to rise in six EU states

While the majority of EU countries foresee a decrease in their ETS emission between 2020 and 2030, six countries expect their emissions to increase during the same period - namely Belgium, Estonia, Iceland, Ireland, Malta and Poland.

The projected increase in ETS emissions in these countries responds to the planned phase-out of nuclear production capacity, which is likely to be replaced by more natural gas, or an increase in carbon-intensive energy production, the EEA briefing warns.

It adds that another reason could be the expected higher demand for electricity driven by the electrification in the transport and buildings sectors - two sectors which will now be included under a separate emissions trading system.

"If this additional demand … is not backed by similar growth in renewable electricity production, it might lead to an increase in ETS emissions," the EU agency warned. 

Overall, the Covid-19 pandemic triggered a historic decrease in ETS emissions, comparable only to the drop observed in 2009 during the financial crisis.

However, such reduction is estimated to be only temporary since it is not triggered by structural changes.

ETS expansion to homes and cars raises bills fears

The EU wants to become the first continent to reach net-zero. But revenues from the Social Climate Fund will be low, and not commensurate with the task of renovating 35 million homes or getting millions of cars off the road.

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