EU carbon market needs an overhaul to deliver Green Deal

MADRID/BRUSSELS 11 December 2019. The European Green Deal, presented today by the EU Commission, must lead to short-term action and a rapid introduction of a 65% emission reduction target for 2030. Carbon Market Watch welcomes the proposals to include the shipping sector under the EU carbon market and to reduce free allocation for the aviation sector and calls for a phase-out of free pollution subsidies for the energy-intensive industry.

Carbon Market Watch reacts to key elements of the European Green Deal:

The litmus test for the Green Deal is how it leads to short term action

By March 2020, The Commission will put forward a proposal for a European Climate Law enshrining in legislation the objective for the EU to become climate neutral by 2050. 

This is a welcome step, but to get to climate neutrality, the EU needs to ramp up its 2030 climate target to deliver 65% greenhouse gas emission reduction. Also, this initiative should be proposed by March 2020 in order for it to be agreed in time for the next climate summit in Glasgow.

Sabine Frank, executive director of Carbon Market Watch said

What matters to the atmosphere is that we reduce emissions and fast. Today’s failure to indicate a timely increase of the 2030 target needs to be corrected. This will be crucial also to create much needed international momentum to ramp up climate action in order to limit global warming to 1.5 degrees.” 

The EU ETS is not fit to achieve a real green deal – phasing out free allowances is key

The Green Deal envisages a revision of “all relevant legislation”, including the EU Emissions Trading System (EU ETS) by June 2021 – bringing it forward from the original timetable which was 2023. 

The EU ETS reform will have to include increasing the pace at which pollution is reduced annually (the Linear Reduction Factor), mandating auctioning revenues to be used towards climate action and phasing out free pollution subsidies.

Sabine Frank:

The Green Deal will imply a major overhaul of the EU carbon market rules. After 15 years of emissions trading in Europe, the system needs to finally be made to work for the climate. This means faster emission cuts and no more pollution subsidies.

Carbon Market Watch welcomes the proposal to include shipping in the EU ETS and to reduce free emission allowances for intra-EU aviation.

The proposals to include shipping into the EU carbon market and reduce the number of free emissions permits for aviation allows Europe to step up action on these sector’s massive climate impact. It will hopefully also inject some much-needed energy into the global talks at the UN shipping and aviation agencies that are progressing at a snail’s pace.

The Green Deal includes a proposal for a carbon border adjustment mechanism “for selected sectors”. 

If such a mechanism was introduced, it would have to be designed in a way that benefits the climate rather than merely protects the interests of polluting industries. A key condition for introducing a carbon border tax is that the free allocation under the EU ETS ends.

Sabine Frank:

Introducing carbon border taxes on top of free allocation would amount to double protection of industry, take away any incentive for them to decarbonise and, therefore, would not benefit the climate.

European industrial sectors need to become part of the solution 

The Commission will put forward an EU Industrial Strategy by March 2020. This strategy must be aligned with climate neutrality and include the following: 

  • A Paris Agreement compliance test for environmental permitting of new industrial installations or major refurbishments
  • Carbon performance standards for materials and products
  • Binding recycling targets for energy-intensive materials

Agnese Ruggiero, policy officer at Carbon Market Watch said:

Heavy industry is the biggest climate headache for Europe and it’s about time this changed. The new industrial strategy will have to include both carrots and sticks, such as binding recycling targets and innovation funding to put the sector on a climate-friendly path.” 

-ENDS-

Contact:

Sabine Frank, Executive Director
+32 2 335 3661
[email protected]

Agnese Ruggiero, Policy Officer
+32 2 335 36 66
[email protected]

Kaisa Amaral, Communications Director
+32 485 07 68 90
[email protected]

Notes to editors

  • More than 90% of industrial carbon pollution is emitted without any cost to the polluting companies because the allowances are given out for free rather than being auctioned. Even in the impending fourth ETS trading phase, around 6.5 billion allowances worth about 165bn are going to be handed out for free.
  • Heavy industry has made over €25 billion in windfall profits from the EU ETS during the 2008-2015 period due to free allocation.
  • CO2 pollution from heavy industry is flatlining since 2012 and is not expected to go down by 2030.