Carbon Market Watch Newsletter – February 2021

Gearing up for the EU carbon market rules revision

The deadline for public consultation on the EU carbon market rules review passed earlier this month. A look at the input from industry is revealing. For example, the cement sector wants to be rewarded for using uncertain (taxpayer-funded) carbon capture and storage or utilisation to deal with its carbon pollution. Concretely, the sector wants to continue to receive free permits for all of its pollution without having to give them back for the part of its emissions that are for example turned into synthetic fuels (which of course will be burned later, meaning that the emissions are not stored, simply delayed). This shows how detached the sector is from the reality of the climate crisis. There are numerous problems with this approach, not least the fact that there is limited storage space for carbon as it is. That space should be reserved as a last resort for technologies that actually suck the pollutant out of the atmosphere – which will, unfortunately, be necessary as we are likely not going to reduce emissions fast enough.

Meanwhile, the recent EU carbon price hike has intensified market discussions. It seems that Europe is finally putting a proper price on pollution. But we need much stronger rules from the upcoming review to make sure that this continues to be the case. These include agreeing on a faster pace at which emissions reduce annually and strengthening the mechanism that deals with the market surplus (and yes, phasing out the free pollution permits that heavy industry wants to cling onto).

There are also exciting developments in the voluntary carbon markets. Carbon market actors such as Gold Standard and the Science-based Targets initiative are supporting the move away from offsetting. Under the alternative “contribution” model, finance continues to flow to climate projects through the market but without the company making the payment claiming to be “carbon-neutral” as a result.

Finally, EU governments are preparing their national recovery plans that they need to submit in order to tap into the 750 billion euro Recovery and Resilience Fund. PlanUp has recommendations for Italy, Spain, Hungary, Poland and Romania on how to direct funds where they can make the clean transition happen.

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