The EU Emissions Trading System (EU ETS) covers around 40% of the EU’s greenhouse gas emissions from more than 11,000 installations and airlines.
As part of the EU Green Deal implementation, the scheme will be revised starting in the summer of 2021. The revision is a crucial opportunity to ensure that the sectors covered by it reduce their emissions in line with the EU climate goals and the Paris Agreement objective of limiting global temperature rise to 1.5 degrees Celsius.
To this end, Carbon Market Watch makes the following recommendations:
- Increase the rate at which emissions decrease (the “Linear Reduction Factor”, LRF) to 5.8% as of 2023 or to 3.1% if combined with a one-off reduction of the cap by 450 million allowances to drive faster emission reductions
- Increase the intake rate of the Market Stability Reserve (MSR) to 36% from 2024 onwards, adopt declining thresholds and automatic cancellation of allowances held in the reserve for more than three years to effectively handle the market surplus
- End free allocation of allowances for energy-intensive industries and the aviation sector to incentivise climate action in these sectors
- Use 100% of auctioning revenues in further climate action, industrial innovation, just transition and international climate finance
- Do not include road transport and buildings to avoid a distraction from more effective regulation in these sectors
- Include international maritime transport in the absence of action at the global level, and waste incineration to encourage other more sustainable and low-carbon waste treatment options
- Bring all flights under the carbon market in line with the current “stop-the-clock” regulation from 2024 at the latest
- Exclude Carbon Dioxide Removal (CDR) credits to avoid that such credits risk distracting from emission reduction efforts
- Delete the article 26 to set limits on greenhouse gas emissions in environmental permits under the EU industrial emissions directive.
Read the full submission text here