Here you can watch our video of the online discussion from March 19th 2021 on the current debate over the review of the EU ETS. Of primary concern for fossil-dependent lower income nations is the carbon price rising so high that it reduces available budget for investment in clean energy. If that happens there’s clearly a problem. The counter argument is that there are other funding mechanisms available, and more than one pathway for successful clean energy transitions. All agree that getting the regulations right is crucial. Taking part in the panel were: Adam Guibourge-Czetwertyński, Undersecretary of State, Polish Ministry of Climate and Environment; Beatriz Yordi, Director for European and International Carbon Markets, DG CLIMA; Wanda Buk, VP Regulatory Affairs for PGE Group (event sponsor); Dirk Forrister, President and CEO, International Emissions Trading Association; Philipp Ruf, Director for Energy Analytics, ICIS. It was moderated by Energy Post’s Matthew James.
“An EU ETS that lifts carbon prices too high can make clean energy transitions harder” by Wanda Buk, VP Regulatory Affairs for PGE Group
Written summary of the event
A condensed and written summary is available here. It includes the presentation slides and the Q&A at the end.
Background to the event
The higher target for 2030 will pose a tremendous challenge for sectors covered by the EU ETS (e.g. power and heat, energy-intensive industries). They are expected to carry the heaviest investment burden to implement the higher climate ambition set to be at least 55% for 2030.
According to the European Commission’s Impact Assessment the 55% target could mean reductions of as much as 65% in the EU ETS sectors until 2030. This means, first and foremost, that ensuring fair burden sharing between ETS and non-ETS sectors will be the key to success.
Ensuring cost-effectiveness will still be important, but it will have to be considered in conjunction with ensuring competitiveness, a just transition, and fair distribution of decarbonisation costs. These issues will be even more important for citizens and Member States now, compared to the previous ETS Reform, as Europe grapples with the economic consequences of COVID-19.
The EU’s plan is to boost economic growth through green investments but should the main investment burden still be on the ETS sectors or should all sectors contribute an equal share to the implementation of the new climate targets?
All political aspects will require careful examination and technical expertise. Market participants, who can provide valuable insights based on their experience, can also provide useful input into the political debate as to how the EU ETS should be redesigned in order to help the EU implement its targets better.
The EU should account for sectoral differences but at the same time it should look at different starting points within sectors. For example, if the EU decides that the target should be predominantly implemented by the EU ETS sectors then the energy sector is likely to carry the heaviest investment burden as the marginal costs of abatement in that sector are the lowest.
However, this does not take into account different starting points between Member States in their energy mix and the knock-on effect that higher electricity prices can have for the international competitiveness of European industry.
At the same time missteps in the extension of the EU ETS to new sectors can exacerbate this problem. How do we get the EU ETS right whilst ensuring competitiveness, fair distribution of costs and just transition?
Participants focus on the following questions:
- How to design the EU ETS and non-ETS framework to ensure that all sectors will contribute to the implementation of the new climate targets?;
- What should be the fair share of emissions reduction of ETS and current non-ETS sectors?;
- How the forthcoming EU ETS revision already impacts the EU carbon market?;
- How to facilitate just and energy transition through EU ETS-based instruments?;
- How to divide EU ETS allowances between sectors and member states?;
- What should be the direction of the MSR review, especially in the possible extended EU ETS?;
- Should the EU establish different trading schemes for sectors with different marginal abatement costs?
- How do carbon market players prepare for the next legislative package?