How are we going to fix the EU’s Emissions Trading System?

The EU’s Emissions Trading System must finally do what is was intended to do: create an incentive for companies to decarbonize. In order to achieve that:

  1.  The price of pollution permits needs to go up. Only then will the polluter have an incentive to invest in sustainable alternatives. 
  2. The number of CO2 emission permits in circulation should decrease.

To achieve this, the EU ETS should be strengthened. The European commission has recently proposed a revision of the EU ETS. This can further be improved in the following areas: 

  • Increase the ambition of the reduction targets to ensure a faster transition, to secure the 1.5 degree target. This means a more ambitious one-off reduction of the cap, a better benchmark for free allowances, and a stronger and dynamic MSR.
  • Full inclusion of the shipping and aviation sector by 2023. Inclusion of other major polluting sectors, such as Municipal Solid Waste incineration and the use of Biomass for energy production.
  • Face out free allocation for industries much sooner than 2035, and a much faster introduction of CBAM for all ETS sectors. 
  • Better define how ETS revenues should be spend, using the 'do not significant harm principle' and excluding all investments in fossil fuels, unsustainable biomass, nuclear energy and ETS indirect cost compensation through state aid schemes.
  • The ETS revision should better address the distributional and social effects of the energy transition.


Emission trading