What's wrong the EU’s Emissions Trading System?

The EU’s Emissions Trading System is one of the most important European instruments in our concerted effort to reduce CO2 emissions. It is a market instrument that covers more than 11,000 factories, power stations and other installations in all EU-member states. However, the system does not work so well.

The carbon market suffers from an oversupply, resulting in carbon prices which are way too low to pose an incentive for businesses to start producing more climate-friendly. In recent years, weak demand for permits- due to the economic crisis and the allocation of too many free carbon credits- has led to a surplus of over 2.1 billion CO2 emission permits.

The fall in the price of emission permits, is too low to incentivise certain low-carbon investments. It’s cheaper for companies to buy additional CO2 emission permits than to implement greenhouse gasses-regulating techniques to lower their emissions. Major industrial companies, such as Shell, Akzo and Chemelot even have a surplus in permits. [1] Therefore a rigorous revision is essential.

In 2019 a new mechanism will come into effect.  The so-called Market Stability Reserve to correct the oversupply of permits. Starting from 2021, a percentage of the permits in circulation would be placed in a reserve. By doing so the EU tries to get the system back on track. Sadly, these CO2 emission permits can be allowed back on the market in times of increasing scarcity. On top of that, new legislation includes a lot of perverse exceptions for the biggest polluting companies. The real big changes that are essential to stop climate change are just not being implemented.

Additional national and European policies thus remain essential if we want to force the industry to become more climate-friendly.

 [1] Some of these companies work with an internal CO2-price, but because of the external CO2-price in the European Emissions Trading Scheme, they are not obliged to act.


Emission trading