A clever scheme poorly executed
To constrain the emission of greenhouse gasses, the European Union decided to issue so-called 'emission permits' or 'carbon credits' among European businesses in 2005. One carbon credit allows the buyer to produce 1 tonne of CO2 emissions. If a business wishes to emit more emissions than it is entitled to because of its permits, it must buy additional carbon credits. Unfortunately, the system doesn't function as it was intended. There are too many emission permits on the market. Due to the surplus, the financial incentive for investing in cleaner production remains absent. As a result, the major polluters keep on burning fossil fuel as if nothing happened. Annually governments reduce the number of emission permits that are issued. This however goes way too slow. And that's an opinion we share with many scientists.
As an individual you can buy carbon credits yourself, reducing the emissions available for Europe’s biggest polluters and send an important political signal. You invest in the EU’s Emissions Trading System; therefore, you are entitled to demand that the system indeed brings down greenhouse gas emissions.
Politicians should realise they cannot just sit back and watch, work needs to be done in order to make sure Europe’s key climate tool is going to function properly.
Together we can change the system!
This is what we need to fix:
- The number of CO2 emission permits to be annually put in circulation should be reduced in an accelerated pace;
- The price of pollution permits needs to go up to meet the Paris goals;
- We should phase out the free allocation of CO2 emission permits to industries whose international competitiveness is not jeopardised.
Europe can improve EU’s Emissions Trading Scheme by:
- Increasing the Linear Reduction Factor (annual amounts of allocation of emission permits) in accordance with our stricter obligations pursuant to the Paris agreement;
- Phasing out free allocation from the EU ETS and replace it with a so-called carbon border tax, which dictates companies to pay a tax for importing products from countries with less stringent climate regulations.
Member states can improve EU’s Emissions Trading System by:
- Implementing a national carbon floor price for all industries that deal with emissions;
- Cancelling permits when the production capacity of renewable energy increases to avoid a further increase in the oversupply of permits.
- Closing coal-fired power stations in an accelerated pace and cancelling the corresponding permits to offset the indirect waterbed effects.