Europe’s most effective tool to cut greenhouse gas emissions ‘risks being weakened’ | Emissions trading

Critics have said Europe’s most effective method of reducing dangerous planet-warming gases risks being undermined after the European Commission proposed an overhaul of its flagship carbon market.

In a long-awaited review of the European Union’s emissions trading system (ETS), the European Commission has proposed giving companies a less demanding and cheaper way to reduce greenhouse gas emissions.

The review of the ETS, widely seen as Europe’s most effective policy to reduce planet-warming emissions, follows deadly wildfires in Spain and extreme heatwaves on the continent. Western Europe has experienced its hottest June ever, with record-breaking temperatures that scientists say would be “almost impossible” without climate disruption.

This review was supposed to bring the ETS into line with the target of reducing greenhouse gas emissions by 90% by 2040, on track to wean Europe’s economy off fossil fuels by mid-century.

But the EU leadership is also under pressure from 10 EU member states, which claim that the ETS contributes to higher energy costs and harms Europe’s competitiveness.

In response to these concerns, some heavy industries will benefit from free pollution permits for longer periods of time, while the number of permits in circulation will decrease more slowly, giving companies more leeway.

Since 2005, the EU’s top polluters have been required to purchase permits to pollute, creating an incentive to invest in cleaner energy production and manufacturing. The ETS, which was later expanded to include intra-EU aviation and shipping, is known to reduce planet-warming emissions by 47% compared to 2005 levels by 2023.

Under the latest proposals, the ETS will be extended to municipal waste in a bid to increase recycling and reduce the amount of garbage sent for incineration.

The Commission also wants to extend the ETS to cover flights within a 5,000 km radius of a central point in Europe; This distance will affect airlines flying to North Africa and the Middle East, not China or the USA, thus preventing a new conflict with the Trump administration.

ETS will also be applied to private jets for the first time, ending what has long been considered an unfair privilege for the wealthiest passengers.

Wopke Hoekstra, the EU’s climate commissioner, told reporters that the ETS was an “extraordinary asset” and that without the plan Europe would have consumed an extra 100 billion cubic meters of gas, which would “make us even more vulnerable” to fluctuations in the energy market.

But the “great design” has its weaknesses, he said, arguing that key industries in Europe face unfair competition from non-European rivals using “heavy state subsidies” and “questionable working conditions” that even the new carbon border tax does not fully address.

Hoekstra said some companies are choosing to move their operations abroad rather than investing in cleaner production in Europe. “This can’t take anymore,” he said.

German Greens MP Michael Bloss accused the commission of giving industries “a license to pollute for longer periods of time and at lower costs”.

He said: “Weakening the emissions trading scheme harms companies that are growing and creating jobs through climate-friendly production. Those investing in industries and jobs of the future will be punished.”

Camille Maury, senior policy officer on industrial decarbonisation in the European policy office of wildlife conservation charity WWF, said the commission’s proposal “jeopardises the predictable and effective pollution price that businesses and investors need to invest in clean technologies”.

Maury said the ETS works “because its core elements are mutually reinforcing: lowering the cap, a meaningful price on pollution, and revenues that support a clean transition.” He added: “Just like a Jenga tower, when you start lifting the building blocks it destabilizes the whole structure.”

The Commission is under heavy pressure to weaken the ETS as member states grapple with the latest energy shock triggered by the Iran war and Europe’s dependence on imported fossil fuels is revealed.

Earlier this year, Italy led the way in canceling the ETS and was among 10 member states that recently called for “pragmatic” reforms, claiming the current system would push industries out of Europe.

In response, seven member states, including clean energy pioneers Scandinavian countries, Spain and the Netherlands, warned last week against diluting the ETS because it risked “undue pressure” on efforts to reduce emissions.

Under the ETS, companies receive free allowances to help them cover the costs of removing dirty fossil fuels from production systems. The latest proposals mean free allowances for polluting sectors such as steel and cement will not be phased out until 2038 instead of 2034 as planned. However, companies will only receive free funds if they show that they plan to invest in cleaner production in Europe.

The EU will give 80 percent of the free permits to companies planning to make clean investments in Europe, and the remaining 20 percent will be distributed after the money is spent.

The number of permits is reduced every year in order to increase incentives for pollution prevention. Under the latest reform, the commission plans to reduce the annual reduction in the cap to 3.7% from 2031, then to 1.7% from 2036 (currently 4.3%).

WWF said slowing the reduction rate would lead to an additional 2 billion tonnes of CO2 emissions, raising questions about how the EU will achieve its 2040 climate target.

The proposal, which would also allow some emissions reductions after 2036 to come from “high-quality” loans financing decarbonisation abroad, was welcomed by industry groups for a change of pace but criticized for not going far enough.

“Some aspects of the proposal are already raising concerns,” said Markus Beyrer, managing director of BusinessEurope. “For example, new conditions on free allowances risk increasing bureaucratic complexity, and the uncertain role of international carbon credits is unsatisfactory.”

EU officials rejected accusations that the plans were inconsistent with climate targets. “These figures are fully in line with climate law,” Hoekstra said, referring to the EU’s legally binding target to reduce greenhouse gas emissions by 90% by 2040. Hoekstra said the “biggest add-on” to the current offer was incentives to provide “much more investment” on European soil: “Otherwise, if we drive the industry out, everyone loses. The material will not be produced any cleaner than in Europe.”

The draft law now needs to be agreed by the EU’s 27 member states and the European parliament.

Senior German MP Peter Liese from the centre-right European People’s Party, who will represent parliament in negotiating the law, welcomed the proposals. “Climate protection that leads to unemployment is not a global role model,” he said. “Investing within the EU is our goal and this proposal achieves this much more effectively.”

Launched in 2005, the EU’s emissions trading system was the world’s first carbon market and has inspired similar schemes in nearly 40 jurisdictions, including China, New Zealand, California and other US states.

Ottmar Edenhofer, director and chief economist at the Potsdam Institute for Climate Impact Research, said the extra flexibility in the commission’s proposal “does not change the EU’s overall climate policy course” and praised the commission for including the permanent removal of carbon dioxide from the atmosphere.

Separately, the European Commission announced a plan to double the electrification rate of the European economy by 2040, from 23% today to 46%.

“We need to replace black, expensive, polluting molecules with cheap native electrons,” said Dan Jørgensen, the EU’s energy commissioner. It also announced a plan to phase out the €97 billion spent by EU taxpayers subsidizing fossil fuels. “This is a bit like a doctor trying to help a diabetic patient by prescribing sugar,” he said. “We want to get rid of this”