Study on planned EU Emissions Trading System 2 raises strong concerns among NGOs

Joint press release by CAN Europe, Klima-Allianz Deutschland, Germanwatch and WWF Germany The planned EU Emissions Trading System for the buildings and transport sectors (ETS 2) can only be a complementary climate action instrument and so far lacks clear regulations on socially acceptable compensation. These are the findings of a new study by Green Budget Germany and the Research Institute of the Protestant Institute for Interdisciplinary Studies (Forschungsstätte der Evangelischen Studiengemeinschaft) commissioned by Klima-Allianz Deutschland, Germanwatch, WWF Germany and CAN Europe. The organisations express strong reservations about the introduction of ETS 2 and call for a series of climate policy and social measures should the second emissions trading system nevertheless be introduced. This week, the issue is on the agenda of an informal EU Environment Council in Amiens, France. Klaus Röhrig, Climate and Energy Policy Coordinator at Climate Action Network (CAN) Europe: “In principle, we support a strengthening of CO2 pricing and the application of the polluter pays principle. But we retain strong concerns about the EU Commission’s current proposal to introduce a new European emissions trading system for buildings and transport. If it is introduced after all, the climate benefit must be ensured. In addition, 100 percent of the ETS 2 revenues must be spent on climate action investments and compensation payments for consumers. The EU Commission must significantly improve its proposal to make the instrument socially just and effective in terms of climate policy. In order to achieve the climate targets, a clever mix of incentives, market-based instruments and regulatory measures is needed.” The study “Criteria for an Effective and Socially Just EU ETS 2” assesses the European Commission’s proposal, identifies opportunities and challenges with regard to expanding carbon pricing and assesses possible distributive impacts across Member States and households. According to the study, it is essential to consider multiple sector-specific characteristics for pricing emissions in the buildings and road transport sectors successfully. Despite similarities with the EU ETS1, marginal abatement costs and distributional burdens differ substantially between covered sectors. In light of this background, the study discusses criteria which should be applied in the event of the introduction of an EU-ETS 2 to obtain effective and socially just carbon pricing. Based on the findings of the study, the organisations call on decision-makers to ensure a number of adequate environmental and social safeguards that need to be upheld should the ETS2 move ahead:

The new ETS2 must not be the sole driver of decarbonisation in the respective sectors, but needs to be embedded in a broad policy mix and supported by strong, nationally binding domestic emission targets.
Control mechanisms must be provided to ensure that the CO2 price development in the ETS 2 is reliable, effective and not excessive.
The climate benefit of the new ETS must be guaranteed.
The polluter pays principle must be urgently fully implemented and must remain a guiding principle of any new EU climate policy. Existing loopholes and exceptions for large emitters undermine the integrity of this principle, such as the free handout of pollution rights to industry. Those should be removed as soon as possible, especially in the sectors covered by the Carbon Border Adjustment Mechanism (CBAM).
Adequate, timely support and investment should pave the way for carbon pricing to ensure that affordable, climate-friendly mobility and heating alternatives are widely available before prices start increasing to significant levels.
100 percent of ETS2 revenues must be spent on supporting climate action, including both climate investments and social compensation. Vulnerable groups should be identified and their support should be prioritised across Europe. Support should also prioritise long term solutions driving structural change towards energy efficiency and 100 percent renewable energy systems.
Make sure that a strong climate governance is in place in all Member States so that investment and compensation schemes prioritise and ensure adequate support for poorer households.
Ensure transparency and participation of affected groups and civil society.
Create and communicate a common and positive vision for transforming the buildings and transport sectors.

The aggravating climate crisis requires all countries to speed up their climate action in the short-term. Europe, as a rich economy and a major historic emitter, has a special responsibility to present above average contributions to achieving the Paris Agreement goal of limiting global temperature rise to 1.5°C. The legislative revisions under the Fit For 55 Package are a unique opportunity for the EU to strengthen its climate ambition and go well beyond a -55% net emissions target for 2030. Background: In July 2021, the European Commission presented a proposal to revise the EU Emissions Trading System (ETS) as part of the Fit For 55 package. The proposal includes the establishment of a new emissions trading system (ETS 2) for the buildings and transport sectors. Please note: The study “Criteria for an effective and socially just EU ETS 2 – Assessment of the EU Commission’s proposal for an EU ETS 2” by Forschungsstätte der Evangelischen Studiengemeinschaft e.V. and Forum Ökologisch-Soziale Marktwirtschaft e.V. can be downloaded here. The study represents the opinion of the authors only and is not a position paper of the commissioning organisations. Contact: CAN Europe: Rachel Brabbins, Tel +44 7498 977935, rachel.brabbins@caneurope.org Klima-Allianz Deutschland e.V. (Climate Alliance Germany): Julia Dittmann, Tel.: +49 30-780 899 514, julia.dittmann@klima-allianz.de WWF Germany: Simon Bokern, Tel.: +49 30-311 777 467, simon.bokern@wwf.de