Time for pollution pricing to work for the climate

Climate action

The reform of the Emissions Trading Scheme is an opportunity for the EU to restore its climate action leadership, argue six climate and development NGOs. 

This Op-Ed was published in EurActiv on 3.7.2015

Wendel Trio is director of Climate Action Network Europe, Bernd Nilles is secretary general of CIDSE, Natalia Alonso is director of Oxfam International EU Office, Geneviève Pons-Deladrière is director of WWF’s european policy office, Eva Filzmoser is director of Carbon Market Watch, and Sanjeev Kumar is founder of the Change Partnership.

The EU’s flagship policy tool to reduce greenhouse gas emissions – the Emissions Trading Scheme (ETS) – has just turned ten years old, and it is flailing. Due to a massive oversupply of pollution permits, carbon pricing has failed to facilitate the transition towards a renewable and energy efficient economy. Instead the oversupply has sent the carbon price to the bottom and prevented a swift transition to a low-carbon economy.

Environment and development organisations look to the Juncker Commission to propose an ETS revision that is meaningful and forward looking, and helps the world come to an effective Paris deal in which global warming can be kept well below two degrees and stop driving hunger and suffering.

Cancel the unused permits

Billions of surplus of ETS pollution permits need to be permanently cancelled. Carrying this surplus into a revised ETS would seriously weaken the EU’s at least 40% target for 2030 and undermine the ambition of the agreement to be struck in Paris.

Stop giving handouts to industry

The ETS was intended as a policy instrument to make polluters pay, but instead it has been paying the polluters. The generous exemptions in the form of free pollution permits have led to windfall profits for large energy intensive companies on the backs of EU citizens.

It turns out that 6.3 billion free pollution permits, worth €150 billion, might be handed out to industry to subsidise their carbon pollution in the 2021-2030 period. EU decision makers must act responsibly and stop catering to a few vested interests that single-mindedly focus on their own short-term economic profit at the expense of citizens. Large ETS handouts of free pollution permits to industries have to stop.

Fund climate protection

The EU emission scheme can put a right price on carbon pollution and finance climate protection in Europe and abroad. The time is ripe to make sure that revenues from the sale of pollution permits are used to fund more emission cuts and to support adaptation to an already changing climate.

Such reform will not only ensure clean investments in Europe, but will also help in getting poor and vulnerable countries on board for a new climate agreement as they are unlikely to sign without certainty that public finance to help them with low carbon development and adaptation will increase after 2020.

Former French development minister Pascal Canfin advising President Hollande on climate finance suggests that up to €5 billion could be generated annually from the ETS as additional international climate finance. Channeling a large amount of ETS revenues through an EU reserve to automatically and predictably fund the Green Climate Fund will help overcome roadblocks to Paris.

A clear signal that the EU is willing to implement a meaningful and forward looking ETS reform will bolster European investments in a clean and competitive economy, and can put the EU in a much better situation at the international negotiations to ensure the whole world will get serious about climate protection.

At the same time of the publication of this article, the group of NGOs sent a  Letter on ETS reform to President Juncker of the EU Commission on ETS reform