The European Union's flagship carbon market is on the precipice of transformation, and critics warn that the changes proposed by the European Commission could undermine the very goal it aims to achieve: significantly reducing greenhouse gas emissions. The Emissions Trading System (ETS), widely regarded as Europe's most effective climate policy, faces a potential watering down amidst pressure from ten EU member states concerned about energy costs and competitiveness.
With record-breaking temperatures scorching Western Europe in June, scientists highlighting the links to climate breakdown, and the continent's recent experience of extreme heatwaves and wildfires, the timing of this review couldn't be more critical. The Commission's proposals aim to align the ETS with Europe's ambitious target of a 90% reduction in greenhouse gas emissions by 2040, but also respond to concerns about the system's impact on industries such as steel and cement.
To address these economic worries, the Commission is suggesting that some heavy industries be granted free pollution permits for an extended period. Additionally, the rate at which the total number of permits in circulation is reduced will be slowed, giving companies greater flexibility to adapt. Since its inception in 2005, the ETS has mandated that Europe's largest polluters purchase permits, creating a financial incentive to invest in cleaner energy and manufacturing. The system, which later expanded to cover intra-EU aviation and shipping, has been credited with reducing planet-heating emissions by 47% by 2023 compared to 2005 levels.
The proposals also include extending the ETS to municipal waste, aiming to boost recycling rates and decrease incineration. The scheme would encompass flights within a 5,000km radius of a central European point, affecting airlines operating to North Africa and the Middle East but avoiding potential conflicts with major non-European powers. Private jets, previously exempt from the ETS, will now be included.
EU climate commissioner Wopke Hoekstra hailed the ETS as a “phenomenal asset,” stating that without it, Europe would have consumed an additional 100 billion cubic metres of gas and increased its vulnerability to energy market volatility. However, he acknowledged weaknesses in the current design, citing unfair competition faced by European industries from non-European rivals benefiting from state subsidies and questionable labour conditions.