European emissions trading (EU ETS) is a core element of EU climate policy, but the European Commission’s proposed revision of the EU ETS is currently having a tough time in the European Parliament. Last week, a majority of MEPs rejected the proposal and sent it back to the Environment Committee for revision. One of the main points of contention was the tightening of targets in the EU ETS.
Ariadne experts from ZEW – Leibniz Centre for European Economic Research, the Institute of Energy Economics and Rational Energy Use (IER) at the University of Stuttgart and the Potsdam Institute for Climate Impact Research (PIK) have investigated the economic effects of tightening the EU ETS targets using various models. The results show that, from an economic point of view, too much importance is attached to the effects of tightening the EU ETS, and too little to the capping of the CO2 price for heat and transport (ETS2).
If CO2 pricing is the only policy instrument for climate protection, the prices necessary to achieve the 2030 climate targets range from 130 to 210€/tCO2 in the EU ETS, and from 175 to 350€/tCO2 for the energy-related ESR emissions, which are largely congruent with the ETS2 sectors. If the ETS2 price is limited to 50 €/tCO2, as discussed in the European Parliament, the achievement of the target becomes rather unlikely. A large share of the emission reduction would then have to be achieved through complementary measures such as technological standards or subsidies, the costs of which exceed 50€/tCO2. Also, the lower the CO2 price, the higher the total costs for consumers because emissions would not be reduced in a targeted way, where it is cheapest.
Jan Abrell, Süheyb Bilici, Markus Blesl, Ulrich Fahl, Felix Kattelmann, Lena Kittel, Mirjam Kosch, Gunnar Luderer, Drin Marmullaku, Michael Pahle, Robert Pietzcker, Renato Rodrigues, Jonathan Siegle (2022): Optimal allocation of the EU carbon budget – A multi-model assessment. Kopernikus-Projekt Ariadne, Potsdam.
Benjamin Görlach, Michael Jakob, Katharina Umpfenbach, Mirjam Kosch, Michael Pahle, Théo Konc, Nils aus dem Moore, Johannes Brehm, Simon Feindt, Fabian Pause, Jana Nysten, Jan Abrell (2022): A Fair and Solidarity-based EU Emissions Trading System for Buildings and Road Transport. Kopernikus-Projekt Ariadne, Potsdam.