The role of the EU ETS in increasing EU climate ambition
What are the implications of the 1.5 degree warming target for the European Union Emissions Trading System (EU ETS)? A study commissioned by Finnish Innovation Fund Sitra analyses how the EU ETS could be aligned with the Paris Agreement targets.
At present, the EU is targeting to reduce its greenhouse gas emissions to 40% below 1990 levels by 2030, but this target falls short of meeting the targets of the Paris Agreement. A significant increase in the ambition of EU climate policy is not possible without further enhancing of the EU ETS.
This study analyses how the emission target of the EU ETS needs to be altered when the overall EU emission reduction target is increased from 40% to 55-60% compared to 1990 levels by 2030. In addition, the study assesses measures to achieve the more ambitious emission reduction target for the EU ETS. The measures were analysed according to their emission reduction potential and political feasibility, i.e. ease of implementation. The measures include strengthening the cap, carbon floor price for emission allowances, addressing the surplus of emissions allowances, reducing the free allocation of allowances and increasing the scope of the EU ETS.
The study estimates the extent to which each measure is expected to reduce emissions within the EU ETS and their political feasibility. The study finds that there is no silver bullet to enhance the EU ETS, but a comprehensive policy package is needed:
- Strengthening the cap to align it with the enhanced emission reduction target.
- Enhancing the market stability reserve to effectively reduce the current and expected surplus of emission allowances.
- A group of countries demonstrating leadership by adopting a carbon price floor and withdrawing the maximum number of allowances allowed from auctioning when power plants are closed because of national measures.
The study concludes with a concrete plan forward, which is politically feasible and delivers the emissions reductions aligned with the Paris Agreement. To implement the plan, strong political will is needed from the European Parliament, Member States, and the Commission.