EU Emissions Trading System: Create a global response to a global problem

The EU’s Emissions Trading System (ETS) is a cornerstone in the green and low-carbon economy objective for Europe. With this system, CO2 reductions will be made where the cost is lowest, making it cost-effective. Carbon emissions and its impact on the climate is however a global phenomenon and other economic areas must also implement such measures to create a truly global response to a global problem.

It is important to strike an appropriate balance between achieving general environmental objectives and, at the same time, not creating economic distortions or undermining the competitiveness of the European economy. This calls for comprehensive impact assessments. The European Commission’s economic analysis needs to be significantly improved in this regard, also taking into account the secondary effects of an instrument like the ETS on firms and jobs across all sectors.

The EESC has previously expressed the need to analyse the potential negative effects of the ETS on the competitiveness of European industry and service providers, both in carbon intensive sectors and in general, and called for measures to prevent, as far as possible, negative effects on the economy and negative social effects such as unemployment, energy poverty, tensions between unions and employers, or mobility poverty. It is very important that the voices of workers, firms and civil society are listened to and that expressed concerns are properly taken into account in the impact assessments.

So far, the focus in impact assessments seems to have been on assessing any carbon leakage, while indirect effect on firms and workers by the ETS has not been incorporated in the analysis. As an example from the maritime sector, a diverted shipment may also entail costs for an individual country since the cost of inputs for production in their country increases when shipment costs rise. This affects production and employment in that country, and such costs should be included in any assessment of the economic impact of implementing carbon legislation.

For example, if  a company, used to rely on input goods provided by a ship entering a nearby port, has to import its goods by contracting a smaller vessel to pick up the goods in a foreign country (or continent), then the increased costs may be significant. This could also happen if the vessel continues to enter the nearby port if the increased shipping costs due to emission costs are passed on to the producing company (assessed by the EC to 3.7% for 2024 and rising, if no productivity gains are made). Such an effect on production, employment and social consequences must be properly considered as the system is designed and evaluated.

Recent positive developments at the International Maritime Organisation (IMO), particularly the agreement on a draft regulation to establish mandatory marine fuel standards and global greenhouse gas (GHG) fuel pricing, mark a significant progress in the right direction. In this context, it is essential that the EU takes rapid full account of these advancements and ensures that they do not lead to double regulation or double payments under the ETS Maritime. The EESC strongly supports the proposed IMO Net Zero Framework.

According to a study commissioned by the Commission, the countries most exposed to the impact of EU ETS from a maritime point of view are Ireland, the Netherlands, Cyprus, Greece, Malta and Sweden.

To get political acceptance for ambitious environmental objectives calls for policy makers that are good listeners. It is also important to design and implement comprehensive but simple and administrable systems without unduly increasing administrative burdens. The Commission objective of lowering the administrative burden by 25% (35% for SMEs) during its mandate, encompasses also environmental legislation.

We call for a truly global solution and no efforts should be spared to achieve such an outcome.

By Krister Andersson, EESC Member and Rapporteur of Opinion ECO/671 Economic Impact of the Implementation of the EU Emissions Trading System (ETS).