Stefan Back: Challenges and opportunities of the revised ETS

The EESC sees the Emissions Trading System proposal as one of the key proposals of the Fit for 55 package with its overarching goal of lowering CO2 emissions by 55% by 2030. In order to achieve this, the ETS system has been made more ambitious and the number of available allowances has been reduced. The ETS proposal emphasises that all sectors need to contribute in order to meet the Fit for 55 objectives. Transport emissions have not decreased since 1990 and are therefore prioritised.

The proposal extends the ETS system to include maritime transport, including journeys to and from the EU; that is in addition to aviation, which was already included. It proposes a separate, parallel system for road transport and buildings where the traders are not operators, but businesses that distribute fossil fuels. For operators, this sends a price signal similar to a fuel tax.

Hopefully, the revised ETS will reduce CO2 emissions, be an incentive to develop carbon-neutral solutions and drive innovation.

However, it also means increased costs for the sectors which are part of the ETS system. This in turn will affect the general cost level.

This may also weaken the competitiveness of European industry – unless other countries follow the EU's example.

The Carbon Border Adjustment Mechanism (CBAM) seeks to ensure that cheap products produced under less rigorous conditions cannot compete on the EU market. However, it does not cover all sectors including services, such as transport, nor does it promote exports of goods and services.

Therefore, it is vitally important that EU climate diplomacy succeeds in convincing other countries to follow the EU's example.

There is also a risk that increasing costs will cause energy and mobility poverty.

The transformation to a carbon-free society will entail the need to adapt the workforce to new competence requirements through upskilling and reskilling.

The package plans to solve transition problems by means of various funds: the Modernisation Fund, the Innovation Fund and the Social Fund, which will largely be financed by revenue from the ETS and CBAM. However, if the proposals are adopted, those funds will not suffice for the vast investments needed for the transition.

Road transport and buildings as well as domestic EU waterborne transport also come under the Effort Sharing Regulation, meaning that their CO2 reductions under the ETS will count toward the Member States' reduction quotas.

But it also means a risk of additional restrictions if a Member State needs more CO2 reductions.

Goods transport by road and maritime transport may be hit particularly hard under the ETS system as there are as yet no reasonably priced zero-carbon solutions for those sectors.

To conclude, the main challenges identified in the EESC opinion are:

  • Higher costs that will affect EU industry and services sectors, with a risk of reduced competitiveness on the world market
  • The risk of energy and mobility poverty
  • The need for industry and service sectors to adapt
  • Reskilling and upskilling the workforce
  • Attracting the investments needed to negotiate the transition. EU funds will help but are far from sufficient
  • Convincing other countries to follow the EU's example – a major challenge for EU climate diplomacy.

Organised civil society strongly supports the package's intentions. However, for the package to become a success it is important to flag up problems in good time and to find appropriate solutions.

Obviously, the challenges are important, but if we do succeed, the potential benefits coming from the EU leading the way towards a carbon-neutral world are enormous. Provided we can handle the social issues and create the necessary investments, we can lead the way towards a carbon-neutral world.

Stefan Back, EESC Member