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EU leaders are set to back new climate and energy targets for 2030 at the summit in Brussels on 23-24 October, but documents from the June Environment Council meeting indicate Denmark want leaders to endorse the inclusion of transport and agriculture in the EU ETS. A Danish position paper circulated among other governments calls for the two sectors, currently not part of the scheme, to be allowed to buy tradable allowances for the carbon they emit.
It is claimed such a move would reduce the cost of meeting the climate targets, in particular for small, rich member states with large national emission reduction obligations in sectors not covered by the EU ETS (non-ETS). ‘The main idea would be to transfer all fossil energy use now in the non-ETS sector into the ETS,’ Denmark’s paper states. ‘This would increase the coverage of the ETS and the ETS allowance price signal from 45% of EU emissions to almost 80% from 2020.’
The policy idea is also being pushed by carmakers like BMW and Daimler who see it as a way to weaken or even abolish future vehicle efficiency standards. During the discussions about the 95g/CO2 target for passenger cars, Daimler CEO Dieter Zetsche demanded a move away from mandatory CO2 emissions standards toward integrating the transport sector into the EU ETS.
But T&E say inclusion in the ETS won’t deliver carbon savings for transport, would do nothing to strengthen the ETS and would, instead, undermine more effective climate policies like efficiency standards.
The inclusion of transport in the ETS would mean fuel suppliers have to buy emissions allowances. They would then pass this cost on to consumers. Senior policy officer at T&E William Todts said transport is not suitable for the ETS because its price signal, even under perfect conditions, is completely insufficient to drive action in the transport sector. With the current ETS-price of €6 per tonne, fuel prices would increase by just 1 cent – which would have virtually no impact on transport emissions. Even an aspirational carbon price of €25 per tonne would only increase fuel costs by 6 cents.
Todts said: ‘Denmark should be taking a long, hard look at what it’s doing. Its unholy alliance with the German car industry lends credibility to an idea that risks undermining one of the EU’s most effective climate policies. Fuel efficiency standards are reducing emissions, saving drivers money and creating jobs so clearly this is the policy that we need to pursue.’
While proponents argue that including transport could soak up some of the surplus credits by introducing more buyers, analysts expect the move would have a minimal price effect. One problem with the ETS is that it covers both sectors that could be sensitive to carbon leakage and sectors than can take very high carbon prices without any risk of delocalisation. Political economics dictates that the ETS price will only be as high as the weakest link is perceived to be able to bear.
TNO, which studied possible future CO2 targets for land transport for the European Commission, concluded that including transport in the ETS would be effective in reducing emissions only if there was ‘a CO2 price of at least €100 per tonne’.
The EU carbon price currently stands at €6 and initiatives to reform and strengthen the EU ETS continue to face stiff opposition from the industry and countries like Poland.