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Critics scorn proposals to extend ETS to heating, transport


11 Feb 2021 06:50




11 Feb 2021 06:50

(Montel) Industry, consumer and environmental representatives have slammed European Commission proposals to extend the bloc’s emissions trading scheme to heating and transport as an unfair and ineffective way of cutting emissions in these sectors.

The commission is considering slotting emissions from vehicles and buildings, which have barely declined in recent years, into the carbon market to reach a goal of carbon neutrality by mid-century.

A report recently prepared for the Centre on Regulation in Europe (CERRE), a think tank, found this was a feasible way of almost doubling the coverage of carbon pricing to around 80% of the EU’s emissions, but it cautioned this could come at a high social cost.

Critics leapt on this – and other risks – in a panel discussion organised by CERRE late on Wednesday. 

Ineffective, then devastating
Carbon prices of around EUR 30/t have been instrumental in displacing coal-fired generation in the power mix, but they were far too low to prompt change in other sectors, said Pete Harrison, executive director of the European Climate Foundation (ECF). 

“Transport, because of its inelasticity, needs a carbon price somewhere around EUR 300-400/t before you even start making an impact,” Harrison said, arguing for separate prices for different sectors.  

“It is no coincidence that the main group pushing this has been the oil industry. They understand the difficulty of using carbon pricing to achieve the same goal.” 

The inclusion of the new sectors in the ETS risked decimating industries exposed to international competition, said Judith Kirton-Darling, deputy general secretary of IndustriALL, a trade union. 

“So if you are looking at a price signal of EUR 200/t of CO2… then that put into the context of the steel industry, put into the context of the cement industry, is a recipe for deindustrialisation in Europe.”  

It’s the quantity…
Michael Pollitt, an economist at the university of Cambridge and co-author of the CERRE report, dismissed focus on prices as “misplaced”.

“The key aspect of an emissions trading scheme is the quantity limitation – it’s not the same as a common carbon tax. It is about controlling the aggregate quantity of emissions to reach your aggregate target and no other policy does that.”

Others criticised the plan for disproportionately hurting Europe’s poorest citizens, potentially provoking a public backlash to climate policy reminiscent of the French Gilets Jaunes protests triggered by rising fuel and living costs.  

“Extending [the] ETS to road transport and buildings is a very, very bad idea,” said Monique Goyens, director general of the European Consumer Organisation (BEUC). 

Goyens described it as “a high-risk, low-reward measure” that would have a severe impact on the poor, who spend a larger share of their income on heating and transport. She pointed to some 35-50m European households that already struggle to heat their homes. 

The ECF estimated Europe’s poorest quarter of households would rapidly see their heating costs rise by 20% and transport costs rise by 10%.

Rule by market
Beatriz Yordi, director for carbon markets in the commission’s climate action directorate, said the EU executive was attuned to such social challenges.

“We will not make any proposal that doesn’t have a very good consideration of these distributional aspects.”

Kirton-Darling of IndustriALL said Europe’s proposed solidarity mechanism – the Just Transition Fund – was no “silver bullet” for cushioning the blow to the vulnerable.

In addition to competing claims on revenues, it was just too small, she said. She contrasted the EUR 17.5bn aimed at 40 regions in Europe with Germany’s EUR 40bn to phase out coal in a handful of regions. 

“We need to stop deluding ourselves that somehow someone else is going to pay for climate change,” said Pollitt. “We need to use conventional redistribution mechanisms within our societies.”  

Harrison agreed present policies would not get Europe to carbon neutrality, but he diverged on approach.

“We need to innovate rapidly across all sectors and the idea that the ETS is the most efficient way to do that, because you can do certain things later in other sectors, is a total fallacy.

“It comes down to a fundamental question: Do we trust each other to take care of each other, or do we want to be ruled by markets?”

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