EU carbon market must deliver faster emission cuts

There is an overestimation of the carbon-allowances needed and the current proposal will even be inadequate to meet the 2030 target, according to new research.

If the European Union does not significantly strengthen its reformed flagship Emissions Trading System (EU ETS), it risks fuelling planetary heating that will exceed 1.5°C and even missing its own inadequate targets, two simulations show. The EU ETS must significantly raise its 2030 targets, lower its emissions faster than planned, and remove surplus allowances from the market.

The ongoing revision of the European Union’s climate policy framework offers an eleventh-hour opportunity for the EU to do its part as one of the world’s major emitters and go beyond the net 55% emissions reduction target for 2030 set out in its “Fit for 55” package.

Research commissioned as part of Life ETX, an advocacy project led by Carbon Market Watch, reveals that the European Union’s Emissions Trading System is currently falling short of the bloc’s climate obligations to keep global warming within the limits set by the Paris Agreement.

Unfortunately and shockingly, the reforms currently on the table will even fail to meet the EU’s inadequate 2030 targets, to reduce emissions covered by the EU ETS by 61%. This is the conclusion of a modelling analysis released on 10 May 2022, which was carried out by the Öko Institute on behalf of the ETX Consortium. This is due to overestimation of the demand for allowances needed for risk management, such as energy sector hedging and long-term banking on the part of industry. Without stronger reform, the resulting oversupply in the EU carbon market would be so large that it would make it impossible for the ETS to reach its 2030 target.

If humanity’s rapidly shrinking carbon budget were divided equally on a per-capita basis, the EU would have to reduce its emissions by at least 65% by 2030. With the current 55% target, the EU will consume double its per capita share of the remaining global budget, according to a new paper by Wendel Trio, a climate change policy and science analyst. This means that the EU must shrink its greenhouse gas emissions by at least 65% by 2030 (compared to 1990 levels), i.e. Fit for 55 needs to become Fit for 65. In addition, the EU must aim for climate neutrality by 2040 (instead of the 2050 goal of the European Green Deal). This requires a reduction of at least 70% in the EU ETS sectors by 2030.

Source: ETX/CMW press release, 10 May 2022
‘The revision of the European Union Emissions Trading System Directive: Assessing cap and Market Stability Reserve reform options’, Öko Institute study
‘Why the EU must strengthen its climate target, including in the Emissions Trading System’, paper by Wendel Trio