What's Happening?
The European Union's Emissions Trading System 2 (ETS2) is facing a delay of one year, as agreed upon by the Council and the European Parliament. This delay is significant because ETS2 is designed to put
a price on carbon emissions, thereby incentivizing greener alternatives in sectors like transport. The delay comes amidst concerns that weakening car and truck CO2 standards could lead to higher carbon prices, as more combustion engine vehicles remain on the road longer. This situation could hinder the rollout of affordable electric vehicles (EVs), disproportionately affecting poorer households. The delay also means a potential loss of €50 billion in revenues for 2027, which could have been used for social leasing, charging infrastructure, and public transport improvements, or redistributed to citizens. The EU aims to reduce demand for ETS allowances by adopting zero-emission technologies and efficiency measures to ensure the long-term success of ETS2.
Why It's Important?
The delay in implementing ETS2 and the potential weakening of CO2 standards have significant implications for both the environment and socio-economic equity. Higher carbon prices could increase costs for consumers, particularly affecting low-income households who may not afford the transition to electric vehicles. The loss of potential revenue from ETS2 could also limit government capacity to invest in infrastructure and social programs that facilitate a shift away from fossil fuels. This situation underscores the need for robust policies that balance environmental goals with economic fairness, ensuring that the transition to a low-carbon economy does not disproportionately burden vulnerable populations.
What's Next?
The EU is encouraged to reform the Market Stability Reserve (MSR) to lower carbon prices in the short term while making low-carbon solutions more accessible to low-income households. There is also a call to reject any further delays to ETS2, as businesses, households, and member states require certainty to plan and invest in a fair transition. The focus will likely be on maintaining climate integrity while ensuring that the transition to greener technologies is equitable and inclusive.
