Consolidating the EU’s CO2 Emissions Trading System Would Reduce Costs by 25%
IEA Research featured in The Times
- The Council and the European Parliament have reached a preliminary political agreement to establish a new, separate ETS for land transport and buildings (heating), resulting in two distinct CO2 reduction mechanisms in the EU: 1) the new ETS for land transport and buildings and 2) the existing system covering electricity production, industry, and aviation.
- However, consolidating CO2 emissions from land transport and buildings and the already existing ETS into a single system would reduce economic costs by 25% compared to the current policy suggestion of creating two parallel systems.
- The benefits of a consolidated ETS will become even more apparent if demand in the emissions trading sector increases in case of rising price differences between economic sectors. With parallel systems, there is significant vulnerability to unforeseen shifts in demand, which can significantly increase economic costs.
- The full benefits of a consolidated ETS require that the EU and its member states abolish double regulation in the form of taxes and efficiency requirements for emissions already covered by the ETS.
Jonas Herby, author of the report said: “Our analysis shows that the economic costs of climate policy could be reduced by 25%, if CO2 emissions were gathered under one overall emissions trading system instead of having two separate systems. The whole idea of the emissions trading system is that we should make CO2 reductions where it is cheapest. National reduction targets prevent this because we will have to implement national reductions to meet the targets, even if there are far cheaper opportunities in other EU countries. Therefore, the entire benefit of the emissions trading system could be lost. With two emissions trading systems, there will be companies that invest, for example, 90 euros to reduce CO2 emissions by 1 ton, but the same reduction could be achieved for less than 35 euros in the transport or building sector. Simply put, you get less climate action for your money this way.”
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