ETS needs to be improved to have a sustainable impact on EU industry 

After having explained the functioning and political background of the ETS, the paper looks at development in energy-intensive industries - cement, steel and aluminium - since its implementation in January 2005. 

The choice of allowance allocation affects the international mobility factor as well as the location of new companies, outlines the paper. 

For the moment, the ETS is implemented inconsistently across the EU and has a narrow scope of influence regarding greenhouse gases and the sectors involved, the paper says. Moreover, it does not yet facilitate long-term innovation dynamics such as the transition to a hydrogen economy.

The authors therefore make a number of recommendations aiming at improving the current ETS system: 

• More strategic cooperation is required between the different parts of the Commission – DG Environment, DG Research and DG Transport. 
• Implement more focused action, for example to speed up the deployment of key sustainable technologies; 
• Implement sectoral action plans with energy-intensive industries and their customers downstream, including binding roadmaps on sustainability, innovation and market development;
• Make use of break-even points:  For example, calculations reveal that above the price of €23.4/t for CO2, it becomes profitable to shut down existing coal plants and replace them with new combined gas-cycle turbines;
• Financing innovation: If policymakers adopted auctioning as the preferred allocation method, one could use part of the revenue generated to finance a research fund.

With such improvements, the ETS has the potential to become a pillar of effective and efficient climate change policy that also provides incentives for investment in climate-friendly policies, concludes the paper.