EU carbon market is having a hard time being effective

In the electricity sector, The quantity of CO2 emitted per kWh produced fell by a quarter between 2005 and 2018. [Shutterstock]

11,000 industrial sites subject to the so-called Quotas Directive are collectively reducing their emissions. However, this is not necessarily because of the European emissions trading scheme (EU ETS). EURACTIV’s partner le Journal de l’environnement reports.

Between 2017 and 2018, there was a 4% drop in greenhouse gas (GHG) emissions from 11,000 European industrial sites required to participate in the EU Emissions Trading Scheme (EU ETS). In the meantime, carbon emissions of the world’s twenty leading economic powers have seen a 2% increase.

Electricity vs. Industry

Would that mean Europe’s heavy industry and energy sector are at the forefront of the climate battle? It’s not that simple.

In a study published on 17 June, six carbon economy research centres attempted to assess the climatic efficiency of the EU ETS.

Looking at climate data from the European Commission’s directorate general dealing with environmental issues, researchers found that the reduction of emissions was mainly due to the electricity sector.

“Emissions from the combustion of fossil fuels – the vast majority of which are emissions  linked to the production of electricity – decreased by 5.7% in 2018.”

At the same time, industrial carbon emissions only decreased by 0.7%.

Renewable energies

But what are the reasons for the electricity sector being so influential?

The quantity of CO2 emitted per kWh produced fell by a quarter between 2005 and 2018.  The industry gradually improved its carbon footprint. However, the performance of the industrial sector is “often confidential and difficult to verify.”

Another problem, according to the report’s authors, is that the reduction in emissions from power plants cannot be attributed to the European emissions trading market (EU ETS) as “it comes primarily from the deployment of renewable energies and the policies that support this deployment.”

Can the situation evolve positively?

That is hard to say as there are so many uncertainties. Although the average price of carbon emission allowances tripled between 2016 and 2018, it is still far from being able to encourage industrialists, for example, to develop cleaner production processes, even if existing ones are energy-intensive.

“By 2035, the manufacture of steel from hydrogen could generate €80-140 for every tonne of CO2 avoided.”

Right now, the market price for this certificate is around €25.

Crystal ball

Of course, most analysts believe that this price will continue to rise. But to what extent?

Assuming that the European Council on 20-21 June agrees to be more ambitious with regards to climate protection, by for example calling for a carbon neutral Europe by 2050, the EU27 will still have to emit less GHGs (-3 to -4% per year). This will inevitably lead to lower prices on the European carbon market.

The crystal ball of analysts is still unable to predict the consequences of Brexit on the European carbon market. Would the UK continue trading on the EU ETS, or would it mean that a British market, which may or may not depend on the EU system, would have to be created?

One could say that “all options are still on the table.” Such an analysis could also apply to the hypothetical integration or the linking of future mechanisms that will regulate emissions from international maritime and air transport sectors.

What if governments were to inject more money into a climate transition? This would not be a luxury given that the gaps between needs and credit lines are so wide.

In 2018 alone, the 28 EU member states recovered €14.2 billion from auctioning allowances, which was as much as they did between 2015 and 2017. About 80% of this sum has been allocated to support renewable energy and energy efficiency programmes.

However, things need to be improved, as the European Court of Auditors pointed out almost two years ago.

Zero-emission EU industry ‘within reach’ but costly, study says

Bringing emissions from heavy industry down to net-zero by 2050 is possible but will require costly new production processes and a 25-60% increase in near-term capital investments to reach €40-50 billion per year, according to new research published on Thursday (25 April).

Why we need more than just the EU carbon market to tackle industrial pollution

Latest data shows that the market-based solution alone is not enough to cut carbon pollution from heavy industry in line with the Paris Agreement goals. A new industrial policy mix is needed to ensure Europe is on a pathway to net-zero carbon emissions by 2040, writes Agnese Ruggiero.

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