Emissions trading system for road transport and buildings in the policy mix for achieving climate neutrality in the EU

SUMMARY:

This policy brief provides an overview of the proposals for the ETS-2 covering road transport and buildings. The amendments and guidance by the European Parliament and the Council are assessed and compared to the proposal by the European Commission. In addition, we provide recommendations for each assessed issue to enhance the effectiveness of the ETS while trying to minimise practical obstacles which would impede its introduction.

Key recommendations:

• The ETS-2 can fill a policy gap providing a carbon price signal in additional sectors, helping achieve the targets under the Effort Sharing Regulation, supporting the pathway towards climate neutrality especially in low-income Member States and enhance compliance.
• The ETS-2 should start as soon as possible. In terms of sectoral coverage, a broad approach including small energy and industry installations is best. A derogation for private consumers is not practical and would significantly reduce the scope and thus the effectiveness of the scheme.
• A price management scheme is useful during the introduction of the ETS-2 due to uncertainties in the data, reactions by covered entities and the potential for social impacts. Any price management should be limited and still provide incentives to reduce emissions.
• Safeguards are necessary to ensure that energy taxes are not reduced due to the introduction of the ETS-2.
• Sectoral roadmaps and a strong role of the Scientific Advisory Board could strengthen the ETS-2.