European Parliament is at risk of ceding EU’s climate leadership with carbon market compromises

Rather than the unseemly compromises now on the table, MEPs have the mission, if they choose to accept it, of raising the ambition of the EU’s Emissions Trading System and turning ‘Fit for 55’ into ‘Fit for 65’.

The European Parliament’s Environment Committee (ENVI) voted, last month, on the revision of the EU Emission Trading System (ETS). Although this compromise deal improved in many areas on the European Commission’s original proposal, it failed to raise ambition sufficiently to tackle the climate crisis effectively.

When it comes to the EU’s Emissions Trading System, the Socialists&Democrats, Renew Europe, Greens and the Left came together to support more rapid emission reductions for the scheme: a 68% reduction target for the ETS by 2030 (compared to 2005) compared with the paltry 61% proposed by the Commission and endorsed by MEP Peter Liese, who made no effort to raise ambition. 

The ball is now with the parliament as a whole. When 705 MEPs sit down to vote on this at the plenary, on 8 June 2022, their mission will be, if they should choose to accept it, to raise the bar higher than ENVI did and ensure that Fit for 55 becomes Fit for 65, with faster and deeper emissions cuts, including a 70% emission reductions target by 2030 for the EU ETS. 

Unfortunately, forces are gathering to weaken or scrap even small improvements to the EU ETS’s target.

Compromising positions

Two of the major groupings in the Parliament are seeking support for a compromise target of only a 63% reduction by 2030. The European People’s Party is historically a climate laggard and an eager cheerleader of industry scaremongering. But Renew Europe, in contrast, had previously agreed to higher ambition and is furiously backpedalling on those earlier commitments, effectively abandoning the climate and the EU’s efforts to be a global leader in the transition to a climate neutral economy.

As if this were not enough, the European Commission’s REPowerEU initiative, which seeks to wean the EU off Russian fossil fuels and ostensibly accelerate the green transition, proposes to inflate the ETS’s carbon budget by taking emissions allowances worth €20 billion from the Market Stability Reserve. As these allowances would otherwise have been cancelled, this proposal would effectively increase emissions (by 250 million tonnes or more) under the system while undermining the carbon price itself. The market was clearly surprised and rapidly reacted to express its loss of confidence – the EU carbon price dropped more than 17% in the days after the announcement of the REPowerEU proposal. The proposal amounts to weakening the ETS through the backdoor before the European Parliament and the member states have had their say.

To make matters worse, the dangerous mantra of free pollution permits refuses to give up the ghost. Heavy industry is lobbying heavily and doing its best to scare policymakers with the spectre of carbon leakage. As industry’s failure to bring down emissions despite years of public largesse clearly demonstrates, a strong carbon price signal, not freebies, is necessary to incentivise decarbonisation.

Avoiding unENVIable compromises

These efforts to water down the package agreed by the parliament’s environment committee must be resisted. MEPs need to gather their courage and wisdom by voting for the ENVI target or better for the EU ETS. While not high enough, at least the ENVI target would take us some of the way. Backtracking on even that is reckless and it puts the polluters ahead of the people. And let’s not forget, further down the policymaking process there will be pressure to downgrade the target again, that is even without the European Commission sneaking in through the backdoor to pull the rug out from under the EU ETS.

The world is going through a global climate crisis that the Intergovernmental Panel on Climate Change (IPCC) tells us will only get much, much worse unless urgent and significant action is taken before 2030. This decade is our last chance to keep the climate breakdown within manageable proportions.What society needs and demands from the European Parliament is decisive action on global heating – and a good start on delivering that would be voting through the 68% emission reduction target for the EU ETS.