The fourth Carbon Pricing Hub brought together representatives from industry, civil society, think tanks and politics to discuss the latest ins and outs of the European Union’s Emissions Trading System (EU ETS).

The event, which took place on 21 June 2023, featured two presentations by Julien Pestiaux (Climact) and Michael Pahle (Potsdam Institute for Climate Impact Research). There were also two panel discussions involving Camille Maury (WWF) Benjamin Denis (IndustriAll and the European Trade Union) Simon Lalieu (Climact), Ola Hansén (h2greensteel) and Mette Quinn, (European Commission’s DG Climate Action). Sabine Frank, director of  Carbon Market Watch, adeptly moderated the discussion.

Although the European carbon market has recently been amended, work on its most important reform is only just beginning. “We have just finished the revision and we are busy with preparing for the implementation, but yet here we are, discussing new policies already,” observed Mette Quinn.

Surplus to requirements

We started off with a presentation of the updated ETS simulation tool by Climact, an open source model that simulates the functioning of the EU ETS, specifically for the power sector and manufacturing industries. Julien Pestiaux spoke about what the model had to say about the implications of the surplus pollution permits on the ETS and what the recent reform means for the different member states in terms of free allocations and auctioning volumes. “If the objective is to increase the speed of the transition, it is clear that we would want to have a slightly lower surplus and higher prices,” he explained.

In the first panel discussion the speakers gave their view on the outcomes of the revision, the biggest strengths and biggest weaknesses. Camille Maury was particularly disappointed about the huge volume of allowances still being handed out for free to industry and the slow planned phase out of these freebies.

Narrow space for innovation

Ola Hansén, who works for, as he described it, a purpose-driven industrial scale up, said the EU ETS should play a crucial role in bringing new technologies into being. It was surprising and disappointing for him to see that in the final ETS deal the revenues going to the Innovation Fund corresponded to the least ambitious proposal that had been on the table during negotiations. He had wished for a harmonised EU-wide level playing field tool to boost investments, instead of dividing the money into small amounts between the member states.

Benjamin Denis added the social dimension of the transition to the discussion. He stated that climate policy must also provide solutions for, among other things, the energy crisis, the high cost of living and job security. “If a perfect EU ETS on paper leads to decarbonisation through delocalisation it would not help to fix the many problems we are facing.”

Endgame on the horizon

Michael Pahle talked about his recently published paper about what he and his colleagues called “the endgame”. “The idea of calling it the endgame is to realise that the EU ETS is soon to come to an end, but also to convey a sense of urgency and immediacy,” he explained. It is important to already look at the post-2030 context and to investigate whether the EU ETS has what it takes to reach all its climate goals.

The second panel discussion looked at the next revision of the EU ETS and the post-2030 climate goals. Mette Quinn said that the European Commission has already prepared an impact assessment and is currently working on a proposal for the 2040 climate policy target.

Camille Maury stressed the importance of keeping the carbon price high and using the revenues to fund real climate action, while others pointed to the need for non-market tools to accelerate the decarbonisation of industry.

The next Carbon Pricing Hub will take place in the autumn, and more information will be available on the website.

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