The role of the EU ETS in increasing EU climate ambition

Title

The role of the EU ETS in increasing EU climate ambition

Author(s)

Verena Graichen, Jakob Graichen, Sean Healy

Organisation

Oeko Institut, Sitra

Year

October 2019

Type

Report

Length

80 p.

Keywords

Carbon leakage, Climate targets, Effort Sharing Regulation, Free allowances, Investments, Market Stability Reserve, Shipping

This study provides concrete and politically feasible proposals to strengthen the EU ETS and to achieve an enhanced target in line with the Paris Agreement. Doing so will only be possible if there is political will in the European Parliament, member states and the European Commission. A group of frontrunners could quickly agree to set a minimum price and apply unilateral cancellation to the maximum level allowed by the ETS Directive. The review of the MSR is due by 2021 and the elements proposed here could also be agreed in time for their implementation. The discussion and adoption of the politically most challenging part – strengthening the cap through rebasing and higher annual reduction rates – should also start as quickly as possible. This would ensure that the necessary certainty could be provided to market participants who need to prepare for such an enhanced level of ambition in time.

The analysis presented here has shown ways to enhance the functioning of the EU ETS and ways to increase ambition in the trading scheme in line with higher GHG targets for the EU.