In response to the European Commission’s consultation on Updating the EU ETS, EEX very much welcomes Commission’s objective of strengthening the joint scheme with focus on using its full potential.
Both in light of Europe’s 2050 carbon neutrality target and increase of the 2030 ambitions to 55% GHG emissions reductions as well as the need for a sustainable recovery. The drop in CO2 emissions throughout 2020 as consequence of the Covid-19 crisis occurred at a huge human and economic cost. This will have been futile and temporary unless structural efforts are made for the long term to avoid a rapid rebound. In its response, EEX argues five key design considerations should be considered.
- Strengthening the EU ETS requires alignment of the emissions cap with the increased targets. This is foremost achieved by a clear long-term framework of the LRF and its timely implementation.
- Additional sectors should be integrated into emissions trading at EU level. Inclusion in the EU ETS is the preferred long term option, a parallel system could be a reasonable interim solution in the shorter term.
- Increased climate ambition should be combined with an increased share of auctioned allowances. A continuous increase of the auctioning share during the trading phase would provide the greatest possible predictability for market participants.
- Support mechanisms for low-carbon technologies should be implemented in a consistent manner with the EU ETS markets.
- Global cooperation in carbon pricing and climate diplomacy need to be further intensified. This is the best tool to preserve European competitiveness and offers potential for cooperation between trading schemes.
Underpinning this all is the nature of the EU ETS as a volume-based cap and trade system with free price formation. A strong carbon market price signal is key to efficient emissions reductions. Free market pricing on the wholesale market is decisive for this, allowing market participants to efficiently manage their exposure on the market. We see proposals to add additional steering elements, such as a carbon floor price or carbon contracts for difference, critically.