Criteria for an effective and socially just EU ETS 2
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Report 1/2022 Assessment of the EU Commission’s Proposal on an EU ETS for buildings & road transport (EU ETS 2) Criteria for an effective and socially just EU ETS 2 Benjamin Held, Christopher Leisinger, Matthias Runkel January 2022 On behalf of: CAN-Europe, Germanwatch, Klima-Allianz Deutschland e.V., WWF Deutschland
Criteria for an effective and socially just EU ETS 2
Table of contents
Zusammenfassung der Studie ............................................................................................................................................. 3
1 Overview of the Assessment........................................................................................................................................ 6
2 Analysis of the individual criteria ................................................................................................................................ 9
2.1 Criterion A: Embed carbon pricing within a holistic policy mix ................................................................................... 9
2.2 Criterion B: Safeguard the effectiveness of the EU ETS 2 ............................................................................................. 11
2.3 Criterion C: Ensure just distribution between Member States .................................................................................. 13
2.4 Criterion D: Ensure social acceptability for households ................................................................................................ 17
2.5 Criterion E: Ensure fair contribution of all sectors .......................................................................................................... 23
2.6 Criterion F: Align implicit and explicit carbon pricing instruments like carbon and energy taxes .............. 25
3 Outlook .......................................................................................................................................................................... 27
Literature .............................................................................................................................................................................. 28
ANNEX: EMPIRICAL EVALUATIONS CONCERNING THE POTENTIAL DISTRIBUTIONAL EFFECTS OF EU
ETS2 ....................................................................................................................................................................................... 30
1 Methodology and data sources ................................................................................................................................ 30
1.1 General overview ......................................................................................................................................................................... 30
1.2 Auxiliary variables .......................................................................................................................................................................... 31
1.3 Buildings ........................................................................................................................................................................................... 32
1.4 Road Transport .............................................................................................................................................................................. 33
1.5 Buildings + Road Transport ....................................................................................................................................................... 34
2 Result tables and figures ........................................................................................................................................... 35
2.1 MS-specific energy consumption relevant for EU ETS 2 ............................................................................................. 35
2.2 MS-specific GHG-emissions relevant for EU ETS 2 ....................................................................................................... 37
2.3 MS-specific burdens by EU ETS 2 (CO2 price of 55 €/t) ............................................................................................. 39
2.4 Income-specific calculations .................................................................................................................................................... 41
2.5 Social Climate Fund (SCF) ........................................................................................................................................................ 48
Authors
FEST: Benjamin Held
This project was funded by Federal Ministry for
FÖS: Christopher Leisinger, Matthias Runkel the Environment, Nature Conservation, Nu-
clear Safety and Consumer Protection. The
On behalf of funds are made available by resolution of the
Klima-Allianz Deutschland e.V.: Malte Hentschke-Kemper German Bundestag.
Germanwatch: Anne Gläser
WWF Deutschland: Juliette de Grandpre
CAN-Europe: Klaus Rörig
Disclaimer: The study reflects the views only of the authors and aims at providing a better understanding of the
Commission’s proposal, supporting our organisations’ positioning and at contributing to the ongoing debate
about achieving a socially fair transition in Europe in line with the objectives of the Paris Agreement.
Forschungsstätte der Evangelischen Studiengemeinschaft e.V. • Forum Ökologisch-Soziale Marktwirtschaft e.V.Assessment of the EU Commission’s Proposal on an EU ETS 2 • Page 3 of 48
ZUSAMMENFASSUNG DER STUDIE
Anfang 2021 hat sich die Europäische Union das Ziel im Voraus festgelegten Auktionsmengen er-
gesetzt, die Nettoemissionen bis zum Jahr 2030 um reicht wird.
mindestens 55 % gegenüber 1990 zu senken und bis 3. Die CO2-Bepreisung kann Investitionskanäle für
zum Jahr 2050 Klimaneutralität zu erreichen. Am 14. klimafreundlichere Alternativen im Gebäude-
Juli 2021 legte die Europäische Kommission (2021) im und Straßenverkehrssektor öffnen (d.h. geringere
Rahmen des „Fit for 55" Pakets eine Reihe von Legisla- Risiken und Kosten für Investoren).
tivvorschlägen vor, die unter anderem eine Anhebung
4. Einnahmen aus der Versteigerung von Zertifikaten
der Ziele der beiden wichtigsten klimapolitischen In-
können verwendet werden, um einkommens-
strumente der EU vorsehen: des EU-Emissionshan-
schwache Haushalte und Unternehmen in den
delssystems und der Verordnung zur Lastenteilung
Mitgliedstaaten zu entschädigen und diejenigen
(ESR).
zu belohnen, die ihre Emissionen reduzieren.
Die Kommission schlug vor, die Zielvorgabe für Sekto-
5. Im Gegensatz zu nationalen Instrumenten hat die
ren, die unter das bestehende EU-Emissionshandels-
gerechte Verteilung der Versteigerungseinnah-
system (im Folgenden: EU ETS 1) fallen, von 43 % auf 61
men zwischen den Mitgliedstaaten das Potenzial,
% gegenüber 2005 zu erhöhen. Für die Sektoren, die
wirtschaftliche und soziale Ungleichheiten ab-
unter die ESR fallen, soll das frühere Ziel, die Emissio-
zumildern, und belohnt diejenigen Mitgliedstaaten,
nen um 29 % ggü. 2005 zu senken, auf 40 % angeho-
die in der EU eine Vorreiterrolle beim Klimaschutz
ben werden. Für die Sektoren Gebäude und Straßen-
spielen (vorausgesetzt, die erforderlichen Vertei-
verkehr innerhalb der ESR hat die Kommission ein Re-
lungsmechanismen werden entsprechend umge-
duktionsziel von 43 % bis 2030 ggü. 2005 vorgeschla-
setzt).
gen. Im Einklang mit verstärkten Klimaschutzmaßnah-
men sieht der Vorschlag der Kommission die Einfüh-
Die Initiative der Kommission verspricht eine Verbes-
rung eines separaten Emissionshandelssystems für
serung der Klimaschutzmaßnahmen in der EU. Sektor-
Gebäude und Straßenverkehr vor (im Folgenden: EU
spezifische Merkmale sind jedoch zu berücksichtigen,
ETS 2).
damit die CO2-Bepreisung in den Sektoren Gebäude
Die Einführung eines Emissionshandelssystems für und Straßenverkehr erfolgreich umgesetzt werden
Gebäude und Straßenverkehr in der EU könnte aus kann. Zwar kann auf den Erfahrungen mit dem EU ETS
mehreren Gründen ein nützliches ergänzendes In- 1 aufgebaut werden, jedoch unterscheiden sich unter
strument sein (unter der Voraussetzung, dass die Kri- anderem Grenzvermeidungskosten und Belastungs-
terien in Tabelle 1 erfüllt sind): wirkungen zwischen den erfassten Sektoren erheblich.
1. Die Bepreisung von Kohlenstoff stärkt das Verur- Vor diesem Hintergrund werden in diesem Papier zent-
sacherprinzip, d.h. die Kosten für Schäden an Klima rale Aspekte des Kommissionsvorschlags für das EU
und Umwelt werden den Verursacher*innen ange- ETS 2 untersucht und Kriterien erörtert, die im Falle der
lastet. Einführung eines EU ETS 2 berücksichtigt werden soll-
2. Der Handel mit Emissionszertifikaten schafft einen ten, um eine effektive und sozial gerechte CO2-Beprei-
transparenten Pfad, auf dem das Reduktionsziel sung bereits in der Anfangsphase des neuen EHS zu er-
für 2030 kosteneffizient durch eine klare Mengen- reichen (siehe Tabelle 1).
steuerung und eine begrenzte Versteigerung von
Tabelle 1: Kriterien für einen effektiven und sozial gerechten EU ETS 2
Kriterium Bewertung und Empfehlungen
Der derzeitige Policy-Mix ist nicht ausreichend, um die Klimaziele zu erreichen.
Es müssen zusätzliche Maßnahmen ergriffen werden und die CO2-Bepreisung
könnte dabei ein sinnvolles ergänzendes Instrument in einem Policy-Mix
A: EINBETTUNG DER sein. Als Teil eines ganzheitlichen Policy-Mix können eine stärkere CO2-Be-
CO2-BEPREISUNG IN preisung und die Internalisierung von Klimakosten die Klimaschutzbemühun-
EINEN GANZHEITLI- gen der EU beschleunigen. Das EU ETS 2 sollte als Backstop-Instrument ein-
CHEN POLICY-MIX gesetzt werden, das als "Warnindikator" die
(Un-)Wirksamkeit anderer klimapolitischer Maßnahmen anzeigt. Es sollte als
Ergänzung zu Standards, öffentlichen Investitionen und anderen marktbasier-
ten Instrumenten betrachtet werden. Darüber hinaus darf es die Verordnung
Forschungsstätte der Evangelischen Studiengemeinschaft e.V. • Forum Ökologisch-Soziale Marktwirtschaft e.V.Assessment of the EU Commission’s Proposal on an EU ETS 2 • Page 4 of 48
zur Lastenverteilung (ESR) als zentrales Erfüllungsinstrument nicht ersetzen.
Im Vorschlag der EU-Kommission wird die Rolle des EU ETS 2 in dieser Hinsicht
sehr klar eingeordnet.
Die Einführung eines EU ETS 2 stärkt die europäischen Klimamaßnahmen -
es stellt sicher, dass die Ziele für 2030 erreicht werden, indem es Emissions-
obergrenzen und einen Reduktionspfad festlegt. In der politischen Praxis sind
Emissionshandelssysteme jedoch in der Regel mit (sinnvollen) Eingriffen ver-
bunden (z. B. über den Frontloading-Mechanismus). Dies kann nützlich sein,
jedoch verschiebt das Frontloading die notwendige Emissionsreduzierung in
B: SICHERSTELLUNG die Folgejahre. Auch könnte es zu sehr niedrigen CO2-Preisen führen. Um die
DER WIRKSAMKEIT Wirksamkeit zu gewährleisten, schlagen wir die Einführung einer stetig stei-
DES EU ETS 2 genden Preisuntergrenze vor, zumindest so lange, bis die Auswirkungen des
Frontloading vorhersehbar sind und die Preise im EU ETS 2 weniger stark
schwanken. Die Preisuntergrenze würde dazu beitragen, die ökologische
Wirksamkeit zu erhalten, indem sie ein Absinken des Preises unter ein vorher
festgelegtes Niveau verhindert. Hoch genug angesetzt sendet sie ein glaub-
würdiges Signal an Investoren, klimafreundliche Projekte und Technologien zu
finanzieren.
Der vorgeschlagene soziale Klimafonds (SCF) würde ein substanzielles Fi-
nanzvolumen aus den Einnahmen der Versteigerungen an ärmere Mitglied-
C: GEWÄHRLEIS- staaten umverteilen. Allerdings bleibt unklar, wie sich die Verteilungseffekte
TUNG EINER GE- zwischen den Mitgliedstaaten in Zukunft entwickeln werden, da sie stark von
RECHTEN VERTEI- den künftigen Emissionsreduktionen abhängen und davon, wie sich diese zwi-
LUNG ZWISCHEN schen den Mitgliedstaaten unterscheiden. Dieser Aspekt sollte in weiteren
DEN MITGLIEDSTAA- Analysen genauer untersucht werden, um entscheiden zu können, ob die Ein-
TEN führung weiterer Solidaritätsmechanismen erforderlich ist. Da die Umvertei-
lung durch den SCF jedoch bereits als relativ umfangreich eingestuft werden
kann, fällt die Gesamtbewertung für dieses Kriterium recht positiv aus.
Grundsätzlich bietet der Vorschlag der EU-Kommission geeignete Lösungs-
ansätze, um die CO2-Bepreisung sozialverträglich zu gestalten. Es wird vorge-
schlagen, die Einnahmen an einkommensschwache Haushalte umzuverteilen
und ihnen bei der Reduzierung ihrer Emissionen zu helfen. Die vorgeschlagene
Finanzierung über den SCF könnte (theoretisch) ausreichen, um negative Ver-
teilungswirkungen vollständig aufzufangen. Allerdings bleibt die Ausgestal-
tung und damit die Wirksamkeit des SCF unklar. Die Kommission sollte daher
die Ausgestaltung der vorgeschlagenen Umverteilungsmechanismen prä-
zisieren.
Darüber hinaus sollten die Kriterien und Anforderungen weiterentwickelt wer-
D: GEWÄHRLEIS- den, die den Mitgliedstaaten hinsichtlich der Verwendung der zugewiesenen
TUNG DER SOZIAL- Mittel auferlegt werden. Die Schaffung geeigneter Governance-Strukturen
VERTRÄGLICHKEIT sollte entsprechend gefördert und unterstützt werden, um eine gezielte und
effektive Hilfe für arme und besonders betroffene Haushalte zu ermöglichen.
Da Unsicherheiten bezüglich der Verteilungswirkungen bestehen bleiben,
schlagen wir die Einführung einer (steigenden) expliziten Preisobergrenze
vor, die über die Marktstabilitätsreserve (MSR) umgesetzt wird. Ebenso schla-
gen wir die Etablierung eines Warnpreises vor, der unter dem Höchstpreis lie-
gen würde und zusätzliche Maßnahmen zur Reduzierung der Emissionen
durch die EU und ihre Mitgliedstaaten auslösen sollte. Die Preisobergrenze
könnte (schneller) angehoben und möglicherweise ganz abgeschafft werden,
wenn sich nach Einführung des EU ETS 2 zeigt, dass die Sozialverträglichkeit
gewährleistet ist.
Forschungsstätte der Evangelischen Studiengemeinschaft e.V. • Forum Ökologisch-Soziale Marktwirtschaft e.V.Assessment of the EU Commission’s Proposal on an EU ETS 2 • Page 5 of 48
Bei den Akteuren, die die Kosten der Transformation zur Klimaneutralität tra-
gen, ist ein Ungleichgewicht zwischen den Sektoren festzustellen. So sollen im
EU ETS 2 alle Zertifikate versteigert und damit tatsächlich bezahlt werden (vor
allem von Haushalten), während sie im EU ETS 1 noch überwiegend der ener-
gieintensiven Industrie frei zugeteilt werden. Das untergräbt das Verursacher-
prinzip und senkt die gesellschaftliche Akzeptanz gegenüber dem Emissions-
handel. Die Einführung eines CO2-Grenzausgleichs (Carbon Border Adjust-
E: GEWÄHRLEIS- ment Mechanism, CBAM) und die geplante Reduzierung der kostenlosen Zu-
TUNG EINER FAIREN teilung sind zentrale Schritte zum Abbau dieses Ungleichgewichts. Es sollten
LASTENTEILUNG AL- weitere Schritte in diese Richtung unternommen werden mit dem Ziel, so
LER SEKTOREN schnell wie möglich von der kostenlosen Zuteilung zur Versteigerung über-
zugehen.
Mit der Ausweitung der CO2-Bepreisung auf die Sektoren Gebäude und Stra-
ßenverkehrs wäre ein Großteil der Emissionen der EU vom Emissionshandels-
system abgedeckt. Die Einbeziehung weiterer Sektoren und Bereiche
könnte erwogen werden (z. B. Kleinindustrie und nichtelektrischer Schienen-
verkehr). Das deutsche nationale Emissionshandelssystem (nEHS) für Heiz-
und Kraftstoffe beispielsweise zeigt, dass eine Erweiterung möglich ist.
Um einen kohärenten Policy-Mix und konsistente Preissignale sicherzustellen,
muss die explizite und implizite CO2-Bepreisung (durch EU ETS 1 und 2 sowie
Energiebesteuerung) aufeinander abgestimmt werden. Die von der Europäi-
F: ANPASSUNG IM-
schen Kommission vorgeschlagene Überarbeitung der Energiesteuerrichtlinie
PLIZITER UND EX-
würde dazu beitragen. Sie schafft darüber hinaus Raum für die Berücksichti-
PLIZITER CO2-
gung sozialer Belange durch die Ermöglichung gezielter Steuersenkungen
PREISE DER CO2-
und befristeter Ausnahmen.
UND ENERGIE-BE-
Die Kommission sollte sollte Wege finden, um die Mitgliedstaaten dazu zu
STEUERUNG
bringen, ihr bereits bestehendes CO2-Preisniveau aus impliziter und expli-
ziter Bepreisung als Reaktion auf die Einführung des EU ETS 2 nicht abzusen-
ken.
Forschungsstätte der Evangelischen Studiengemeinschaft e.V. • Forum Ökologisch-Soziale Marktwirtschaft e.V.Assessment of the EU Commission’s Proposal on an EU ETS 2 • Page 6 of 48
1 Overview of the Assessment
In early 2021, the European Union set the objectives of efficiently via clear quantity control and limited re-
reducing net emissions by at least 55% by 2030 com- lease of predefined auction volumes to the market.
pared to 1990 and thus of achieving climate neutrality 3. Pricing carbon can open investment channels for
by the year 2050. On July 14th 2021, the European low-carbon alternatives in the buildings and road
Commission (2021) presented a series of legislative transport sectors (i.e., reduced risks and costs for in-
proposals in line with the “Fit for 55” package, which in- vestors).
clude raising the targets of the two main EU instru-
4. Revenues from auctioning allowances can be used
ments: the EU Emissions Trading System and the Effort
to compensate low-income groups and busi-
Sharing Regulation (ESR).
nesses within Member States and reward those
The Commission proposed to increase the target from who emit less.
43% to 61% (compared to 2005) for sectors covered
5. Unlike national instruments, the equitable distribu-
under the existing EU Emissions Trading System
tion of auctioning revenues among Member
(henceforth: EU ETS 1). With regard to sectors covered
States has the potential to mitigate economic and
by the ESR, the former target of cutting emissions by
social inequalities and rewards those Member
29% is supposed to increase to 40%, compared to the
States that are climate leaders in the EU (given that
levels in 2005. For the buildings and road transport
the necessary mechanisms are implemented ac-
sectors within the ESR, the Commission has put for-
cordingly).
ward a reduction target of 43% by 2030 relative to
2005. In line with stronger climate action, the Commis-
The Commission’s initiative promises improved climate
sion’s proposal includes introducing a separate emis-
action in the European Union. Nevertheless, it is essen-
sion trading system for buildings and road transport
tial to consider multiple sector-specific characteristics
(henceforth: EU ETS 2).
for pricing emissions in the buildings and road transport
Implementing an emission trading system for buildings sectors successfully. Despite similarities with the EU
and road transport in the EU could be a useful comple- ETS 1, marginal abatement costs and distributional bur-
mentary instrument for several reasons (conditional dens differ substantially between covered sectors. In
on the criteria in Table 1): light of this background, this paper investigates central
1. Putting a price on carbon introduces the polluter aspects of the Commission’s proposal for the EU ETS 2.
pays principle – hence, those who produce pollu- It discusses criteria which should be applied in the
tion bear the costs of paying for the damages done event of the introduction of an EU ETS 2 to obtain ef-
to the climate and environment. fective and socially just carbon pricing during the ETS
2. A cap on carbon can establish a transparent trajec- initial phase and the later stages (see Table 1).
tory that reaches the 2030 reduction target cost-
Table 1: Criteria for an effective and socially just EU ETS 2
Criterion Assessment and recommendations
The current climate policy mix is not sufficient for achieving climate targets.
Additional measures have to be taken, and carbon pricing could be a useful
complementary instrument in a policy mix. Strengthening carbon pricing and
internalising climate costs can accelerate EU climate action as part of a holistic
A: EMBED CARBON
policy mix. The EU ETS 2 should be implemented as a backstop instrument,
PRICING WITHIN A
indicating the (in-)effectiveness of other climate policies via its function as
HOLISTIC POLICY
“warning indicator”. It should be considered as complementary to perfor-
MIX
mance standards, public investments, and other market-based instruments.
Moreover, it must not replace the Effort Sharing Regulation (ESR) as the core
compliance instrument. The proposal of the EU Commission identifies the role
of the EU ETS 2 very clearly in this regard.
Forschungsstätte der Evangelischen Studiengemeinschaft e.V. • Forum Ökologisch-Soziale Marktwirtschaft e.V.Assessment of the EU Commission’s Proposal on an EU ETS 2 • Page 7 of 48
Introducing an EU ETS 2 strengthens European climate action - it ensures
that the 2030 targets are met by setting a distinct cap and reduction path. In
political practice, however, emission trading systems are usually subject to
(meaningful) interventions (e.g., via the frontloading mechanism). This can be
useful, yet frontloading allowances means “borrowing” from future carbon
B: SAFEGUARD THE
budgets and ultimately postpones emission reductions. It might also lead to
EFFECTIVENESS OF
very low carbon prices. In order to guarantee effectiveness, we propose the in-
THE EU ETS 2
troduction of a steadily increasing price floor; at least until the effects of front-
loading are predictable, and prices in the EU ETS 2 are less volatile. The price
floor would help to retain ecological effectiveness by preventing the price from
dropping below predefined levels and, if set sufficiently high, still sends a cred-
ible signal to investors to finance low-carbon projects and technologies.
The proposed Social Climate Fund (SCF) would redistribute substantial
amounts of auction revenues to low-income Member States. However, the
ways in which the distributional effects between Member States will develop in
C: ENSURE JUST DIS-
the future remain unclear, as they strongly depend on future GHG reductions,
TRIBUTION BE-
and how the latter differ between Member States. This aspect should be inves-
TWEEN MEMBER
tigated in more detail in further analyses, on the basis of which the decision on
STATES
whether further solidarity mechanisms should be introduced should be made.
However, since the redistribution through the SCF can already be classified as
relatively extensive, the overall assessment for this criterion is quite positive.
In principle, the proposal offers appropriate solutions to achieve a socially ac-
ceptable pricing of carbon emissions for EU citizens. It proposes to redistribute
revenues to low-income households and to help them reduce their carbon
emissions. The proposed funding via the SCF could (in theory) be sufficient to
mitigate severe distributional consequences. However, the design and thus the
effectiveness of the SCF remains unclear. The Commission should therefore
specify the design of the proposed redistribution mechanisms.
In addition, the criteria and requirements imposed on the Member States with
D: ENSURE SOCIAL regard to the use of the allocated funds should be developed further. The cre-
ACCEPTABILITY FOR ation of appropriate governance structures should be encouraged and sup-
HOUSEHOLDS ported accordingly, so as to make possible targeted and effective relief for poor
and particularly affected households.
Given that uncertainties concerning the distributional effects will remain, we
further propose the introduction of an (increasing) explicit price ceiling, en-
forced via the MSR, and of a warning price, which would be below the maxi-
mum price and upon which direct increased efforts and measures to reduce
carbon emissions by the EU and its MS should follow. If analyses after the intro-
duction of the EU ETS 2 show that social acceptability is ensured, the price ceil-
ing could be raised (more quickly) and potentially abolished completely.
An imbalance can be found with regard to the actors bearing the costs of the
transformation towards climate neutrality between sectors. That is, in EU ETS 2
all allowances are to be auctioned and thus actually paid for (mainly by house-
holds), whereas in EU ETS 1 they are still allocated freely to the energy-inten-
E: ENSURE FAIR
sive industry most of the time, which undermines the polluter pays principle
CONTRIBUTION OF
and thus lowers and endangers the acceptance for emissions trading. The in-
ALL SECTORS
troduction of a Carbon Border Adjustment Mechanism (CBAM) and the
planned reduction of free allocation are pivotal steps to reduce this imbalance.
Further steps in this direction should be taken. The goal should be to switch
from free allocation to auctioning as swiftly as possible.
Forschungsstätte der Evangelischen Studiengemeinschaft e.V. • Forum Ökologisch-Soziale Marktwirtschaft e.V.Assessment of the EU Commission’s Proposal on an EU ETS 2 • Page 8 of 48
With the inclusion of road traffic and buildings, a large part of the EU's carbon
emissions not yet covered by the EU ETS would be included. However, further
consideration could be given to including additional sectors and areas (e.g.,
small industry and non-electric railroad). The German National emissions trad-
ing system (nETS) for heating and transport fuels, for example, shows that an
extension is possible.
In order to ensure a coherent policy mix, explicit and implicit carbon pricing
through EU ETS 1&2 and energy taxation have to be aligned in order to create
F: ALIGN IMPLICIT
coherent price signals. The revision of the Energy Tax Directive as proposed by
AND EXPLICIT CAR-
the European Commission would lead to improved consistency between ex-
BON PRICING IN-
plicit and implicit carbon prices. It also creates room for addressing social
STRUMENTS LIKE
concerns via targeted tax reductions and temporary exemptions.
CARBON AND EN-
The Commission should find ways to oblige Member States not to lower their
ERGY TAXES
overall carbon price levels (implicit plus explicit) in response to the introduc-
tion of EU ETS 2.
Forschungsstätte der Evangelischen Studiengemeinschaft e.V. • Forum Ökologisch-Soziale Marktwirtschaft e.V.Assessment of the EU Commission’s Proposal on an EU ETS 2 • Page 9 of 48
2 Analysis of the individual criteria
2.1 Criterion A: Embed carbon pricing within a holistic policy mix
2.1.1 What is it about?
The current climate policy mix is not sufficient for well as economic and social shortcomings (IMF 2019).
achieving the climate targets of the EU and its Member For example, carbon pricing is ineffective if low-carbon
States (MS). Additional measures will have to be taken, alternatives are missing or if prevailing market struc-
and carbon pricing could be a useful complementary tures are too dominant. It cannot initiate transfor-
instrument in a policy mix - also considering the build- mation without strategic high cost-high risk and infra-
ings and road transport sectors. 1 In theory, carbon pric- structure investments (which private markets usually
ing can be a central instrument by addressing the “larg- do not deliver; Figure 1). Additionally, behavioural ob-
est market failure the world has ever seen” (Stern stacles tend to prevail, given that real people tend to
2008). Putting a price on carbon (or internalizing ex- not be as rational as economic theory would like to as-
ternal climate costs) is a theoretical "first-best" re- sume. Hence, standards, rules and regulations are
sponse to the climate crisis from an economic point of necessary.
view. It ensures cost-effective emission reductions. Lastly, carbon pricing needs political long-term cred-
Emissions will be avoided for cases in which it is cheap- ibility to have a persuasive signalling effect. Economic
est to do so, and economic decisions will be optimized efficiency and market forces do not necessarily yield
with respect to climate costs (Figure 1). Polluters re- socially acceptable outcomes, which makes compen-
ceive an immediate financial incentive to exploit all satory measures indispensable to ensure support from
abatement opportunities to reduce their emissions. 2 the population.
However, this becomes effective solely within a holistic
policy mix, which addresses theoretical and practical as
Figure 1: Three pillars of economic policy
Source: based on Grubb, Hourcade, and Neuhoff. (2014): Planetary Economics: energy, climate change and the three domains of sustainable deve-
lopment. Routledge
2.1.2 What is the proposal by the European Commission?
The Commission’ proposal outlines the idea of a holistic imply excessive carbon prices, whereby carbon pricing
and balanced policy mix to achieve the national targets alone would not overcome persistent market failures
for emission reductions from road transport and heat- and non-market barriers. In turn, the Commission sug-
ing of buildings as specified in the Effort Sharing Regu- gests that the optimal policy mix should complement
lation (ESR). In line with existing evidence, it argues price instruments, such as the EU ETS 2, with regula-
that over-reliance on regulatory policies increases bur- tory policies (e.g., on energy efficiency and perfor-
dens for economic actors and creates additional in- mance standards for vehicles). The European Green
vestment challenges. On the other hand, focusing Deal provides substantial financial means for investing
merely on economic incentives via price signals could into the green and social transition.
1
see e.g. https://zenodo.org/rec- .
ord/5562910#.YW7GcBxCSUl
Forschungsstätte der Evangelischen Studiengemeinschaft e.V. • Forum Ökologisch-Soziale Marktwirtschaft e.V.Assessment of the EU Commission’s Proposal on an EU ETS 2 • Page 10 of 48
2.1.3 Assessment and Recommendation
The EU ETS 2 should not be considered as the the expectation of future price increases should in-
main policy instrument to mitigate carbon emis- itiate additional action by policy makers and market
sions and achieve the climate targets. Its role can be actors. Early strategic investments are needed to
found within a holistic policy mix instead and should be make possible adaptation.
regarded as a warning indicator and backstop instru- Policies to reduce carbon emissions (and hence de-
ment that aids to achieve national targets under the mand for allowances) help to keep prices at moder-
ESR: ate levels and should be adopted in anticipation of
ESR targets remain the overriding goal and EU ETS a high price scenario. In the case of very high car-
2 is meant to help Member States reach these tar- bon prices (i.e., reaching the “red price zone” or
gets. Complementary policies and measures in- price ceiling; see Criterion D), policymakers should
clude the Energy Efficiency Directive, Renewable take immediate measures.
Energy Directive, CO2 standards for cars and vans, In case of low carbon prices (i.e., reaching the price
as well as the Alternative Fuels Infrastructure Reg- floor; see Criterion B), performance standards etc.
ulation. ensure ecological effectiveness of European cli-
EU ETS 2 is a “warning indicator” (see Criterion D), mate action. Additionally, high income MS could
because high price levels indicate the (in-)effec- maintain a national minimum price with top ups
tiveness of other measures in the policy mix. Even (e.g., through national energy or carbon tax instru-
ments).
Forum Ökologisch-Soziale Marktwirtschaft e.V. • Green Budget GermanyAssessment of the EU Commission’s Proposal on an EU ETS 2 • Page 11 of 48 2.2 Criterion B: Safeguard the effectiveness of the EU ETS 2 2.2.1 What is it about? Raising the 2030 ambition is one aspect of committing Union and its Member States (MS) (IPPC 2021). Sec- to more climate action in the EU. Ensuring that climate ondly, a clear emissions path and sufficiently high price targets are in fact met with the established instruments signals provide investors with longer-term planning se- is another. While the EU ETS 1 was considered ineffec- curity (thereby avoiding stranded assets) and drive the tive due to structural deficits for a long time, safeguard- transition toward more clean and zero-emission alter- ing the prompt effectiveness of the EU ETS 2, and es- natives. The EU must ensure that EU ETS 2 is the right tablishing strong policy signals in early stages of its im- instrument to contribute to relevant emission reduc- plementation is a key priority, given the short time hori- tions in the buildings and road transport sectors in all zon. Firstly, accelerating global temperature rises call Member States. for fast and large emission reductions in the European 2.2.2 What is the proposal by the EU Commission? In general, the proposed reduction path of the cap in A frontloading mechanism allows market participants ETS 2 is much steeper compared to ETS 1. From 2026 to purchase allowances ahead of schedule and, thus, onwards, the quantity of allowances will initially decline accounts for the need of regulated entities to mitigate by 5.15 % annually relative to 2024 emissions (1,105 Mt). liquidity risks (i.e., running short on allowances). The to- However, the carbon budget (992 Mt in 2026) sets off tal quantity of allowances in 2026 will be 130% of the from a point above the projected emissions as mod- cap. Frontloaded quantities will be deducted from auc- elled in a “MIX scenario” (see Figure 2). This should tioning volumes in the years 2028 to 2030, which will avoid premature price increases in case emissions are considerably increase scarcity starting in 2028. higher than anticipated because other policy measures are not as effective (see projected emissions under cur- rent policies in Figure 2). From 2028 onwards, the re- duction trajectory will be increased to 5.43 % relative to 2025-levels (1,048 Mt). Figure 2: Cap setting for the EU ETS 2 Source: Impact Assessment Report 2/4 of the legislative proposal (option EXT1), Figure 23 Forschungsstätte der Evangelischen Studiengemeinschaft e.V. • Forum Ökologisch-Soziale Marktwirtschaft e.V.
Assessment of the EU Commission’s Proposal on an EU ETS 2 • Page 12 of 48
Furthermore, the existing Market Stability Reserve The Commission expects the price for emission allow-
(MSR) under EU ETS 1 will be extended by a separate ances to range from 35 to 53 Euro2015 initially. Until
section for EU ETS 2. An increased risk of starting with 2030, prices are expected to rise to 48 to 80 Euro2015
a cap that is either too high or too low is part of the early per tonne. Other evaluations, however, assume that
stages of the new system. The reserve helps prevent carbon prices are likely to rise well above 120 Euro
such market imbalances (and thus price volatility) by (Cambridge Econometrics 2021; Maj u. a. 2021). For the
deducting/releasing allowances from/to the market if German Emission Trading System (introduced in early
necessary. Initially, it will be endowed with 600 million 2021 for transport, buildings, and small industry), eval-
allowances. If the total number of circulating allow- uations even suggest a carbon price of around 250
ances is above 440 million, 100 million allowances will Euro in 2030 (Matthes 2020). Given a scenario without
be deducted from the market and transferred to the additional policy measures, a carbon price of 450 Euro
MSR within one year. Whenever the total quantity of might be necessary (Transport & Environment 2021). In
circulating allowances is below 210 million, 100 million December 2021, carbon prices on the EU ETS 1 rose
allowances from the MSR will be released to the mar- close to 90 Euro. It seems likely that the Commission
ket. If less than 100 million allowances are left in the re- underestimates future carbon prices on the EU ETS 2.
serve, all remaining quantities will be released to the The system’s effectiveness and cost-efficiency (be-
market. yond its cap) depend on appropriate carbon prices re-
flecting emission abatement costs. Therefore, they cre-
ate strong incentives for decarbonization.
2.2.3 Assessment and recommendation
The major advantage of the EU ETS 2 is that it So far, market interventions via the MSR are proposed
provides certainty about the amount of emis- in case of short-term excessive price increases and in
sion reductions through the cap theoretically. In politi- case of a shortage or oversupply of circulating allow-
cal practice, however, emission trading systems are ances (see also Criterion D). However, the exact effects
usually subject to interventions preventing excessive of these mechanisms on the level of the price remain
carbon price changes, while still trying to ensure the unclear. An explicit price floor would help to retain the
systems’ effectiveness (e.g., via the implementation of ecological effectiveness of the EU ETS 2 by preventing
a frontloading mechanism and the price corridor pro- the price from dropping below predefined levels. This
posed below). would limit demand for allowances, stopping emissions
Overall, the frontloading mechanism is essential to to rise in other economic sectors not covered by an
prevent structural deficits of emission trading, but ETS. If the price floor is set sufficiently high, a credible
tends to postpone obligations for emission reduction signal is sent to investors to finance low-carbon pro-
into the future. It jeopardizes the role of the EU ETS 2 jects and technologies. In conjunction with the explicit
to meet the 2030 climate targets. In summary, the price ceiling (see Criterion D for more information, in-
mechanism represents a trade-off between climate cluding an illustration also containing a “warning price”
and economic policy objectives, as frontloading means and “red price zone”) such an explicit price floor would
“borrowing” from future carbon budgets. create a price corridor, which would make the EU ETS
2 less volatile and allowance prices more predictable
(Edenhofer u. a. 2021).
Forschungsstätte der Evangelischen Studiengemeinschaft e.V. • Forum Ökologisch-Soziale Marktwirtschaft e.V.Assessment of the EU Commission’s Proposal on an EU ETS 2 • Page 13 of 48
2.3 Criterion C: Ensure just distribution between Member States
2.3.1 What is it about?
A high carbon price is desirable from a climate policy 140), would increase households’ consumption ex-
perspective and follows the polluter pays principle. penditures by around 0.4-0.8% in most high-income
Nonetheless, it entails economic hardship and may MS. Other MS face increases of up to almost 2%. 4
have socially unacceptable consequences. In order to Whether this turns out to be problematic or not de-
ensure social acceptance, effective redistribution pends strongly on the question of revenue distribution.
mechanisms, especially for lower-income countries Notably, the basic conditions for achieving a just distri-
that are particularly affected, have to be put in place bution between MS are relatively promising, because
along with the new emissions trading system. Member carbon emissions increase with income which means,
States (MS) have different income levels and purchas- as shown in Figure 4, that households’ GHG-emissions
ing power standards, different compositions of energy per capita relevant for EU ETS 2 are significantly lower
use and different opportunities to avoid emissions. in MS with lower-income, being the lowest in Bulgaria
Therefore, a single carbon price has heterogeneous ef- with 298 kg/capita/year. On average, Luxembourg
fects on average households across the EU (see Figure emits the most (2,627 kg/capita/year). This means that
3). 3 For example, a carbon price of 55 €/t, assumed to high income MS will contribute much more revenue
be the average price in the EU scenario calculations for relatively. Yet whether a just distribution is achieved
the period 2026-2030 (European Commission 2021, p. depends on the concrete design of the allowance and
revenue distribution system.
Figure 3: Relative burden of EU ETS 2 for households with CO2-price of 55€/t as share of consumption
expenditures (% of consumption expenditures)
3
For information about the methodology as well as it is usually the main driver of very high relative bur-
further empirical results see Annex 1. dens (e.g. in Romania, Hungary, Poland, and
4 Czechia). While petrol and diesel are the main motor
Noticeably, the relative burden of heating (buildings
fuels in all countries, heating systems (and their CO2-
sectors) has much more variance than transport, and
intensity) vary widely within and between countries.
Forschungsstätte der Evangelischen Studiengemeinschaft e.V. • Forum Ökologisch-Soziale Marktwirtschaft e.V.Assessment of the EU Commission’s Proposal on an EU ETS 2 • Page 14 of 48 Figure 4: GHG-emissions of households per capita relevant for EU ETS 2 (kg/capita/year) 2.3.2 What is the proposal by the European Commission? The allocation of the revenues from EU ETS 2 between to remain stable over time. Distributional issues be- MS shall be based on the average of 2016-2018 emis- tween MS are to be addressed mainly via a new Social sions as used under the ESR (European Commission Climate Fund (SCF) and to a smaller extent also via the 2021, Article 30d(4)). This distribution key is intended Innovation Fund (see Figure 5). Figure 5: Schematic overview of EU ETS 2 revenues and allocation Forschungsstätte der Evangelischen Studiengemeinschaft e.V. • Forum Ökologisch-Soziale Marktwirtschaft e.V.
Assessment of the EU Commission’s Proposal on an EU ETS 2 • Page 15 of 48
The SCF is fully funded by revenues from EU ETS 2. 5 Its the respective MS based on the distributional key
financial volume shall correspond to 25% of the ex- (based on average 2016-2018 emissions), are sub-
pected revenues. This is expected to be €72.2 billion for tracted from the funds received from the SCF. There-
the period of 2025-2032. To receive funds from the fore, the depiction shows the difference between a sole
SCF, the MS must draw up so-called Social Climate distribution via the distributional key based on average
Plans. The Social Climate Plans will be assessed by the 2016-2018 emissions and when the SCF is taken into
EU Commission, and it is expected that the MS should account. Figure 6 (top) shows that Poland would ben-
finance at least 50% of the total costs of the Social Cli- efit the most, receiving €6.7 billion from 2025 to 2032.
mate Plans. MS may use part of their expected reve- More meaningful, of course, is the per capita value (Fig-
nues from EU ETS 2 for this purpose. Hence, according ure 6, middle). Here, the largest gains can be allocated
to the estimates of the (European Commission 2021a), for Bulgaria (314 Euro/capita) and Romania (266
the SCF would mobilise €144.4 bn in total in thfe period Euro/capita). Overall, there is a clear redistribution
of 2025-2032. toward lower-income MS. Of course, the level of sup-
port and individual burden in the MS depends on the
The maximum financial allocation received by each MS
actual CO2 price, but the relative distribution among
from the SCF is determined by a combination of indi-
MS and the redistributive effects are independent of
cators which reflect energy poverty, transport poverty,
the absolute revenues. The effects in relation to the
Gross National Income (GNI) per capita and 2016-18
revenues received by each MS without the SCF can be
average emissions (European Commission 2021b, An-
seen in Figure 6 (bottom): In comparison to the situa-
nex I). The distributional effects of the SCF are de-
tion without SCF, Bulgaria (95%) and Romania (85%)
picted by Figure 6, based on the assumption that the
would almost double their revenue, other lower-in-
maximum financial allocation will be exhausted by
come MS would gain around 30-60%. These percent-
every MS. Given that the financing part of the MS is
age differences correspond to the deviations from the
found in their share of the revenue from the EU ETS 2
average emissions in 2016-2018, so they can also be in-
(or other sources) and therefore has no distributional
terpreted as Bulgaria receiving revenues from almost
effect, only the direct part coming from the SCF is con-
twice as many (95% more) allowances, compared to
sidered here (€72.2 bn). In order to calculate the net ef-
the amount it would have received based only on the
fect of the SCF, the funds that would have been due to
historical emissions from 2016-2018. 6
2.3.3 Assessment and recommendation
The European Commission has presented cor- the EU ETS 1) is designed to be constant over time, the
nerstones for the allocation and redistribution of MS that reduce their GHG emissions more than aver-
allowances and auction revenues between MS. age will benefit. Since ESR targets differ considerably
Through the Social Climate Fund (SCF), substantial between MS (European Commission 2021c), this could
amounts of auction revenues would be redistributed lead to distributional problems in the future. This
from high- to low-income MS. At first glance, the pre- should be investigated in more detail in further anal-
conditions to ensure a just distribution between MS yses, to decide whether further solidarity mechanisms
seem to be met. However, it remains unclear how the should be introduced (e.g., concerning modifications
distributional effects between MS will develop in the to the revenue distribution key in the future). However,
future, as they strongly depend on future GHG reduc- since the redistribution through the SCF can already
tions and how these will differ between MS respec- be classified as relatively extensive (see Figure 6), a
tively. Since the distributional key in the EU ETS 2 (as in green-yellow traffic light is assigned for this criterion.
5
To avoid revenue fluctuations, the SCF is proposed checked whether this is the case and, if necessary, al-
to be handled via the EU budget. This link to the EU ternative ways of construction should be designed.
budget could mean that a unanimous decision is re- 6
A detailed table concerning these results can be
quired for the introduction of the SCF. It should be found in the Annex in Table 17.
Forum Ökologisch-Soziale Marktwirtschaft e.V. • Green Budget GermanyAssessment of the EU Commission’s Proposal on an EU ETS 2 • Page 16 of 48
Figure 6: Distributional Effects of Social Climate Fund with CO2-price of 55€/t (2025-2032; top: billion
Euro; middle: Euro/capita, bottom: % of revenue w/o SCF)
6.7
8
5.2
2.8
4
2.2
1.8
0.9
1.2
1.1
0.4
0.3
0.2
0.1
0
0
0
0
bn Euro
-0.1
-0.4
-0.4
-0.4
-0.5
-0.5
-1.0
-1.2
-2.0
-2.4
-4
-3.5
-8
-10.5
-12
NL
AT
RO
PT
PL
EL
LV
LT
EE
ES
MT
LU
HU
BG
HR
CZ
CY
FI
BE
FR
DK
DE
SK
SI
IT
SE
IE
40-70% 70-100% 100-120% 120-175%
increasing net equivalent income
400
314
264
266
200
220
193
180
177
156
135
47
20
25
0
Euro/capita
2
0
-137
-126
-131
-136
-34
-17
-48
-53
-74
-87
-85
-85
-200
-400
-584
-600
NL
AT
RO
PT
PL
EL
LV
LT
EE
ES
MT
LU
HU
BG
HR
CZ
CY
FI
BE
FR
DK
DE
SK
SI
IT
SE
IE
40-70% 70-100% 100-120% 120-175%
increasing net equivalent income
100%
95%
85%
75%
% of revenue w/o SCF
61%
50%
44%
40%
34%
32%
25%
26%
11%
28%
4%
5%
0%
0%
0%
-5%
-2%
-8%
-9%
-9%
-13%
-13%
-15%
-16%
-25%
-16%
-19%
-21%
-23%
-50%
NL
AT
RO
PT
PL
EL
LV
LT
EE
ES
MT
LU
HU
BG
HR
CZ
CY
FI
BE
FR
DK
DE
SK
SI
IT
SE
IE
40-70% 70-100% 100-120% 120-175%
increasing net equivalent income
Forschungsstätte der Evangelischen Studiengemeinschaft e.V. • Forum Ökologisch-Soziale Marktwirtschaft e.V.Assessment of the EU Commission’s Proposal on an EU ETS 2 • Page 17 of 48
2.4 Criterion D: Ensure social acceptability for households
2.4.1 What is it about?
The adjustment reactions to the introduction of a CO2 that the same relative burden on households with
price are difficult to predict, especially in light of coun- lower financial resources is much more problematic, as
try- and household-specific differences. However, as these households have significantly higher expendi-
already shown in Criterion C, the average relative bur- ture shares for basic needs on average, as well as lower
den for households could be quite substantial and savings rates and savings opportunities. Therefore,
would vary widely across Member States (MS; see Fi- these households would be more substantially threat-
gure 3). ened when trying to satisfy basic needs. In conclusion,
According to calculations, which are subject to uncer- a realistic risk prevails that the burdens of EU ETS 2
tainties due to data quality issues, the relative burdens could exceed a socially acceptable level and intensify
between households differentiated by income (net already existing financial problems of low-income
equivalent income, quintiles) would not be very signifi- households if not designed appropriately, especially in
cant. 7 They even seem somewhat lower for low-income lower-income MS.
households across MS (see Figure 7). However, this is Within the framework of the EU ETS 2, this could be
only the case on average, for certain particularly af- avoided in three different ways (which can be com-
fected groups (e.g., low-income long-distance com- bined) 8:
muters with coal heating) this will be different. Also, 1. Redistribute revenues from EU ETS 2 to house-
there are some MS for which the average relative bur- holds with low incomes
den is higher in the lower income brackets (e.g., Czech
2. Support low-income households in reducing their
Republic, Ireland, Belgium and - with some restrictions
CO2 emissions
- Poland and Slovenia). It should also be emphasized
3. Limit CO2 prices
Figure 7: Relative burden of EU ETS 2 for households with CO2-price of 55 €/t as share of consumption
expenditures by income quintiles (% of consumption expenditures)
* partially based on 2005 data due to data gaps
7 8
For another recent study about the distributional ef- Looking beyond the framework of the EU ETS 2 and
fects of European carbon pricing, which comes to the implications of its possible introduction, further
similar conclusions see: https://www.sciencedi- measures should be taken to tackle the problem of
rect.com/science/arti- energy poverty in the EU.
cle/pii/S0140988321004266?via%3Dihub
Forum Ökologisch-Soziale Marktwirtschaft e.V. • Green Budget GermanyAssessment of the EU Commission’s Proposal on an EU ETS 2 • Page 18 of 48
Table 2: Relative burden of EU ETS 2 for households with CO2-price of 55 €/t as share of consumption
expenditures by income quintiles for transport und buildings (% of consumption expenditures)
Q1 Q2 Q3 Q4 Q5 Average
Income level (NEI) Member States
% of consumption expenditures
Road Transport (petrol + diesel)
low (40-70%) RO, HU, BG, SK, EL, HR, LV, PT 0.2% 0.3% 0.4% 0.5% 0.6% 0.5%
Mid (70-100%) PL, LT, CZ, EE, SI, ES, IT 0.3% 0.4% 0.5% 0.5% 0.5% 0.5%
Higher (100-120%) MT, SE, CY, FI, IE, BE 0.3% 0.3% 0.4% 0.4% 0.4% 0.4%
High (120-175%) FR, NL, DK, DE, AT, LU 0.3% 0.3% 0.4% 0.4% 0.4% 0.4%
EU27 European Union - 27 MS (2020) 0.3% 0.4% 0.4% 0.5% 0.5% 0.4%
Buildings
low (40-70%) RO, HU, BG, SK, EL, HR, LV, PT 0.8% 0.7% 0.6% 0.6% 0.5% 0.6%
Mid (70-100%) PL, LT, CZ, EE, SI, ES, IT 0.7% 0.7% 0.6% 0.5% 0.4% 0.6%
Higher (100-120%) MT, SE, CY, FI, IE, BE 0.4% 0.3% 0.3% 0.2% 0.2% 0.3%
High (120-175%) FR, NL, DK, DE, AT, LU 0.4% 0.4% 0.3% 0.3% 0.3% 0.3%
EU27 European Union - 27 MS (2020) 0.6% 0.5% 0.5% 0.4% 0.4% 0.4%
Road Transport + Buildings
low (40-70%) RO, HU, BG, SK, EL, HR, LV, PT 0.9% 1.0% 1.0% 1.1% 1.1% 1.1%
mid (70-100%) PL, LT, CZ, EE, SI, ES, IT 1.1% 1.1% 1.1% 1.1% 1.0% 1.1%
higher (100-120%) MT, SE, CY, FI, IE, BE 0.6% 0.6% 0.6% 0.6% 0.6% 0.6%
High (120-175%) FR, NL, DK, DE, AT, LU 0.7% 0.7% 0.7% 0.7% 0.6% 0.7%
EU27 European Union - 27 MS (2020) 0.8% 0.9% 0.9% 0.9% 0.8% 0.9%
2.4.2 What is the proposal by the European Commission?
The proposal recognizes the issue of higher burdens for 3) MSR: Stabilising prices and preventing excessive
lower-income households and emphasises the follow- price increases
ing measures to address it: The Market Stability Reserve (MSR) is intended to re-
1) Establishment of a Social Climate Fund (SCF) lease allowances in the event of a possible shortage of
circulating allowances, thus having a price-dampening
The SCF is designed expressly to support households
and smoothing effect (see Art. 1a(6)):
with low incomes, and thus to reduce problematic dis-
tributional effects. The budget shall be about 25% of Whenever the total quantity of circulating allow-
the expected EU ETS 2 revenues and is expected to be ances is below 210 million, 100 million allowances
matched by MS, which means it would consist overall of from the MSR will be released to the market. If less
50% of EU ETS 2 revenues. From 2025 to 2032, 144.4€ than 100 million allowances are left in the reserve,
bn are expected to be mobilized in total (see Criterion all remaining quantities will be released to the mar-
C). ket.
2) Requirement that revenues distributed to MS be Moreover, to address the potential risk of excessive
used for climate and social purposes price volatility, measures are established to allow the
The MS must use all the revenues that are attributed to release of additional allowances (see Article 30h):
them for climate-related purposes, including support 50 million allowances are released where, for more
for low-income households (see Articles 30d(5)). The than three consecutive months, the average price
exact permitted uses are specified in Article 10 (3) and of allowance in the auctions is more than twice the
should be supplemented by some aspects during the average price of allowance during the six preceding
introduction of the EU ETS 2, e.g., “provide financial consecutive months.
support for low-income households in worst-perform- 150 million allowances are released where, for more
ing buildings”, “provide financial support in order to ad- than three consecutive months, the average price
dress social aspects concerning low and middle-in- of allowance in the auctions is more than three
come transport users” (European Commission 2021. p. times the average price of allowance during the six
57). preceding consecutive months.
Forschungsstätte der Evangelischen Studiengemeinschaft e.V. • Forum Ökologisch-Soziale Marktwirtschaft e.V.Assessment of the EU Commission’s Proposal on an EU ETS 2 • Page 19 of 48
2.4.3 Assessment and Recommendation
The present proposal seems suitable to create question or to the EU in its entirety. However, since car-
social acceptability concerning the distribu- bon emissions increase sharply with income on aver-
tional effects of EU ETS 2 in principle, by relying on the age, the basic conditions are relatively good. As can be
first two points (redistributing revenues to low-income seen in Figure 8 broken down by MS groups (based on
households and supporting them in reducing CO2- their average net equivalent income) and income quin-
emissions via the SCF). Whether the 50% funding level tiles, carbon emissions rise steadily from around 350
of the SCF (25% SCF, 25% MS) proposed by the Com- kg/capita/year in the 1st quintile of the lower-income
mission alone is sufficient to support low-income MS group (40-70% of average EU net equivalent in-
households and avoid social hardship depends on how come) to over 3,000 kg/capita/year in the 5th quintile
one defines a low-income household, i.e., the income of the high-income country group (120-175% of aver-
threshold and whether this is set relative to the MS in age EU net equivalent income); so it is nearly ten times
as high. 9
Figure 8: GHG-emissions per capita relevant for EU ETS 2 by income quintiles (kg/capita/year)
Figure 9: Absolute burden of EU ETS 2 for households with CO2-price of 55 €/t by income quintiles
(€/capita/year)
9
It must be noted that the calculations are static, sub-
ject to some uncertainties because of data quality is-
sues and should therefore not be overinterpreted,
but the basic statement is considered to be reliable.
Forum Ökologisch-Soziale Marktwirtschaft e.V. • Green Budget GermanySie können auch lesen
