The cost of carbon emissions must be revised so that the EU can meet its 2050 decarbonisation goals

Carbon pricing is key to fostering further decarbonisation in the European Union, but far-reaching reforms to the Emissions Trading Scheme are needed for it to become an effective tool which the EU can use to reach its 2050 decarbonisation goals. This is one of the main conclusions of the report ‘Carbon pricing. Key achievements to date in Europe and optio

Since the Emissions Trading Scheme was created in 2005, the carbon market has attempted to maintain price signals which incentivise investments, with reforms changing both the permitted quantities of carbon emissions and its price stabilisation mechanisms. However, several factors have contributed to excessive price swings over time, preventing the stability and predictability which are needed to drive emissions reduction more intensively.

In fact, the impact of the Emissions Trading Scheme on emissions reduction in Europe is difficult to assess, due to the overlap between European and domestic climate and energy policies. According to the report, “In the power sector, some studies have shown that most abatement has been driven by policies in support of renewables or other clean technologies”.

Possible reforms to the Emissions Trading Scheme

In this scenario, the report discusses possible reforms to the Emissions Trading Scheme in order to comply with the European Green Deal, which proposes increasing emissions reduction targets from 40% to 55% by 2030. These different options are:

o adjusting emission limits to the reality of current values;

o increasing the percentage reduction of annually permitted emissions;

o extending the scope of the carbon market to other sectors, which could double the volume of emissions covered by carbon pricing;

o carrying out reforms to provide more predictable long-term price signals and thus support investment (reforming the stability mechanism, introducing a price floor or green bonds, among other options).

At present, the Emissions Trading Scheme operates in 31 countries, limiting the emissions of around 11,000 facilities that represent around 45% of the EU’s greenhouse gases (GHG).

The Naturgy Foundation

This new report is part of the activities that the Naturgy Foundation carries out on issues related to energy and the environment, based on serious and rigorous debate, with the fundamental objective of promoting the rational use of energy resources and encouraging sustainable development.

The Foundation, created by the energy company in 1992, also runs social action programmes, both nationally and internationally, with special emphasis on actions aimed at alleviating energy vulnerability.

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