Within the aims of the EU Green Deal and the “FitFor55” Package published in July, the European Commission will tame fossil fuel prices to stay within the Paris Agreement’s +1.5oC scenario. This includes revisions of the EU’s Emissions Trading System (ETS) and the introduction of a Carbon Border Adjustment Mechanism (CBAM) to discourage the practice of outsourcing pollution to third countries.
The 4th revision of the ETS will strengthen the Market Stability Reserve (MSR) to further reduce the surplus of allowances, it will increase the pace of emissions cuts, and it will try to tackle carbon leakage. Nevertheless, the most contentious change is the extension of the ETS to the building and transport sectors. Multiple voices have raised their concerns regarding the effects, Pascal Canfin, chair of the European Parliament’s Environment Committee (ENVI) called it “political suicide”, drawing a parallel with the Yellow Vests movement in France. The Polish Climate and Environment State Secretary, Adam Guibourgé-Czetwertynski, agreed and called it a “mistake”, while the French climate NGO Reseau Action Climat warned about increasing prices on low-income households. The Commission aims to soften the blow through a “Social Climate Fund” to address price inequalities.
The CBAM will make EU importers buy carbon certificates corresponding to the carbon price that they would have paid in the EU. Third countries, such as Australia and China have already spoken against it, claiming that it goes against WTO rules. The Commission defends that, as the proceeds will not become part of the EU budget (and will tentatively be reinvested in helping third countries transition), it is perfectly aligned with international trade rules.
One thing is clear, there is a dire need to rebalance the price of fossil fuels across the economy to accelerate the transition to renewable alternatives, especially for heating and cooling, lest we fall further down the spiral of climate emergencies and their skyrocketing costs. In this spirit, Solar Heat Europe (SHE) strongly defends a carbon-pricing mechanism for fossil fuels to lead to their phase-out, furthermore, in order to avoid a backlash against renewables, the proceeds from the mechanisms should be fully reverted to citizens and companies to support their transition to renewable and energy efficient heating and cooling technologies, such as solar thermal energy. Moreover, the adequate enforcement of the “Polluter Pays Principle” across the 27 Member States is a vital condition to ensure a successful transition.
Come what may, a difficult negotiating period is ahead of us, and the degree of ambition in it will decide the fate of fossil fuel investments for the next decade.