How can the Emissions Trading System (ETS) work for decarbonisation, resilience and competitiveness?
The adverse impacts of fossil fuels on the European economy and society have never been clearer. Carbon emissions drive climate change, an existential threat to Europeans’ prosperity and livelihoods. As the EU has limited domestic gas and oil resources, it relies on imports, making it vulnerable to supply chain disruptions and higher energy prices. The implicit dangers of the EU’s dependence on global oil and gas markets have been evident during major geopolitical crises since the 1970s, and more recently with Russia’s invasion of Ukraine and the US war against Iran.
On the other hand, the key difference to energy crises of the past is that alternatives to fossil fuels are commercially available. To address the challenges of carbon emissions and reliance on fossil fuels, the EU established a carbon market in 2005: the Emissions Trading System (ETS). This system caps the total amount of permitted carbon emissions and allocates allowances to European energy, industry, aviation and maritime operators. As EU allowances (EUAs) are limited and can be traded between companies, supply and demand determine the carbon price, incentivising industrial decarbonisation in a way that is cost-efficient, technology-neutral and flexible.
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Stefan Šipka Head of Sustainable Prosperity for Europe and Senior Policy Analyst
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