High energy prices threaten the EU emissions trading system by Elisabetta Cornago, 23 March 2022 EU member-states should not stop the expansion of emissions trading to keep a lid on energy prices. Instead, they should increase income support for poorer households and incentives for green investment. Putin’s invasion of Ukraine has massively raised the price of natural gas, which has increased over fivefold in the last year, and that of oil, up 50 per cent from a year ago. The European Commission and national leaders have called for an acceleration of the EU’s planned shift from fossil fuels to renewables: this would cut both emissions and the Kremlin’s revenues from energy exports to the EU. However, there are disagreements on the policies needed to do this: MEPs on the right and left are calling for the European Commission’s plans to expand carbon pricing to be shelved, and some member-states are also hesitant or openly against the plans. Currently, the EU Emissions Trading System (EU ETS) only applies to heavy industry, electricity generation and intra-EU aviation. However, in July 2021, the European Commission presented its climate policy package, ‘Fit for 55’, which calls for, among other things, tightening the emissions cap for the existing EU ETS, gradually removing free emissions allowances and creating a new emissions trading system (ETS2) to cover road transport and building heating. This would generate a new carbon price that would further raise heating and fuel bills. So why is carbon pricing still a good idea? In a policy document published in October 2021, the European Commission argued that the spike in energy prices would be temporary, and that a faster transition from fossil fuels to renewables would be the best antidote to high energy prices. Vladimir Putin’s invasion of Ukraine has accelerated the energy transition agenda. The European Commission has proposed that the EU cut Russian gas imports by twothirds by the end of 2022, and fully phase out all energy imports from Russia (including gas, oil and coal) by 2027. This will be challenging, given the EU’s dependency on Russian energy imports (in 2019, 41, 27 and 47 per cent of EU imports of gas, oil and coal came from Russia). In some countries this dependency is even higher: about half of natural gas imports to Germany and Italy come from Russia, while this is above 75 per cent for member-states such as Bulgaria, Hungary and Austria. Finding substitutes for all energy imports from Russia will be expensive and take time. Meanwhile, prices of fossil energy may remain substantially higher than pre-2021 levels for the foreseeable future. CER INSIGHT: High energy prices threaten the EU emissions trading system 23 March 2022
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