ETS 2 is essential to a fair and effective transition, new study emphasises

A new report by the Centre for European Policy Network (CEP) examines the planned introduction of the EU Emissions Trading System for road transport and buildings (EU-ETS 2). Despite political pressure for its modification or postponement, the report concludes that the ETS 2 is indispensable for effective and cost-efficient emissions reductions, especially for heavy-duty road transport. The system must not be weakened, but stronger market-neutral compensation mechanisms - such as a reinforced Social Climate Fund - could contribute to its smooth implementation and a fair transition.

As stated in the report: "The EU-ETS 2 is indispensable for the effective and cost-efficient reduction of greenhouse gas emissions in the road transport and buildings sectors, including heavy-duty transport, and therefore should not be abolished." Some modifications that are currently called for risk undermining core functions and ultimately the achievement of climate targets, while also increasing the likelihood of stricter command-and-control measures.

Europe is at a critical juncture in its climate policy. High energy prices and concerns about fairness have raised questions over the social acceptability of the ETS 2. Many Member States fear that its launch in 2027 could result in unexpectedly high CO2 prices and potentially lead to significant fossil fuel price increases.

The CEP report warns that weakening the emissions trading mechanism would jeopardise Europe's decarbonisation pathway. Instead, consistent implementation of compensation mechanisms will be key to ensuring a socially acceptable transition. The Social Climate Fund provides Member States with necessary, though not sufficient, tools to mitigate hardship.

Among some of the key challenges are:

• Effectiveness of EU-ETS 2: By setting a cap on emissions while allowing flexibility in compliance, the ETS 2 remains the most effective complementary instrument for meeting climate targets in road transport and buildings.
• Cost-efficiency: A market-driven CO2 price enables the identification and realisation of the most cost-efficient mitigation options.
• Market steering: The expected CO2 price signal will help reduce the Total Cost of Ownership (TCO) of zero-emission vehicles, including heavy-duty transport, relative to fossil-fuelled alternatives.
• Legislative gaps: As other EU measures - such as amendments to the Energy Taxation Directive and the Weights and Dimensions Directive - remain incomplete, the role of EU-ETS 2 is even more pivotal.
• Political resistance: Calls from a number of Member States to modify the system carry the risk of weakening its effectiveness, delaying decarbonisation, and ultimately leading to stricter regulatory options with disproportionate impacts on low-income groups and industrial competitiveness.
• Social acceptability: Rather than weakening or abolishing EU-ETS 2, stronger support mechanisms such as the Social Climate Fund will be essential to ensure fairness.

You can consult the full report on the CEP website here: https://www.cep.eu/eu-topics/details/the-eu-emissions-trading-system-eu-ets-2.html