The higher target for 2030 will pose a tremendous challenge for sectors covered by the EU ETS (e.g. power and heat, energy-intensive industries). They are expected to carry the heaviest investment burden to implement the higher climate ambition set to be at least 55% for 2030.
According to the European Commission’s Impact Assessment the 55% target could mean reductions of as much as 65% in the EU ETS sectors until 2030. This means, first and foremost, that ensuring fair burden sharing between ETS and non-ETS sectors will be the key to success.
Ensuring cost-effectiveness will still be important, but it will have to be considered in conjunction with ensuring competitiveness, a just transition, and fair distribution of decarbonisation costs. These issues will be even more important for citizens and Member States now, compared to the previous ETS Reform, as Europe grapples with the economic consequences of COVID-19.
The EU’s plan is to boost economic growth through green investments but should the main investment burden still be on the ETS sectors or should all sectors contribute an equal share to the implementation of the new climate targets?
All political aspects will require careful examination and technical expertise. Market participants, who can provide valuable insights based on their experience, can also provide useful input into the political debate as to how the EU ETS should be redesigned in order to help the EU implement its targets better.
The EU should account for sectoral differences but at the same time it should look at different starting points within sectors. For example, if the EU decides that the target should be predominantly implemented by the EU ETS sectors then the energy sector is likely to carry the heaviest investment burden as the marginal costs of abatement in that sector are the lowest.
However, this does not take into account different starting points between Member States in their energy mix and the knock-on effect that higher ele