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The necessary reform of the carbon market

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The President of the European Commission has confirmed a more ambitious target for reducing greenhouse gas emissions by 2030: -55%, against -40% previously. But to achieve this, one of the tools, the European carbon market, will have to be reformed.

This is the opinion of the European Court of Auditors and the Brussels Commission seems to be starting to listen to it: the European carbon market must be more demanding if the EU is to achieve its objectives. The European jurisdiction points out in particular a bias of this polluter-pays system, applied to heavy industries: the CO2 quotas allocated free of charge. They represent 40% of the existing quotas.

Too generous free quotas

Supposed to prevent “carbon leaks”, that is to say an escape of activity outside Europe which would lead to even greater emissions on other continents, these free CO2 quotas have been allocated too widely, considers the Court, manufacturers of cement, glass, steel, chemicals, which did not encourage them to green their production. Likewise, in the countries which have benefited from free allowances for their electricity sector – Bulgaria, the Czech Republic, Poland, Romania – progress has mainly consisted in modernizing coal-fired power stations, not in decarbonizing the energy sector.

Aviation has also benefited from these free quotas. The European Court of Auditors considers that this advantage has even encouraged the use of the plane, at the expense of the use of the train in Europe. All these savings made by highly polluting industries, by not paying their CO2 quotas, are as much money that did not go into the coffers of European states, since they normally sell carbon quotas at auction.

The reform project bounces the price of the CO2 allowance

The Commission seems more open recently to this idea, which will be the subject of a vote in the European Parliament in October. As for the reform of the European carbon market, the Commission must propose a plan by next June. It wishes to make maritime transport subject to CO2 quotas in European ports.

Brussels is also considering reducing the total volume of allowances available. This rumor has also strongly rebounded the price of a tonne of CO2. It doubled compared to March, when activities were stopped because of the coronavirus, to reach again its historic record, 30 euros.

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