The European Union’s emissions trading system (ETS), the primary tool for reducing climate-damaging greenhouse gas emissions, is designed to play a vital role in achieving the EU’s climate goals.
Introduced in 2005, the ETS is the first and largest international trading system for greenhouse gases. It has since undergone several revisions.
Upcoming changes to the ETS
Significant modifications to the ETS are planned for 2027, including the introduction of a second emissions trading system (ETS II) that will cover buildings, road transport, and the use of fossil fuels in specific industrial sectors.
ETS II aims to replace the national fixed CO2 prices of the Fuel Emissions Trading (BEH), allowing the market to determine the price.
The objective of ETS II is to reduce emissions by 43% compared to 2005 levels by 2030.
Fuel prices could skyrocket
In October 2023, the Agora Verkehrswende think tank conducted an investigation titled “The CO2 Price for Buildings and Transport: A Concept for the Transition from National to EU Emissions Trading.”
The study indicates that transitioning the transport sector to European emissions trading could lead to a steep CO2 price increase immediately after the end of the BEHG fixed price phase (2026/2027).
The organisation warns that CO2 prices of around €200 per ton are possible, which could result in a significant price surge at the pumps.
According to the report, petrol and diesel prices could increase by up to 38 cents per litre, while natural gas prices might rise by around 3 cents per kilowatt hour.
Germany’s climate targets at risk
The study underscores that the slower the reduction in emissions, the higher the prices will be. Germany is at risk of missing the European climate targets stipulated by the EU Climate Protection Regulation (VO 2018/842), which mandates a 50 percent reduction in national emissions by 2030 compared to 2005.
Experts predict that Germany will exceed its permitted emissions by around 152 Mt CO2 equivalents between 2021 and 2030, due to the lack of a comprehensive political strategy for the transition, especially in the transport and buildings sectors. Compliance with climate targets is challenging as emissions have been rising instead of falling.
Impact on the transport and logistics Industry
Although the transport and logistics industry is not explicitly mentioned in the study, it will face significant challenges as CO2 prices adjust after 2027. The most immediate impact will be the rise in operating costs, particularly due to higher fuel prices.
Transportation companies relying heavily on diesel trucks could be severely affected. These increased costs could either lead to higher prices for end consumers, or reduce profit margins if companies are unable to pass the costs on to their customers.
Call for political action
To avoid high price peaks and ensure social acceptance of ETS II, the report emphasises the need for emissions trading to be part of a broader mix of climate policy instruments.
These include promoting infrastructure for climate-friendly transport and introducing social compensation measures, such as climate money or reducing electricity taxes.
The current national fuel emissions trading (BEH) with its low fixed prices is criticised as inadequate for ensuring an effective transition to ETS II.
The study’s authors suggest that the national fixed price should have been increased to 60 euros per tonne of CO2 by 2024 to prevent a sudden price spike when ETS II is introduced and to encourage emissions reductions beforehand.
Additionally, an earlier entry into the trading phase with fixed price corridors from 2025 would be beneficial.
If effective additional climate protection measures and a robust political strategy for the transition to ETS II can be developed, not only could CO2 emissions be significantly reduced, but government revenues amounting to 180 billion euros could be generated between 2027 and 2032. Otherwise, Germany faces a significant climate policy problem.
Photo: Mtaylor848, CC BY-SA 4.0, via Wikimedia Commons