The EU’s “Fit for 55” climate policy architecture must guarantee environmental integrity and
To guarantee both, the architecture must have a robust compliance mechanism. Whatever EU climate policy architecture is chosen, each ton of CO2 must be governed by the ETS or the Effort Sharing mechanism. At the same time, the target achievement must be a collective endeavor that supports lower-income Member States and poorer households.
There are different options for strengthening the ETS and/or effort sharing while ensuring the
environmental integrity of the 55% target.
A standalone ETS for transport and/or buildings, an enlarged EU ETS, or tightened effort sharing are all options that could work, and each has their pros and cons. The important thing is to define who is accountable for reducing emissions, and who will be responsible if targets are not met. When emissions trading serves as the central compliance mechanism, prices must be allowed to rise as high as necessary to reach the emission reduction target – which means not introducing a price cap.
A carbon price works better if it is supported by companion policies.
This holds especially true for households and transport. Companion policies in these sectors guide investment decisions and drive innovation, while the carbon price ad-dresses the use of existing cars and heating systems. Strengthening EU-policies such as CO2 standards for vehicles, building codes, or support programs for low-carbon heat grids gives consumers the low-carbon options they need to respond to rising carbon prices and to reduce emissions in line with the 55% target.
Distributional effects are a challenge but there are solutions for resolving them.
100% of revenues from carbon pricing must flow back to consumers in one way or another – as targeted support for vulnerable households, as a fund for climate policy measures, or as lump-sum payments. Using carbon pricing revenues for other purposes such as repaying EU debt threaten to undermine support for higher CO2 prices. It is better to use tools that enable consumers to reduce their CO2 footprint, and thus their exposure to higher prices, rather than simply trying to exempt consumer groups generally.
The European Commission plans to propose a “Fit for 55” legislative package in the summer of 2021 to fundamentally overhaul the EU’s climate policy architecture and put the EU on track to deliver on its 2030 climate target of 55%. A fundamental decision by European Council is thus quickly needed on the key features of an EU climate policy framework that delivers on the EU’s climate targets, including the role of EU-wide emissions trading for heating and transport fuels.
This paper makes the case for a strong European climate governance based on the principles of environmental integrity and European solidarity. It advocates for a smart mix of EU-level carbon pricing and companion polices to help Member States in fulfilling their goals.
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A “Fit for 55” Package Based on Environmental Integrity and Solidarity
Designing an EU Climate Policy Architecture for ETS and Effort Sharing to Deliver 55% Lower GHG Emissions by 2030
Senior Associate EU Energy Policy