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EU ETS Emerging Issues

with Jos Delbeke
The EU ETS has evolved over time. Today, the carbon price is significant and it is driving the emissions reductions in a more proactive manner. Related to that is the question of carbon leakage, the displacement of economic activities to those areas which do not have a comparable carbon price. For that reason, free allocation was used so far but the Commission now proposed a Carbon Border Adjustment Mechanism, a tariff at the border of the EU for imports on goods that are containing a lot of carbon.
There is also a proposal for a larger scope not only in widening the scope of the current system with the maritime sector, but also to develop an adjacent system, a parallel system for heating and motor fuels that overtime can become part of the EU ETS as we know it. Important will be to address the social impact of the EU ETS and the price impact on fuels because there are some social impacts that are going to be addressed through the Social Climate Fund, a proposal that is also on the table of the European legislators.
When we take a step back, we see that carbon pricing, either through taxes or through emissions trading, is expanding all over the world, in Europe, in Asia, in Latin America, in Africa and in United States and Canada. The United States, parts of the United States are covered by an Emissions Trading System such as is California and the Western States. It is going to be very important to deepen our discussions with all those partners, in particular as questions are being raised about how to develop the Carbon Border Adjustment Mechanism by recognizing the efforts other partners in the world are developing on carbon pricing. What are then the general conclusions we would draw from this discussion on the EU ETS?
The first is that emissions were reduced significantly in the sectors covered by the EU ETS, in particular energy and industry. Since 2005, we can reckon that a third of the emissions have been reduced without a reduction of the output in the concerned sectors. More importantly is that this reduction has happened in a cost-effective manner and the system gradually has improved over time. One of the elements that were very important in maintaining political support for the system has been the addressing of concerns related to fairness and to carbon leakage.

In this video Jos elaborates on the emerging issues related to the Emissions Trading System, given also the fact that the principle of carbon pricing is spreading globally. He also summarizes the key takeaways related to the EU ETS.

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Carbon Markets: Examining EU Policies for Transnational Climate Action

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