Flawed EU carbon market losing EUR billions for climate action - report
Posted on 28 June 2021
Member States raised €49 billion through the trading of carbon allowances under the EU Emissions Trading System - the ETS - from 2013 to 2019.
However, a potential €54 billion more - over half the theoretical total - was ‘foregone’ or lost due to free allocation of emissions allowances, WWF has calculated in its new report.
What’s more, of the €49 billion raised, €13.3 billion was not spent on climate action, according to Member States’ reporting. And of the money they reported as spent on climate action, some actually went towards counterproductive activities such as oil boilers, gas powered convectors, and subsidies for energy-intensive companies. Altogether, this means the climate lost out by at least €67 billion of possible EU public spending from 2013-2019.
Imke Lübbeke, Head of Climate and Energy at WWF European Policy Office said:
“The EU has signed up to higher climate targets, yet it is pouring billions of Euros that could help us meet those targets down the drain! The ETS won’t do its job unless free allowances are scrapped and replaced by mandatory spending of all auctioning revenues in a way that is climate-compatible and socially fair. The Commission’s revision in July is a crucial chance to make these changes.”
Proportionately per country, it was Sweden which gave out the most free allowances over the seven-year period - representing over 100% of its emissions - followed by Lithuania and Latvia. In terms of value, it was Germany which gave out the most, worth over €10.6 billion. Camille Maury, Industrial Decarbonisation Officer, added:
“The current ETS is topsy turvy. Free pollution permits don’t help reduce emissions - but targeted funding can. Yet in 2021, six times as many emissions allowances will be given to polluters as will be put into the ETS’ Modernisation and Innovation funds, which were set up to help industries decarbonise. It’s time this was corrected.”
Worryingly, Member States have spent a decreasing proportion of revenues on climate action over the years, hitting a low of 59% in 2018. In 2019 Estonia, Hungary, Latvia, Croatia, Italy, Slovakia and Romania failed to meet the 50% climate spending floor recommended in the ETS directive, with the latter four not even making it to 20%. Romain Laugier, Climate and Energy Policy Officer, said:
“These figures are proof that the rules need to change. The EU must mandate that all ETS revenues are spent on climate action - and include a clear definition of what counts as ‘climate action’, in line with ‘do no significant harm’ criteria and social safeguards. What’s more, Member States have to drastically improve the quality and transparency of their ETS reporting.”
The European Commission’s proposal is expected on 14 July.