A crucial moment has arrived for Europe's climate action, and it's not without controversy. The EU's flagship climate policy, the Emissions Trading System (ETS), is facing an unprecedented challenge from Germany's powerful industrial sector.
The ETS, a cornerstone of the EU's climate strategy since 2005, has successfully decoupled emissions from economic growth. This is a remarkable achievement, but it's now under fire as it enters a stricter phase.
The Battle for Europe's Climate Future: Industry vs. Environment
The ETS is tightening its grip on emissions, with fewer allowances, higher carbon prices, and an end to free industry handouts. German industrialists, led by figures like Christian Kullmann, CEO of Evonik, are rallying against this.
Kullmann argues that the CO2 tax jeopardizes well-paid industrial jobs, calling for its abolition. He describes the ETS as a "lead vest," a heavy burden on industry.
The End of an Era: Scarce Allowances and Rising Prices
ETS allowances are becoming increasingly scarce, with a 4% annual decrease in the total volume auctioned. Simultaneously, the price of carbon has more than doubled, reaching €80 per tonne of CO2.
Additionally, the era of free allowances is coming to a close. These allowances were given to heavy industry to shield it from international competition, but now they're being phased out.
The EU's Carbon Border Adjustment Mechanism (CBAM) will replace free allowances with trade tariffs based on the carbon footprint of imported goods. Free allowances will be reduced by 2.5% next year and completely abolished by 2034.
Berlin's Crossroads: Industry vs. Climate Action
Germany, home to much of Europe's heavy industry, is at a critical juncture. Chancellor Friedrich Merz, a Christian Democrat, has emphasized that the CO2 price is central to EU climate action, but with reservations.
Merz questions the duration of free allowances, a sentiment echoed by high-ranking officials in Brussels. German heavy industry is reportedly willing to go to great lengths, even challenging the CBAM, to maintain its free allocation of ETS certificates.
Steelmaker Thyssenkrupp calls for urgent adjustments to the ETS, suggesting an extension to 2050 with free allowances continuing into the 2040s.
Workers' groups, represented by figures like Michael Vassiliadis of IG BCE, express concerns about the competitiveness of European industries. Vassiliadis highlights the lower CO2 costs in China and Japan compared to Europe.
A Disingenuous Attack?
Sam Van den Plas of Carbon Market Watch accuses Vassiliadis of disingenuousness in his attack on the ETS. Van den Plas suggests that German labor unions are more aligned with CEOs than their members on this issue.
Even Germany's Environment Minister Carsten Schneider, from the Social Democrat coalition, opposes the ETS. Schneider argues for clarity on jobs and certificates post-2039, stating that Europe's climate neutrality goal is 2050, not 2045 as Berlin's domestic target suggests.
This controversy comes at a time of political backlash against the upcoming ETS2, which targets heating and motor fuels.
The future of Europe's climate action hangs in the balance as industry and environmental interests clash. What do you think? Should the ETS be adjusted to accommodate industry concerns, or is it a necessary sacrifice for the greater good of climate neutrality? Weigh in with your thoughts in the comments!
