🛑 Please don’t break the ETS, Chancellor Merz! 🛑

💚 The European Emission Trading System (EU ETS) might well be the most effective decarbonisation policy humanity has ever created: it has lowered emissions of industrial facilities in the EU by around 50% in 20 years and saving an estimated 2Gt already!

🇪🇺 And we are just getting started! But the whole premise of the ETS is that the cost of emitting a ton of CO2 will keep increasing, as free allowances and the so-called cap decrease.

💶 The ETS is also currently generating around €25b in revenues/year, which get directly reinvested into Europe’s green transition!

📉 Now that very foundation of the ETS is being questioned, sending shock waves through the market as can be seen by the freefall of EU ETS Emission Allowance (EUAs) prices by 25% in just a month - from €92 to €69!

❗ So what happened? Friedrich Merz, the Chancellor of Germany, said the ETS should be “revised or postponed” should it burden European industry. Encouraged by his comments, other leaders such as Italy’s Prime Minister Georgia Meloni and the Czech Prime Minister Andrej Babis piled on, asking for a cost ceiling of €30/t.

🏭 All of this directly benefits regulated polluters and hurts low-carbon technologies/investment.

🤷‍♂️ In our sector, we talk a lot about ETS integration. And prices in January at >€90/t were getting closer to CDR territory. But none of this will matter if the very foundations of the ETS start shaking.

🇨🇳 And what an own goal this would be: China is investing heavily and aggressively into its own ETS (already covering 15% of the world’s emissions!), alongside huge renewables and grid build out. Soon, China will be producing most of what the world consumes cheaper AND at a lower carbon footprint than anyone else.

🤦‍♀️ What are we going to do then? Ever increasing tariffs? Close our borders?

✅ The ONLY way for Europe to stay competitive is to find a way through this dilemma: we need to decarbonise whilst supporting critical industries.

👀 And this is where CDR comes into play: done right, it can provide a ceiling for the cost of carbon in the ETS and prevent them from spiralling out of control. I will be writing more about this soon, watch this space.

💬 Are you following this debate? What is your take?

✉️ Want to cut through the noise? Stay up to date with the top 10 CDR policy news with my monthly briefing, The GigaTen: https://lnkd.in/d2BKe7gr

Follow the conversation