Ihe war in Ukraine led to a violent energy crisis in Europe that could have shattered our climate ambition. Faced with the scarcity of available fossil fuels, their prices have soared, as have those of electricity produced at the margin by natural gas. Was it still necessary to increase these prices through the play of the “carbon market”, on which the emission quotas of European companies are traded?
Poland had proposed in 2022 to cap the quota price at 35 euros per tonne. Hungary had even suggested purely and simply abandoning the system, in its view a harmful construction of the Brussels technocrats. In 2023, the doubt is removed, and the quota price is doing well. It is approaching the symbolic bar of 100 euros. This is excellent news, because such a price level accelerates the still insufficient pace of decarbonisation of the European economy.
Better still, the war in Ukraine has not derailed the carbon market reform process put on the table in July 2021 by the European Commission. In December 2022, the Parliament and the European Council even managed to agree on three pillars, which will make it a central tool of the Fit for 55 (“Adjustment to Goal 55”), this legislative and regulatory package aimed at achieving the objective of reducing greenhouse gas emissions by 55% in Europe by 2030 (compared to 1990).
The three pillars of this action
Pillar one: the reduction in the number of emission permits, and therefore, mechanically, in the actual emissions of the sectors covered. This drop stretches the market for permits and increases their prices, encouraging emitters to decarbonize their production where it is least costly. For a decade, the lack of ambition kept permit prices at derisory levels. With the 55% reduction target, that is now history. Knowing that more than half the way remains to be done in just seven years, the challenge is however colossal.
Pillar two: the extension of European carbon pricing. It will take place in two main directions: maritime transport, which will make the cost of climate damage pay for the emissions of the ships that transport all the imported goods that we consume; transport, the use of buildings and small production units, all of which have so far not been subject to the emission permit system.
Pillar three: the abolition of free permit allocations coupled with a carbon border adjustment mechanism. This adjustment mechanism consists neither more nor less of making importers of carbon goods pay the same carbon price as European manufacturers. Consider, for example, that at the current price of carbon, the cost of producing steel from our blast furnaces is increased by a third. This measure is therefore essential to fight against green dumping and for fair competition.
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