The seventh in a series of articles titled 'the voice of young people', from the opinion formers of the future.
Talks on reducing carbon emissions have been around since the Kyoto Protocol was signed in 1997. Two decades later, the race to carbon neutrality has truly gained traction, with China finally taking a seat at the table after their recent launch of the world's largest carbon market. The European Union (EU) is raising the bar with a revised proposal of their Emissions Trading Scheme, which will ensure stricter measures on CO2 emissions in the hope of achieving their 2030 climate goals, also known as Fit For 55. However, the two schemes differ from one another, so which is ‘better’?
Until now, most of the targeted companies in the EU received free emission quotas, which could be resold. Brussels wants to restrict this drastically, which will increase the price of emission allowances in the EU ETS and further incentivise low carbon technologies. The Commission also wants to include transport and heating in the ETS. However, in practice, this would amount to forcing suppliers of fuel, or heating oil, to buy emissions allowances whilst passing this extra cost on to household bills. Some environmental non-governmental organisations and MEPs oppose the plan, fearing the backlash of social movements. However, the president of the European Commission stated that their plan combines the reduction of carbon emissions with measures to preserve nature and put employment and social equity at the heart of the green transformation.
China has been planning to introduce a carbon emission trading system since 2010, however it has been repeatedly delayed because of concerns ‘over the transparency of emissions data’ . China has committed to carbon neutrality by 2060 and wants to reach peak emissions prior to 2030. However, in 2019, China alone contributed to over 27% of total global emissions, far exceeding the US. The introduction of the new trading scheme initially covers more than 2,200 companies from China’s power sector, accounting for about half of the country's emissions and 14% of the world's energy-related emissions, with more sectors expected to be added over time. China will not apply an absolute emissions cap nor a declining cap over time. Therefore, contrary to the EU ETS, there is no guarantee that carbon emissions will be cut. Stricter measures will need to be put in place, as demonstrated by the Chinese carbon price being 7x lower than that of the EU. In practice this means that companies will be able to readily buy cheap credits and will have no real incentive to migrate to cleaner alternatives. On the other hand, one of the main advantages of China adopting this system is that the international pact to limit global warming this century to less than 2 degrees becomes more realistic.
One of the most innovative and controversial parts of the European proposal is the new Carbon Border Adjustment Mechanism (CBAM). The idea is to eliminate all ‘unfair’ foreign competition and to prevent relocations, also known as carbon leakage. If implemented, this adjustment feature, which is not present in the Chinese scheme, will have significant consequences for China, even if they can always guarantee its system has a lower carbon price than Europe’s. The idea of taxing the carbon content of imports into the EU is a bold green policy, that stimulates less climate-ambitious countries to adopt more sustainable practices, whilst also recognising that climate change is a global problem. This policy will impact global trade and is set to come into force in 2023 and will initially target imports of steel, cement, aluminium, fertilisers, and electricity and will later be expanded to other sectors.
Carbon pricing systems have the potential to drive consumer and investor demand towards less emissions-intensive products and stimulate investment in cleaner projects and technologies. To allow markets to serve their purpose, not only will governments need to have stricter regulations, but regulators will have to accurately verify emissions from factories to ensure that polluters do not manipulate the figures by hiding or tampering with emissions data. Above all, governments must be careful to avoid creating multiple carbon trading schemes, which could risk fragmentation and higher overall abatement costs.
I believe the question posed at the beginning has answered itself. Facing today’s climate emergency, we have no choice other than to take stricter measures towards a greener world. So, despite controversies and criticism made of the Fit For 55 plan, I believe we must look at Europe as a role model. The proposal still needs to be approved, which means there is time to make the necessary adjustments for a more socially fair system. Finally, it is important to acknowledge that, alone, the EU will only impact 1/10 of the world’s CO2 emissions, which reminds us that our climate emergency requires global cooperation and governmental responsibility.
Published: 3 August 21
