ImpactAlpha, July 15 – Prices on Europe’s carbon trading system jumped almost 5%, to €55, after the European Commission laid out plans to add the shipping industry to the world’s most established carbon market – and to ratchet down allowable emissions.
Prices have climbed more than 65% this year. Europe is also readying a parallel market to cover transportation and emissions from home heating and cooling.
The expansion of the Emissions Trading System is part of “Fit for 55,” a dozen proposals to help Europe meet its ambitious goal to cut emissions by 55% from 1990 levels by 2030 (compared to the Biden administration’s goal of a 40% reduction from 1990, and Britain’s 78% reduction by 2035 goal). The E.U. measures must be approved by member states, some of which already are pushing back on the measures.
Social climate fund
The political risks are significant. Rising costs for home heating and transportation could hurt low-income residents and spark a backlash, as a gasoline tax did in France. The Social Climate Fund proposed by the E.U. The fund would help mitigate the costs for 34 million low-income Europeans and finance energy efficiency retrofits and other improvements.
The fund would be financed by 25% of revenues from the heating and transport carbon market, expected to raise 72 billion euros between 2025 – 2032. It will “promote fairness and solidarity between and within Member States while mitigating the risk of energy and mobility poverty,” the EU Commissioners write.
“Let me be very clear: this is going to be bloody hard to do. But it can be done,” tweeted the EU’s Franz Timmermans of the Fit for 55 package. “The sooner we start, the lower the cost.”
China is expected to launch its oft-delayed carbon trading scheme as soon as Friday, creating the world’s largest carbon market and instantly doubling the volume of global emissions covered by such markets. The market will initially cover some 2,000 power companies and over five years expand to aviation, iron and steel, building materials, chemicals and other sectors.
Those 10,000 companies emit around 5 billion tons of CO2 per year. Prices in market tests have hovered around 40 yuan, or $6 per ton, which may be too low to significantly change behavior.
“We need a reasonable price to show both China’s determination to peak carbon emissions and reach carbon neutrality, and to give positive messages to enterprises that commit to cut emissions,” Zhao Yingmin, China’s vice minister of ecology and environment, told reporters in Beijing.