The European Commission’s plan to introduce a separate carbon market for road transport and the building sector, alongside the EU’s existing Emissions Trading Scheme (ETS), was widely criticised by EU environment ministers at their meeting last week.
The ministerial discussion on the proposal, part of a wider climate package of proposals tabled in July, came against a background of already rising energy prices.
While the European Commission has been clear that the EU carbon market only has a limited impact on the sudden price hike, it has put some central and eastern European countries on the backfoot and made them wary of creating a separate ETS for transport and heating fuels.
Environment ministers from Poland, Romania and Hungary all cited energy prices while expressing concerns about the proposal.
Countries in Eastern Europe tend to be more reliant on coal, meaning the carbon price would be higher for them than for western European countries, which have a cleaner energy mix, they argue.
“We are already observing a very worrying situation regarding rising energy prices and the Commission’s proposals may significantly worsen the situation,” warned the Polish climate and environment minister, Adam Guibourgé-Czetwertyński.
According to Guibourgé-Czetwertyński, the creation of a separate ETS for transport and heating for buildings “could lead to a further significant increase in the prices of energy, especially in countries where a high percent of households rely on coal-fired boilers”.
His comments were echoed by the Romanian environment minister, Barna Tánczos.
“Under the current circumstances of increasing energy prices, we need to take into account the cumulative effects of implementing this package, including the volatility of carbon prices,” said Tánczos.
Romania could struggle with the extension of the ETS because of its higher levels of energy poverty and its ageing car fleet, which is more polluting than the EU average, he explained.
“A single price of carbon for these two sectors in the European Union will only deepen the differences between member states,” Tánczos warned.
However, some have warned against conflating the issues of the current energy price hike and the new ETS given the new system will only start applying gradually as of 2026 and will be accompanied by a social climate fund expected to be introduced the year before.
The European Commission, too, pushed back hard on criticisms of the ETS when it comes to energy prices.
“Some, for perhaps ideological reasons, or sometimes economic reasons in protecting their vested interests, have argued that the Green Deal is to blame for this,” Timmermans told the environment ministers.
“I want to say clearly: had we had the Green Deal five years ago, we would not be in this position because then we would have much more renewable energy of which the prices are consistently low and we would not be this dependent on fossil fuels coming from outside the European Union,” he added.
Asked by EURACTIV about the risk of energy prices derailing talks about the new ETS, environment commissioner Virginijus Sinkevičius said EU countries should consider the two issues separately.
EU countries divided
The proposed carbon market for road transport and buildings has already caused controversy.
Pascal Canfin, a leading lawmaker in the European Parliament, called it “politically suicidal,” warning that it could trigger social unrest similar to the 2018 Yellow Vests movement in France.
And Sweden and Finland, mindful about overspending at the EU level, have expressed concern at the idea of creating another EU fund.
Meanwhile, those countries set to gain the most from the fund – like Poland and Romania – have called for more money, pointing to the high social cost of the energy transition.
No climate social fund without second ETS, Timmermans warns
But without the second ETS, there will be no climate social fund, Timmermans warned ministers at the meeting.
“I believe that the social climate fund, which is an integral part of the new ETS, can really help us address these issues,” he said, referring to the possible negative social impacts of the transition.
“No ETS, no social climate funds, so then we will have to look for other ways to help our citizens,” he added.
Supporters of the idea include Germany and Austria where similar national emissions trading schemes that include road transport and buildings are already in place.
The Finnish minister, too, spoke positively about the proposal at last week’s ministerial.
“Regarding the proposal on the new ETS for road transport and buildings, we take a positive view. Several tools are needed to reduce emissions from these sectors effectively and pricing carbon is one of those,” said Finnish environment and climate change minister Krista Mikkonen.
Other countries remain on the fence or said they needed more time to study it.
However, Hungary, Romania, Cyprus, Lithuania, Poland and Malta all spoke against the proposal, with many others, including France and Portugal, warning about the potential social impacts.
For the European Commission, the line is clear. According to Timmermans, buildings and road transport cannot by adequately tackled by current legislation, so new policies need to be adopted in order to do this.
Asked by EURACTIV how the Commission can persuade EU countries to get onboard with the idea, Sinkevičius said: “We have a climate law and our climate ambition, which is agreed by all member states. Clearly if we are serious about the legislation that we adopt all together, we need to have an implementing path, which is the Fit for 55 package”.
“If one of the items in that package is removed, it needs to be replaced with something else because otherwise we fail to meet our 55% objective,” he added.