Climate Protection

Shifting Gears on Emissions Trading

Traffic in Berlin dpa picture alliance
Traffic is a growing problem throughout Europe, even in green cities like Berlin.
  • Why it matters

    Why it matters

    Europe’s emissions trading scheme is the largest such system in the world, but it covers only power generation and manufacturing sectors, as well as airlines flying within the European Union. This represents less than half of E.U. greenhouse gas emissions.

  • Facts

    Facts

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    • The European Union’s emissions trading system covers about 45 percent its greenhouse gas emissions but leaves out sectors such as ground transportation, agriculture and buildings.
    • Germany’s Christian Democrats plan to introduce a resolution to expand the scope of Europe’s emissisn trading system at their annual convention in mid-December.
    • Low emissions certificate prices could undermine efforts to substantially improve energy efficiency in the automotive sector, warn experts.
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    Audio

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Count German Chancellor Angela Merkel among the biggest fans of the European Emissions Trading System, the centerpiece of the European Union’s climate protection efforts that allows companies to buy and sell emissions allowances.

Speaking at the United Nations Conference on Climate Change in Paris earlier this week, Ms. Merkel touted the system as an “incorruptible instrument” with “a very good future” worldwide.

Her political party, the Christian Democratic Union, or CDU, has made emissions trading a key policy issue. Delegates participating in the CDU’s annual convention in mid-December plan to introduce a resolution “to quickly bring about the most effective and comprehensive trade of emissions certificates as possible – internationally and across sectors.”

In emissions trading, every participant must provide one certificate for each ton of carbon dioxide they emit.

As currently operated, Europe’s emissions trading scheme has a gaping hole large enough to squeeze through more than half of the European Union’s total greenhouse house gas emissions. That’s because although it remains the largest such system in the world, the E.U. emissions trading system covers only power generation and manufacturing sectors, as well as airlines flying within the European Union.

But that leaves out agriculture, buildings, ground and sea transportation and other sectors that account for more than half of Europe’s greenhouse gas emissions.

These uncovered sectors account for 55 percent of E.U.-wide emissions, according to the European Commission.

Ms. Merkel and her Christian Democrats are far from the only ones who want to such sectors into the fold – especially against the backdrop of Volkswagen’s massive emissions deception.

In September, news emerged that cheat software was installed on 11 million of the carmaker’s vehicles in a scandal that continues to expand.

Jürgen Hacker, head of BVEK, a German association for emissions trading and climate protection, has been trying for years to at least include the entire transportation sector to help Germany reach its goal of slashing greenhouse gas emissions 40 percent by 2020.

In Mr. Hecker’s vision, petroleum companies would need to provide emissions certificates for the fuel they bring to market. Fuel prices would increase about two euro cents per liter, he estimated.

In emissions trading, every participant must provide one certificate for each ton of carbon dioxide they emit. The basic idea is for the system to create an incentive to use energy more efficiently. The total amount of certificates would be reduced each year, in line with emissions reduction targets.

This would enable governments to plan emissions volumes – but not in sectors that do not participate in emissions trading.

Such sectors would have a limit for how much they are allowed to emit – a restriction that Volkswagen, for example, was able to skirt with its deceptive software. Creating a framework based on fuel consumption, rather than emissions, might be an alternative.

 

Brandalism VW Barnbrook_2_WEB Paris, artwork by Barnbrook
In Paris, activists have put up posters that challenge companies on their mixed efforts to save the environment. Source: Art by Barnbrook, posted on Brandelism

 

Germany’s automotive industry association, VDA, expressed openness to such a new approach. After all, the current system of emissions limits, as VW has proven, has its weaknesses, admitted a spokesperson. Among these shortcomings is the current approach’s focus on new vehicles and disregard of many older passenger cars that are less fuel-efficient, as well as its disregard of how people drive.

“That’s why it makes sense to explore alternatives to the current regulatory framework and to search for innovative approaches,” said the VDA spokesperson, adding that this could also improve the sales appeal of new vehicles.

Outside industry experts also see advantages of incorporating the entire transportation sector into emissions trading.

Felix Matthes of sustainability research and consulting firm Oeko-Institut called it fundamentally “right to incorporate the transportation sector into emissions trading.” But the climate expert also cautioned that the currently low prices of certificates are “no incentive for innovation in the transportation sector.”

For the time being, CO2 emissions limits for automobiles are thus “indispensible,” Mr. Matthes said, adding that “complementary instruments” must remain robust.

Andreas Kuhlmann, head of the German Energy Agency, or DENA according to its German acronym, has a similar line of argumentation. Although he called it “consequential and reasonable” to include the transportation sector in emissions trading, automakers themselves should not be let off the hook, Mr. Kuhlmann said.

 

“The transportation sector must significantly improve its efforts,” he said. “No matter what, manufacturers must continually work on reducing greenhouse gas emissions.”

The Cologne Institute for Economic Research sees it much the same way, calling the inclusion of all transportation a “sensible supplement” to existing emissions limits.

However, Germany’s environment ministry, which is responsible for regulating emissions trading, is opposed to such a move. It cites a lack of effectiveness due to low certificate prices, which the ministry would first like to increase by creating a scarcity.

 

Daniel Delhaes writes about politics for Handelsblatt, Klaus Stratmann covers the energy industry. To contact the authors: delhaes@handelsblatt.com, stratmann@handelsblatt.com

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